Explain what a preemptive rights offering is with example and why a standby underwriting

arrangements may be needed. Also, define subscription price.

A preemptive rights offering is an offer given to the existing shareholders for purchasing additional shares
in a future public offering of the company's common stock before the shares go public. This right is
generally a contract clause available in the United States to early investors in newly public companies or
to majority owners who want to protect the interests of the company should additional shares being
issued.
Suppose in its initial offering, a company issued 1 million shares and and investor A was allotted 100,000
shares out of those. This means that A owns 10% equity of the company.

Now suppose the company now offers another 10 million shares. Now A being the preemptive
shareholder, he must be given the opportunity to purchase the number of shares necessary to protect its
10% interest. In this example, if both stocks have the same price, it will be 1 million shares.

So if A purchases 1 million shares (he accepts the offer), he will continue to hold 10% of the company's
equity. If he doesn't, he will be the owner of 0.91% of the company's equity.
A standby underwriting is a type of stock sale agreement in an offering in which the underwriting
investment bank agrees to sell all possible shares to the public and then purchase all remaining shares. In
a standby agreement, the underwriter agrees to purchase the remaining shares at the subscription price.
This price is usually below the market price of the stock.

This type of arrangement may be needed because, at the time of the offer, all the shares may not be
subscribed. And the companies roll out the equity when they need a certain amount of funds. If the
offering is not fully subscribed, the company may remain short of necessary funding. Such an
arrangement ensures that the company receives the exact amount of funds that it needs, even if the public
is not ready to provide the same.
The subscription price is a fixed price that allows existing shareholders to participate in a rights offering
made by a public company. The term may also refer to a warrant holder's exercise price for a particular
stock. The company may issue warrants at various times in conjunction with the offering of debt.

Conclusion:

The preemptive rights give shareholders the opportunity to purchase additional shares in a company
before the shares are sold on a public stock exchange. And, the subscription price is the set price at which
existing shareholders can purchase additional shares in the subscription offering.
What is meant by buying on margin? As per your understanding how does margin increase an
investor's leverage? Also, explain the risk and rewards if you opt for this strategy.

Buying on margin refers to the practice of buying stocks with money borrowed from a broker. This
leverage can increase an investor's returns, but it also magnifies their losses. If the stock price falls, the
investor may be required to provide additional funds to the broker to keep the position open.
 
When an investor buys stock on margin, they are essentially borrowing money from their broker to
finance the purchase. The amount of money borrowed is typically a percentage of the total purchase price,
with the rest being financed by the investor's own cash. The advantage of buying on margin is that it
allows investors to purchase more shares than they could otherwise afford, magnifying the potential
returns. However, this leverage also comes with risks. If the stock price falls, the investor may be required
to provide additional funds to the broker to keep the position open. This can lead to losses that exceed the
original investment, even if the stock price eventually recovers. Thus, buying on margin is a risky strategy
that should only be undertaken by experienced investors with a good understanding of the market.

Distinguish between order-driven market and quote-driven market. What type of securities are
traded in both markets?

Before going to explain about the difference between the two market, first of all we have to discuss the
meaning of the two markets

Order driven market:- we can take a assumption from the name'order' means apply for something. So the
order driven market refers to the market where buyer and seller can put their order for buy or sell their
securities. In this market the price, number or quantity of the order should specified in the.
Quote-driven market :- The quote driven is a electronic security exchange system where the price of the
stock is determined by the market maker, specialist through bid and ask quotation.

So, the Major difference between the two market are given below

1- Order driven market are more transparent than quote driven market.
2- A quote driven market is more liquid due to presence of Market makers and Order driven market is less
liquid than the quote market
3-There is no guarantee of order execution in order driven market but in quote driven market there is
guarantee of the execution of order.
4- order driven maket shows all the asks and bid prices where as Quote driven market focus only ask of
the market dealer.

Conclusion:

So, As we discussed both the market are electronic security exchange system so all order are placed
electronically. And the major difference between the two market are discussed in the previous step.

why would an investor sell short a security?

What happen if the price of a security that is sold short rises?

What is the role of the broker in the short sale?

Short selling happens when a financial backer gets a security and sells it on the open market, wanting to
repurchase it later for less cash.
-Short-venders bet on, and benefit from, a drop in a security's cost. This can be stood out from long
financial backers who maintain that the cost should go up.
-Short selling has a high gamble/reward proportion: It can offer large benefits, however misfortunes can
mount rapidly and vastly because of edge calls.
-Benefits of short selling :
Possibility of high profits , less initial capital needed , leveraged investments possible , hedge against
other holdings

The most widely recognized purposes behind participating in short selling are hypothesis and supporting.
An examiner is making an unadulterated cost bet that it will decrease from now on.
In the event that they are off-base, they should repurchase the offers higher, at a loss. In light of the extra
dangers in short selling because of the utilization of edge, it is typically directed throughout a more
modest time skyline and is in this way bound to be an action led for hypothesis.
It will lead to loss.

To sell short, traders need to have a margin account using which they can borrow stocks from a broker-
dealer. Traders need to maintain the margin amount in that account to continue keeping a short position.
However, a margin account is only applicable when an investor is borrowing stocks from a broker.
Short selling is a dangerous exchange yet can be productive whenever executed accurately with the right
data backing the exchange. In a short deal exchange, a representative(broker) holding the offers is
ordinarily the one that benefits the most, in light of the fact that they can charge interest and commission
on loaning out the offers in their stock.
Assume you bought a stock for $50 and it has increased to $75. You think it may go higher, but you
want to protect most of your current profit. What order would you place to ensure a minimum gain
of about $23 per share?

I would like to stress the minimum requirement here of about $23. In order to achieve this, I would set a
stop-loss order at $73. This is because $73 less $50 is $23. Stop-loss orders are traditionally thought of as
a way to prevent losses. In other words, a stop-loss is designed to limit an investor's loss on a security
position that makes an unfavorable move. One key advantage of using a stop-loss order is you don't need
to monitor your holdings daily.