In Finance, What Is a Subscription Right?

Financial products ( ^[1] Financial Products) refer to the various carriers of the financial process, including currency, gold, foreign exchange, and securities. That is to say, these financial products are the buying and selling objects of the financial market. Both the supply and demand sides form the price of financial products through market competition principles, such as interest rates or yields, and finally complete the transaction to achieve the purpose of financing. For example, stocks, futures, options, and insurance policies are financial assets (Financial Assets), also called financial instruments (Financial Instruments), and also called securities (Securities).

Financial product

Financial products refer to a variety of economic

The so-called "one thing and four names" refer to the same financial product. According to different users, different purposes, different functions, etc., there are four different names, namely financial products,

Finance and its products are neither falling from the sky nor inherent. financial,

The evolution of finance and its products is like the leaves come from the branches, the branches come from the trunk, and the trunk comes from the roots. They are intertwined, interconnected, inseparable and affect each other. In fact, everything in finance is exactly the same as the tree, because the tree is the master of the laws of the world,

Finance, at least, seems to be invisible, volatile, intricate and colorful, so the division of financial products is also diverse. Due to limited time, it is briefly described below.

First of all, financial development is a step-by-step process, so financial products can be divided into

We often hear "financial innovation". In reality, financial innovation is more about financial product innovation.

In the past 30 years, innovation is the most fashionable.

A financial product is a combination of specific rules and conventions. Although different financial products have different specific regulations and conventions, each financial product should usually have at least the following aspects.

Issuer

Any financial product must have its seller, the issuer. The issuer of the bond is the debtor, and the debt relationship without the debtor is naturally unimaginable. The same is true for stocks, and there must be a specific issuing company, which is the common property of stock subscribers. The issuer obtains income by selling financial products, but not any individual or enterprise can issue financial products to society to obtain income. Corresponding to such financial income, the issuer has to assume certain obligations.

In order to ensure the fulfillment of these obligations, the issuers of most financial products must meet certain conditions when they are issued, and they must accept the supervision of financial management institutions and investors (such as information disclosure, certain restrictions on business activities, etc.) after issuance.

Fund-raising companies must first figure out which products they have the right to issue when designing financial products. The same is true for investors. Before subscribing to a financial product, it must be clear whether the other party has the right to issue such a product.

Subscriber

Not all investors can buy any financial product he wants from the financial market. Some markets, such as the interbank market, are only open to a small number of financial institutions. Therefore, investors should first know whether they have the right to purchase a financial product before subscribing to a financial product, and an enterprise should also know the potential investors of the product before issuing a financial product in order to estimate potential sources of funds.

3. Term

The term of financial products varies in length. In general, the term of products on the money market is relatively short, and the term of products on the capital market is relatively long.

The term of financial products can also be divided into limited and unlimited. Most bonds and all money market products have a term. As for stocks, theoretically, they are indefinite, and their existence is as long as that of enterprises.

Fund-raising enterprises should select financial products with appropriate maturity as needed. The same is true for investors. The term of the financial product to be subscribed should be determined according to the investable period of its funds. If it is too short or too long, it will take the risk of falling or rising interest rates, respectively.

4. Price and earnings

Price is a core element of financial products. Because the purpose of the fund-seller for selling financial products is to obtain income equivalent to the price of the product, the investment amount of the investor is exactly equal to the price of the financial product he bought.

Financial product

In terms of the price of financial products, a par value and a market price should be distinguished.

The face price is the nominal price stipulated in the contract. The face value of the bond is usually equivalent to the principal, and together with the face interest rate constitute the basis for the amount of interest per period. The par value of the stock is used in the company's balance sheet to calculate the company's registered capital.

The market price is the transaction price of financial products on the market, which is equivalent to the price paid by the subscriber and paid by the issuer.

The market price also distinguishes between the primary market price and the secondary market price. There is a certain link between primary market prices and par value. For example, the relationship between the bond's face price and the market price depends on factors such as the difference between the coupon rate and the market interest rate, the bond's repayment method, and the bond's repayment period. However, in the secondary market, changes in market prices are no longer limited by par value.

Yield is another core element of a financial product, which represents the ratio of the product's income to its holders over its investment. Financial product income includes two types: one is interest income from securities, referred to as income or recurring income, and the other is capital gain or profit or loss. Interest income refers to the interest income obtained during the holding period of financial products, such as the income from paying bonds on time or the dividends from stocks. Capital gain or profit or loss refers to the appreciation or impairment of the principal caused by the change in the price of the securities held.

5. Risk

Risk is generally regarded as a danger, or as a possibility of loss or failure. It can be considered that the investment risk of financial products is the possibility of loss of expected returns due to future uncertainty. There are four investment opportunities in the market that combine risk and return:

(1) High risk and low return.

(2) Low risk and high return.

(3) High risk and high return.

(4) Low risk and low return.

For investors, to obtain high returns, they must bear high risks, and high returns must be accompanied by high risks. But in turn, if investors take high risks, they may not be able to ensure high returns, because the meaning of high risks is inherently uncertain. The result of high risk can be high returns, low returns, or even high losses. The benefits obviously come at the cost of risk.

6. Liquidity

Liquidity is the ability of an asset to be converted into currency. An asset can be converted into currency as soon as it is needed. The transaction cost is very low and it does not bear the loss of principal. The asset has high liquidity. Conversely, the asset's Liquidity is lower.

Most financial products can be freely circulated on the secondary market, such as privately held ordinary stocks and bonds. However, some financial products cannot be circulated, or certain conditions must be met during circulation, such as the ordinary periodic passbook cannot be circulated, financial products used as collateral guarantees, and all products that are required to be circulated when issued. There are also financial products that can be circulated only under certain specific circumstances.

Liquidity is a major quality indicator of financial products. Those non-tradable financial products can only be issued at a lower price in the market. Similarly, even a financial product that can be circulated can only be circulated at a lower price if its circulation conditions are poor (such as the daily turnover is particularly small).

7. Power

Financial products as a kind of property right certificate can give holders the power corresponding to the product category, such as bondholders as creditors, have the right to receive principal and interest at maturity, and priority claims for remaining property when the company goes bankrupt right. As shareholders of the company, stockholders have the right to participate in shareholders' meetings, the right to elect directors of the company, and the right to participate in decision-making on major matters of the company.