Securities

A certificate that represents the property of or a claim on capital with a certain face value. There are two main forms: stocks and bonds. Stocks are certificates that represent the property of joint-stock capital. Joint-stock companies concentrate their joint-stock capital by issuing shares. Holders of shares receive a certain annual dividend income from the joint-stock company according to the face value of the stock, and the listed shares can be sold on the stock exchange, but cannot be surrendered to the joint-stock company. Bonds are certificates that represent a claim. Unlike stocks, bonds are not notes of investment into shares, but a promissory note. Holders of bonds not only receive interest not only receive interest on a regular basis, but can also recover the principal from the bond issuer when the bond matures.

Bonds are divided into state bonds, corporate bonds and real estate mortgage bonds. State bonds are promissory note issued by the State and are issued by the Government of a country for the purpose of raising financial resources. Holders of state bonds can receive interest from the state and recover the principal at maturity according to regulations.

Corporate bonds are promissory notes issued by a joint-stock company for the purpose of obtaining additional capital. There is only an ordinary debt relation between the holder of the bond and the company. Although the holders of corporate bonds are not shareholders of the company, they can receive fixed interest income from the company every year, and when the bonds mature, the company should repay the principal and redeem the bonds. The interest paid on corporate bonds is included in the cost of production and is not taxable. Therefore, it is more favorable for the company to issue bonds than shares. Real estate mortgage bonds are promissory notes issued by real estate mortgage banks. Such bonds are issued to collect funds for the granting of real estate mortgage loans. Their holders are entitled to receive interest and to recover the principal from the real estate mortgage bank according to regulations.

The above securities have no value in themselves, but they can be bought and sold on the securities market and have a price because they generate a certain amount of income for their holders. The price of a security depends on two factors: the amount of income expected from the security and the then interest rate on bank deposits. It is proportional to the former and inversely proportional to the latter.

Frequent fluctuations in the prices of securities provide conditions for speculation in securities. In such speculative activity, some capitalists make huge profits, while others make losses or may even go bankrupt. With the continuous increase in the issuance of securities, a large number of capitalists are increasingly detached from the management of enterprises, specializing in the sale of securities, and a stratum of rentiers who live by “clipping coupons” is thus formed.