Chapter 2 - Chapter 2 Financial Markets and Institutions...

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Chapter 2: Financial Markets and Institutions Flow of savings from shareholders to investment in a closely held corporation: Cash retained and reinvested in the firm’s operations is cash saved and invested on behalf of the firm’s shareholders Flow of savings to investment for a large, public corporation: Differences from above: Public corps can draw savings from investors worldwide Savings flow through the financial markets, financial intermediaries, or both Corporations also reinvest on shareholders’ behalf Financial market: where securities are issued and traded o Security: a traded financial asset, such as a share of stock Initial public offering (IPO): a firm’s first issue of stock when they “go public” o Buyers are helping to finance the firm’s investment in real assets; in return, the buyers become part-owners and share in its future success or failure Primary market: where primary issues (new stock issues) are sold o A new issue of shares increases both the amount of cash held by the company and the number of shares held by public
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