im-03-4e - CHAPTER THREE HOW SECURITIES ARE TRADED CHAPTER...

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CHAPTER THREE HOW SECURITIES ARE TRADED CHAPTER OVERVIEW This chapter discusses how securities are traded on both the primary and secondary markets, with detailed coverage of both organized exchange and over the counter activities. Margin trading and short selling are discussed along with detailed examples of margin arrangements. The chapter discusses elements of regulation and ethics issues associated with security transactions. LEARNING OBJECTIVES After studying this chapter the student should have considerable insight as to how securities are traded on both the primary and secondary markets. The student should understand the mechanics, risk, and calculations involved in both margin and short trading. The student should begin to understand some of the implications, ambiguities, and complexities of insider trading and the regulations concerning these issues. PRESENTATION OF MATERIAL 1. Sales of Securities and Investment Banking Arrangements Key characteristics of primary and secondary sales of securities are presented in T 3-2. The relationship between the primary market terms and activity in the secondary market presents a good opportunity for class discussion and relating the material in the investment class to principles of finance. T 3-2 Primary vs. Secondary Security Sales Investment banking involves the sale of new issues of securities to investors. T 3-3 presents two key elements involved in investment banking arrangements. First, the issue of whether the issuing firm or the investment banker bears the risk that the issue will be sold at the offering price. Second, issues can be arranged on either a competitive or negotiated offering. While virtually all stock offerings and corporate bond offerings are done on a negotiated basis, many municipal offerings are completed on a competitive bid basis. T 3-3 Investment Banking Arrangements
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This note was uploaded on 10/28/2009 for the course MBA MBA608 taught by Professor Martin during the Spring '09 term at Beirut Arab University.

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im-03-4e - CHAPTER THREE HOW SECURITIES ARE TRADED CHAPTER...

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