Quiz 1 - The investment banker then places these securities...

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Quiz 1- week 1 FIN 317 Capital transfer: The term ‘capital transfer’ refers to the flow of capital from the ones who want to invest the capital (known as savers or lenders) to the ones who need the capital (known as the borrowers). Capital can be transferred in the following three ways: Direct transfer: Here the suppliers of the capital (people who want to invest their savings) provide capital to business firms (users of the capital). The business firms then issue securities/stocks or shares to these suppliers of capital. The suppliers of capital provide the capital because they hope that their money will be profitable invested by the business firms which will generate some handsome returns on their investments. E.g. Venture Capital firms Indirect transfers through investment bankers: This case involves a middleman or an intermediary which is often an Investment Banker or a Group (syndicate) of Investment Bankers who operate in collaboration. The investment banker first subscribes to the issue of securities raised by the business firm and provides it with capital.
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Unformatted text preview: The investment banker then places these securities in the capital market and sells them to the people who want to invest. The advantage of using an intermediary is that the business firm is ensured of a full subscription of its securities by the investment banker. Hence the investment banker acts as an underwriter of the securities as well. The investment banker charges a fee for its services. E.g. Initial public offering Indirect transfers through a financial intermediary: This is the most complex form of a capital transfer. In this case, a financial intermediary issues its own securities to raise money from the savers of capital. The intermediary utilizes these funds to acquire securities/stocks of other business firms. So in this model, the provider of the capital will own the securities of the financial intermediary and the financial intermediary will own the securities of another business unit....
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This document was uploaded on 05/02/2011.

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