Chapter 2 Finance

Chapter 2 Finance - Capital Markets all institutions and...

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Capital Markets: all institutions and procedures that facilitate transactions in long term financial instruments There are three ways that savings can be transferred through the financial markets to those in need of funds: o Direct transfer of funds: the firm seeking cash sells its securities directly to savers (investors) who are willing to purchase them in hopes of earning a large return. Angel investor: a wealthy private investor who provides capital for a business start up Venture Capitalist: an investment firm (or individual investor) that provides money to business start up. o Indirect transfer using an investment-banking firm: an investment banker frequently works together with other investment bankers in what is called a syndicate. The syndicate will buy the entire issues of securities from the firm that is in need of financial capital. The syndicate will then sell the securities at a higher price to the investing public. o Indirect transfer using the financial intermediary: financial intermediary collects the savings of individuals and issues its own (indirect) securities in exchange for these savings. The intermediary then uses the funds collected from the individual savers to acquire the business firm’s direct securities, such as stock and bonds Public offering: a security offering where all investors have the opportunity to acquire a portion of the financial claims being sold, considered very impersonal Private placement: a security offering limited to a small number of potential investors, more personal Venture Capital Firm: an investment firm that provides money to business start-ups. Startups are not appealing to the broader public because: 1. Small absolute size 2. Very limited or no historical track record 3. Obscure growth prospects 4. Inability to sell the stock easily or quickly
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Primary Market: a market in which securities are offered for the first time for sale to potential investors Initial public offering (IPO): the first time a company issues its stock to
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Chapter 2 Finance - Capital Markets all institutions and...

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