chapter4 - C hapter 4 Securities Markets CHAPTER OVERVIEW...

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Chapter 4: Securities Markets CHAPTER OVERVIEW Chapter 4 is designed to cover the markets where financial assets trade, with particular emphasis on equity markets. This chapter is a followup to Chapter 2 which discussed the financial assets available to investors through direct investing, with primary emphasis on marketable securities. Primary markets are discussed at the outset of the chapter for completeness and as a contrast to secondary markets, which are the main focus of Chapter 4. Investment banking functions are considered, with a detailed discussion of the underwriting function. New trends in investment banking also are covered, including the shelf rule and the unsyndicated stock offering. Global investment banking is analyzed because of its increasing importance. Chapter 4 provides an analysis of the structure of secondary markets, with securities organized by where they are traded. Terminology is explained, and the functioning of the markets, primarily the NYSE and OTC, are considered in some detail. Because of the increasing importance of the OTC, it is given special attention. It is recommended that instructors spend some time developing the differences between the NYSE and Nasdaq, and discuss the possible future forms that markets may assume. Chapter 4 includes a discussion of the third and fourth markets and brief discussions of bond markets and derivatives markets, both of which are considered in more detail in their respective chapters. Foreign markets are discussed in some detail so that students will have some idea of what is happening around the world. New trends are analyzed, such as "in-house" trading by institutional investors. This chapter also contains a discussion of major market indices, including the Dow Jones Averages, the S&P Indexes, and brief descriptions of Amex, Nasdaq, and foreign stock indices. Appendix 4-A contains more details on the construction and composition of these market indicators. The chapter concludes with a discussion of the changing securities markets. This begins with the stimulus for the many changes that have transpired in recent years--institutional pressure and the Securities Acts Amendments of 1975--and ends with the current and projected status of the markets. An up-to-the- 4-1
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minute analysis of the changing nature of Wall Street is presented here, including the globalization of securities markets and the NYSE's role in the global marketplace. Obviously, the structure of the securities markets continues to change, and instructors can update developments as they choose. CHAPTER OBJECTIVES 1. To explain primary and secondary markets in terms of their components and organizational structure. 2. To explain terminology (e.g., broker, specialist, and so forth) pertaining to markets and participants.
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