M23_MISH1438_06_IM_C23 - Chapter 23 Investment Banks...

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Chapter 23 Investment Banks, Security Brokers and Dealers, and Venture Capital Firms Investment Banks Background Underwriting Stocks and Bonds Following the Financial News : New Securities Issues Equity Sales Mergers and Acquisitions Securities Brokers and Dealers Brokerage Services Mini-Case: Using the Limit-Order Book Securities Dealers Regulation of Securities Firms Relationship Between Securities Firms and Commercial Banks Private Equity Investment Venture Capital Firms Private Equity Buyouts E-Finance: Venture Capitalists Lose Focus with Internet Companies Overview and Teaching Tips This chapter covers securities firms which are firms that buy and sell bonds and stock. This chapter also covers organized exchanges, securities brokers, and dealers. The Securities and Exchange Commission regulates the information that prospective investors receive. When investment bankers underwrite a stock or bond issue, the firm purchases the whole issue and resells it in the market. Giving advice, filing documents, and marketing issues are some of the services provided in underwriting. Investment bankers also deal with mergers and acquisitions and private placements, which is an alternative method of selling securities. Securities brokers and dealers trade within the secondary market and link buyers to sellers. Dealers actually buy and sell the stocks or bonds, while brokers do not take ownership of them. Brokers offer several services to their customers, including securities orders, margin credit, and other services traditionally offered by commercial banks like ATMs and debit cards. There are two different types of securities orders, a market order or a limit order. Both are concerned with the price at which one will buy or sell a security. Full- service brokers provide advice on investments and do research for their customers. There is a large fee for this type of service. On the other hand, discount brokers simply place orders when requested. Firms are prohibited from trading on insider information because it is against SEC regulations.
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131 Mishkin/Eakins • Financial Markets and Institutions, Sixth Edition This chapter concludes by discussing the role of venture capital firms in funding start-up firms. The use of venture capital financing peaked in the early 2000s. The chapter traces the usual progression of a venture capital deal. Answers to End-of-Chapter Questions
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M23_MISH1438_06_IM_C23 - Chapter 23 Investment Banks...

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