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Financial Markets - Financial Markets ECON 3381 A Hales...

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Financial Markets ECON 3381 A. Hales
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Financial Markets A collection of people and firms that buy and  sell securities or currencies Security:  Claim on some future flow of income,  such as a stock or a bond Bond:  security that promises predetermined  payments at certain points in time.  At maturity, the  bond pays its face value.  Before that, the owner may  receive coupon payments. Stocks:  security that represents ownership shares in  a corporation
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Services provided by Financial Markets First, securities markets channel funds from  savers to investors with productive uses for  these funds.  Savers are people who accumulate wealth by  spending less than they earn. Investors are people who expand the productive  capacity of businesses.  Second, financial markets help people and  firms share risk. Therefore, we need financial  markets even if investors could finance their  own projects. 
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Participants in Securities Markets Individuals Securities Firms:  company whose primary purpose is to hold  securities, trade them or help others trade them;  includes: Mutual funds:  A financial institution that holds a  diversified set of securities and sells shares to savers   Hedge funds:  variant of a mutual fund that raises  money from wealthy people and institutions and is  largely unregulated, allowing it to make risky bets on  asset prices.  Brokers and dealers:  Help securities markets 
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Primary Markets Primary markets:  financial markets in which  firms and governments issue new securities Public company:  firm that issues securities  that are traded in financial markets.   Initial Public Offering (IPO):  sale of stock  when a firm becomes public IPOs are usually underwritten by investment  banks.  The IPO is announced in a formal  document called a prospectus, which describes  the stock being offered, its price, and detailed  information on the company issuing the stock.  
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Secondary Markets Secondary markets:  financial markets in  which  existing securities are traded After securities are issued in primary  markets, their buyers often resell them in  secondary markets.  Then the securities are  traded repeatedly among institutions and  individuals.   Financial institutions can buy securities  directly from other institutions. Individuals  can buy bonds directly from the government  in auctions.  However, to buy stocks or 
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Trading in Secondary Markets Exchanges:  a physical location where  brokers and dealers meet to trade securities Ex.  New York Stock Exchange (NYSE) Over-the-counter (OTC) market:  secondary 
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