Part 4 Ch 02


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CHAPTER 2 INTEGRATIVE PROBLEM ANSWER : A financial market is one in which financial assets are bought and sold. There are many different types of financial markets, each one dealing with a different type of financial asset, serving a different set of customers, or operating in a different part of the country. Financial markets differ from physical asset markets in that real, or tangible, assets such as machinery, real estate, and agricultural products are traded in the physical asset markets, but financial securities representing claims on assets are traded in the financial markets. ANSWER : Debt markets are the markets where loans, or debt are traded, whereas stock markets are the market where equities, or stocks are traded. The New York Stock Exchange is the largest stock market in the world; debt is also traded on the NYSE. Money markets are the markets in which debt securities with maturities of less than one year are traded. New York, London, and Tokyo are major money market centers. Longer-term securities, including stocks and bonds, are traded in the capital markets. The New York stock exchange is an example of a capital market, while the New York commercial paper and Treasury bill markets are money markets. A public market is a financial market that is available to all investors—that is, the public; a private market consists of selected sophisticated investors. Generally issuers of stocks and bonds do not have to disclose as much 35 2-17 ASSUME THAT YOU RECENTLY GRADUATED WITH A DEGREE IN FINANCE AND HAVE JUST REPORTED TO WORK AS AN INVESTMENT ADVISOR AT THE FIRM OF BALIK AND KIEFER INC. YOUR FIRST ASSIGNMENT IS TO EXPLAIN THE NATURE OF THE U.S. FINANCIAL MARKETS AND INSTITUTIONS TO MICHELLE DELATORRE, A PROFESSIONAL TENNIS PLAYER WHO HAS JUST COME TO THE UNITED STATES FROM CHILE. DELATORRE IS A HIGHLY RANKED TENNIS PLAYER WHO EXPECTS TO INVEST SUBSTANTIAL AMOUNTS OF MONEY THROUGH BALIK AND KIEFER. SHE IS ALSO VERY BRIGHT, AND, THEREFORE, SHE WOULD LIKE TO UNDERSTAND IN GENERAL TERMS WHAT WILL HAPPEN TO HER MONEY. YOUR BOSS HAS DEVELOPED THE FOLLOWING QUESTIONS, WHICH YOU MUST ANSWER TO EXPLAIN THE U.S. FINANCIAL SYSTEM TO DELATORRE. A. WHAT IS A FINANCIAL MARKET ? HOW ARE FINANCIAL MARKETS DIFFERENTIATED FROM MARKETS FOR PHYSICAL ASSETS ? B. DIFFERENTIATE BETWEEN DEBT MARKET AND CAPITAL MARKETS , MONEY MARKETS AND CAPITAL MARKETS, AND PUBLIC MARKETS AND PRIVATE MARKETS .
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information in a private market compared to a public market, because the investors are considered more knowledgeable in private markets. ANSWER : A primary market is one in which companies raise capital by selling newly issued securities, whereas already outstanding securities are traded among investors in the secondary markets. If DeLatorre purchased newly issued Microsoft stock, this would constitute a primary market transaction, with merrill lynch acting as an investment banker in the transaction. If DeLatorre purchased “used” stock, then the transaction would be in the secondary market. ANSWER
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This note was uploaded on 03/31/2012 for the course BUS 200 taught by Professor Bens during the Spring '12 term at FIU.

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