That is the company actually receives the proceeds

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Unformatted text preview: is directly involved in the transaction. secondary market Financial market in which preowned securities (those that are not new issues) are traded. The Role and Environment of Managerial Finance 23 All securities are initially issued in the primary market. This is the only market in which the corporate or government issuer is directly involved in the transaction and receives direct benefit from the issue. That is, the company actually receives the proceeds from the sale of securities. Once the securities begin to trade between savers and investors, they become part of the secondary market. The primary market is the one in which “new” securities are sold. The secondary market can be viewed as a “preowned” securities market. The Relationship Between Institutions and Markets Financial institutions actively participate in the financial markets as both suppliers and demanders of funds. Figure 1.4 depicts the general flow of funds through and between financial institutions and financial markets; private placement transactions are also shown. The individuals, businesses, and governments that supply and demand funds may be domestic or foreign. We next briefly discuss the money market, including its international equivalent—the Eurocurrency market. We then end this section with a discussion of the capital market, which is of key importance to the firm. The Money Market FIGURE 1.4 Flow of Funds Flow of funds for financial institutions and markets Funds Funds Financial Institutions Deposits/Shares Loans Suppliers of Funds Securities Funds Private Placement Demanders of Funds Securities marketable securities Short-term debt instruments, such as U.S. Treasury bills, commercial paper, and negotiable certificates of deposit issued by government, business, and financial institutions, respectively. The money market is created by a financial relationship between suppliers and demanders of short-term funds (funds with maturities of one year or less). The money market exists because some individuals, businesses, governments, and financial institutions have tem...
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