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The bid price is the highest price offered by a

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Unformatted text preview: ) exchange is an intangible market for the purchase and sale of securities not listed by the organized exchanges. OTC traders, known as dealers, are linked with the purchasers and sellers of securities through the National Association of Securities Dealers Automated Quotation (Nasdaq) system. This sophisticated telecommunications network provides current bid and ask prices on thousands of actively traded OTC securities. The bid price is the highest price offered by a dealer to purchase a given security, and the ask price is the lowest price at which the dealer is willing to sell the security. The dealer in effect adds securities to his or her inventory by purchasing them at the bid price and sells securities from the inventory at the ask price. The dealer expects to profit from the spread between the bid and ask prices. Unlike the auction process on the organized securities exchanges, the prices at which securities are traded in the OTC market result from both competitive bids and negotiation. Unlike the organized exchanges, the OTC handles both outstanding securities and new public issues, making it both a secondary and a primary market. The OTC accounts for about 54 percent of the total dollar volume of domestic shares traded. International Capital Markets Although U.S. capital markets are by far the world’s largest, there are important debt and equity markets outside the United States. In the Eurobond market, corporations and governments typically issue bonds denominated in dollars and sell them to investors located outside the United States. A U.S. corporation might, for example, issue dollar-denominated CHAPTER 1 foreign bond Bond that is issued by a foreign corporation or government and is denominated in the investor’s home currency and sold in the investor’s home market. international equity market A market that allows corporations to sell blocks of shares to investors in a number of different countries simultaneously. 27 The Role and Environment of Managerial Finance bonds that would be purchased by investors in Belgium,...
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