Bond Contract And Equity Contract Flashcards
1
Q
Types of financial markets
A
- primary markets
- secondary markets
2
Q
Primary markets
A
- where new issues of financial instruments are offered for sale
- debt and equity
3
Q
Secondary markets
A
- where financial instruments, once used, are traded
4
Q
Markets in primary markets
A
- money markets= markets that trade debt securities with maturities of one year or less
- capital markets= markets that trade equity shares and debt instruments with maturities of more than one year
5
Q
Define bond contract
A
- can be long and short term financial contracts
- can be less or more than 12 months in maturity
- can be issued by both corporations and governments
- bonds are issued by auction or syndication
- if used as source of finance is no ‘loss’ of ownership
- potential tax shields to using bonds as a source of finance
- potential indicator of interest rates if issued by government
6
Q
Definition of equity contracts
A
- long term financial contracts
- more than 12 months in maturity
- issued within the capital markets
- several types of issues of equity: ordinary shares and preference shares
7
Q
Bond contracts are issued
A
- by auction or syndication
- issued to increase finance
- where bond is bought by large banks or financial institutions
8
Q
Equity contracts are issued
A
- issued by IPO
- normally by smaller, younger companies trying to gain capital to expand
- an IPO issues cab obtain the assistance of an underwriting firm to help determine what type of security is issued (common or preferred), the best offering price, and the time to bring it to market
- risk of IPO, is that investor can’t predict what the stock and shares will do on the day of investing/ trading or in the near future as is very little data to analyse the company
- Facebook issued 421 million shares at a price if $28 and they sold at a price of $38 creating $16 billion in capital
