CH.1- The capital Market Flashcards
3 characteristics of capital (MSS)
- Mobile
- Sensitive
- Scarce
Where capital will go guided by country risk evaluation which analyzes (PEFMIC)
-political environment
-economic trends
-Fiscal policy
-Monetary Policy
-Investment Opportunities
Characteristics of labor force
sources of capital (RIF)
- Retail Investors- buy/sell securities for self
- Institutional Investors-organizations (pension funds, mutual funds, etc) - trade large volumes of securities
- Foreign Investors: significant source
users of capital ( IBG or BIG)
- Individuals: req capital to make big purchases- use debt
- Businesses: req large capital to finance daily operation, renew/maintain plant and equipment, expand, diversifiy
- Governments: major issuer of securities in public markets
Financial Instruments (DEID)
- Debt instruments
- Equity Instruments
- Investment funds
- Derivatives
Debt Instruments
- issuer promises to repay loan at maturity
- makes interest pmts to investors
equity instruments
-stocks, shares
Investment Funds
- Company or trust that manages investments for clients
- Open End funds: same as mutual funds. Raises capital by selling shares/units to investors who use it as capital.
Derivatives
- for sophisticated investors
- based on/derived from underlying instruments- i.e stocks or an index
Private equity
financing of firms unwilling/unable to get capital publicly
Leveraged buy out
Acquisition of companies financed with equity/debt
Growth Capital
Financing of expanding firms for their acquisitions or high growth rates
Distressed debt
purchase of debt securities of private/public companies trading below par
Primary market
New securities sold by companies and governments for first time to raise capital
- issuing stocks for first time called IPO- initial public offering
Secondary market
trade securities that have already been issued.
