Chapter 15: The Functioning of Financial Markets Flashcards
Markets in which companies and governments sell their securities to investors.
Primary markets
Market in which investors trade securities and contracts with each other but not with the original security issuer.
Secondary markets
The most common offering type for initial public and seasoned offerings is an ____. The investment bank acts as an underwriter. In this role, the investment bank buys the securities from the issuer at a price that is negotiated with the issuer, thus guaranteeing that the issuer gets the amount of capital it requires.
Underwritten offering
Investment bank acts only as a broker and does not assume the risk associated with buying the securities. If the offering is undersubscribed, the issuer will sell fewer securities and may not be able to raise as much capital as it had planned.
Best efforts offering
Sale of new issues of seasoned securities directly to the public little by little over a long period of time rather than in a single transaction.
Shelf registration
Companies sell securities directly to a small group of investors, usually with the assistance of an investment bank that helps identify potential investors and set the price of the securities.
Private placement
A company allows existing shareholders to buy shares at a fixed price (called the exercise price) in proportion to their holdings. These rates do not need to be exercised, they are options. The exercise price of the rights is typically set below the current market price of the shares so that buying shares by exercising the rights is immediately profitable.
Rights offering
Instructions that people who want to trade give brokers or trading venues and that specify what security to trade, whether to buy or sell, and how much should be bought or sold. They also have other instructions attached to them, such as order execution, exposure, and time in force instructions.
Orders
Participants can arrange trades only when the market is called, which is usually once a day.
Call market
Participants can arrange and execute trades any time the market is open
Continuous trading market
Also called dealer markets or price driven markets, are markets in which investors trade with dealers. These markets take their name from the fact that investors trade with dealers at the prices quoted by the dealers.
Quote-driven markets
Arrange trades using rules to match buy orders with sell orders. Orders typically specify the quantity the traders want to buy or sell. The order may also contain price specifications, such as the maximum price that the trader will pay when buying.
Order-driven markets
Another type of market structure is the _____, in which brokers arrange trades among their clients. Brokers organize markets for assets that are unique and thus of interest as potential investments to only a limited number of investors. Brokers for organizing markets and unique assets try to know everyone who might now or in the future be willing to trade such assets.
Brokered market
Investors are said to have _____ when they own assets or securities. Examples include ownership of shares, bonds, currencies, commodities, or real assets. They increase in value when prices rise.
Long positions
Positions for which investors sell assets or securities that they do not own, a process that involves borrowing the assets or securities, selling them, and repurchasing them later to return them to their owner. These positions increase in value when prices fall.
Short positions
