Chapter 3

Question 1

How do firms finance their operations?

Answer 1

Through issuing securities (bonds) and shares (equity). Buying and selling of securities happens in the primary and secondary market.

Question 2

Return

Answer 2

Any profit or increase in wealth

Question 3

Primary Market

Answer 3

Funds flow directly to the firm, corporation is the seller of the security. Firms issue securities to the public.

Question 4

IPO ( Initial Public Offering )

Answer 4

Firms issue securities to the public for the first time.

Question 5

Secondary market

Answer 5

Involves one owner of a security selling to another. These flow between investors, not the company.

Question 6

Advantages of Secondary market

Answer 6

People can buy and sell whenever they want, which means people are more inclined to invest as they know they can enter/ exit whenever they want.

Question 7

How do firms raise capital?

Answer 7

Through selling bonds and shares

Question 8

How many different finacial markets are there?

Answer 8

2, Primary and Secondary