Exam 1 - Chapter 3 - [BOOK] Flashcards
Firms regularly need to raise new _____ to help pay for their many investment projects
capital
How can Firms raise funds
either by borrowing money or by selling shares in the firm. I
Investment bankers are generally hired to manage the sale of these securities in what is called a _____ _____ for newly issued securities.
primary market
Trades in existing securities take place in the so-called _____ ______
secondary market.
Primary market
Market for new issues of securities.
Secondary market
Market for already-existing securities.
Shares of publicly listed firms trade continually on well-known markets such as the ______ or the _______
New York Stock Exchange or the NASDAQ stock market.
There, any investor can choose to buy shares for his or her portfolio. These companies are also called _____ ____, publicly owned, or just public companies.
publicly traded
private corporations
whose shares are held by small numbers of managers and investors.
When private firms wish to raise funds, they sell shares directly to a small number of institutional or wealthy investors in a ______ _____
private placement.
private placement
Primary offerings in which shares are sold directly to a small group of institutional or wealthy investors.
This first issue of shares to the general public is called the firm’s ____ _____ _____
initial public offering (IPO).
initial public offering (IPO)
First public sale of stock by a formerly private company.
underwriters
Underwriters purchase securities from the issuing company and resell them to the public.
prospectus
prospectus
A description of the firm and the security it is issuing.
Types of Markets
We can differentiate four types of markets:
direct search markets
brokered markets
dealer markets
auction markets
DIRECT SEARCH MARKETS
A direct search market is the least organized market. Buyers and sellers must seek each other out directly.
BROKERED MARKETS
The next level of organization is a brokered market. In markets where trading in a good is active, brokers find it profitable to offer search services to buyers and sellers.
DEALER MARKETS
When trading activity in a particular type of asset increases, dealer markets arise. Dealers specialize in various assets, purchase these assets for their own accounts, and later sell them for a profit from their inventory. T
dealer markets
Markets in which traders specializing in particular assets buy and sell for their own accounts.
AUCTION MARKETS
The most integrated market is an auction market, in which all traders converge at one place (either physically or “electronically”) to buy or sell an asset.
An exchange or electronic platform where all traders can convene to buy or sell an asset.
What definition is this
auction market
The price at which a dealer or other trader is willing to purchase a security.
bid price
The price at which a dealer or other trader will sell a security.
ask (or asked) price
