Financial Markets and the firm

Question 1

What are financial markets?

Answer 1

• ‘They offer a SYSTEM that functions to facilitates the FLOW OF FUNDS between deficit and surplus units, through the interaction of financial institutions, investments and markets’
• > bring together buyers and sellers

Question 2

What does a financial market offer?

Answer 2

• short-term debt up to a year
• long-term debt (maturity over a year)
• equity and shares
• firm offers these securities, to get money from the financial market and fuel their assets

Question 3

What can you do with the profit you generate as a firm?

Answer 3

• reinvest it to refuel your assets

- go to the financial markets to pay your dividends (equity and shares) and debt payments

Question 4

What is the relevance of the government and other stakeholders?

Answer 4

• taxes and whatnot

- obligations to the country

Question 5

What are the types of financial markets?

Answer 5

• primary market

- secondary market

Question 6

What are primary markets?

Answer 6

• primary market: new financial instruments are being issued -> public offerings (shareholders) and private placements (specific institutions)

Question 7

What are secondary markets?

Answer 7

• secondary market: existing financial instruments are being issued (you don’t want the debt any more) -> over the counter markets, auctions