UB MGF 401 - chap002 (11 pages)

2 1 Chapter 2 Financial Markets Financing Decision What is the Source of Funds or Capital Long Term Issue stock or bonds Short Term Money Markets Primary v Secondary Market Primary Market Company sells to investor Secondary Market Company not involved McGraw Hill Irwin Copyright 2007 by The McGraw Hill Companies Inc All rights 2 2 Primary Market Debt Issuance Issue Debt Company McGraw Hill Irwin Irwin McGraw Hill Cash Investors Copyright 2007 by The McGraw Hill Companies Inc All rights 2 3 Underwritten Stock Sale Primary Market Company Sells shares McGraw Hill Irwin Irwin McGraw Hill Investment Bank Investors Issues shares Copyright 2007 by The McGraw Hill Companies Inc All rights 2 4 Financial Intermediaries Company Banks Insurance Cos Obligations Funds Intermediary Brokerage Firms Obligations Funds Depositors Policyholders Investor Investors McGraw Hill Irwin Irwin McGraw Hill Copyright 2007 by The McGraw Hill Companies Inc All rights 2 5 Financial Markets Company Loan Banks 2 5 mil Intermediary Deposits Depositors McGraw Hill Irwin Irwin McGraw Hill Cash Investor Copyright 2007 by The McGraw Hill Companies Inc All rights 2 6 Financial Markets Company Loan Insurance Company 250 mil Intermediary Sell policies Issue Stock Policyholders McGraw Hill Irwin Irwin McGraw Hill Cash Investor Copyright 2007 by The McGraw Hill Companies Inc All rights 2 7 Total U S Financing Holdings of Corporate and Foreign Bonds Qtr 1 2005 McGraw Hill Irwin Copyright 2007 by The McGraw Hill Companies Inc All rights 2 8 Total U S Financing Holdings of Corporate Equities Qtr 1 2005 McGraw Hill Irwin Copyright 2007 by The McGraw Hill Companies Inc All rights 2 9 Function of Financial Markets Transporting cash across time Risk transfer and diversification Liquidity Payment mechanism Provide information McGraw Hill Irwin Copyright 2007 by The McGraw Hill Companies Inc All rights 2 10 U S Financing Information Provided by Financial Markets Commodity prices Interest rates Company values McGraw Hill Irwin Copyright 2007 by The McGraw Hill Companies Inc All rights 2 11 Opportunity Cost of Capital McGraw Hill Irwin Copyright 2007 by The McGraw Hill Companies Inc All rights