New version page

UNT FINA 3770 - Financial Markets

Type: Lecture Note
Pages: 3

This preview shows page 1 out of 3 pages.

View Full Document
View Full Document

End of preview. Want to read all 3 pages?

Upload your study docs or become a GradeBuddy member to access this document.

View Full Document
Unformatted text preview:

FINA 3770 1st Edition Lecture 5Outline of Last Lecture I. To be updated asap. Outline of Current Lecture I. Sources of Funding by CorporationsII. Definitionsa. Primary vs Secondary Marketsb. Money vs Capital MarketsIII. Organized exchanges and OTC MarketsIV. Fund Raising by FirmsV. More in depth look at Secondary MarketsCurrent LectureSources of Funding by CorporationsCompanies can raise money through internal or external funds:- Internal funds: Provides around 70% of total funds.o Includes depreciation and retained earnings o Depreciation provides the majority of internal funding- External funds: Contains items such as bonds/debt, common stock, preferred stockDefinitionsPrimary markets consist of bonds issued by corporations to investors.Secondary markets consist of previously issued securities that are traded between other investors. Money markets: short-term securities such as Treasury bills and Commercial paper- In primary markets: Original issuance of the securities - In secondary markets: investors trade the securities amongst themselves in a mostly over the counter market. - Principal assets traded in money markets include the following:o U.S. Treasury billso Commercial papero Securities issued by federal and federally sponsored agencieso Bank certificates of depositCapital Markets: long-term securities such as corporate stocks and bonds and treasury bonds- In primary markets: Original issuance of the securitiesThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- In secondary markets: Trading among investors in places such as NYSE, AMEX, and NASDAQ- Expect a bigger return than money markets because there is a higher risk - Include the following assets:o Common stocks, mortgages, U.S. Treasury notes and bonds, corporate and foreign bonds, state and local government bonds and notes, consumer loansOrganized exchanges This is where securities are publicly traded. Places such as NYSE, AMEX, and Regional Exchanges.Organized exchanges take place in physical places, instead of online. For a company to put their securities on the market, they must meet the reporting and listing requirements, as well as pay fees. The company must also be registered with the SEC. Over the Counter Markets:OTC Markets do not have to have a physical meeting place. It is a quotation system, which means brokers and dealers negotiate prices for clients using electronic means of communication. Bigger firms are listed in the National OTC market. Smaller firms are in the Small Cap Market.After the initial public offering (when private companies go public for the first time), most companies have the goal to advance further up in the market by outgrowing certain categories until they are able to compete with the bigger companies in the NYSE.Fund Raising by FirmsBecause it takes money to put your securities on the market, firms have to figure out a way to raise that money. There are two types of offers they can reach for:1) Private offers: consists of a small number of buyers who personally know you and your financial decisions. It’s flexible for the seller of the securities. Quick to raise money and has a lower flotation cost. Basically, you can walk out with the fund raising money at the end of the day if you succeed in raising the funds.2) Public offers: Large number of buyers and very impersonal. It is not flexible for the corporation. The fundraising process is very time consuming, because it has a higher flotation cost than private offers. However, it does have a lower interest rate compared to private offers. Secondary Markets (more in-depth look)Consists of two main sub market categories: - Broker Marketo There is a physical trading place. o Consists of the National Exchanges (NYSE and NYSE Amex) and Regional Exchanges (Chicago, Pacific, Boston, etc.)o The management of the company ultimately decides where to trade/exchange their stocks.o Broker markets bring together parties to buy and sell. So there is a bidding process. - Dealer Marketo There is no physical trading place. o Consists of Nasdaq markets, OTC, and unregulated markets (meaning it is not regulated by the SEC) such as pink sheets and penny stocks. The latter two are higher risk


View Full Document
Loading Unlocking...
Login

Join to view Financial Markets and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Financial Markets and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?