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Ch. 14 - Rising Capital in The Financial Markets

Ch. 14 - Rising Capital in The Financial Markets.  2002, Prentice Hall, Inc. Q: What are SECURITIES?. A: Financial Assets that Investors purchase hoping to earn a high rate of return. Types of Securities. Treasury Bills and Treasury Bonds Municipal Bonds Corporate Bonds

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Ch. 14 - Rising Capital in The Financial Markets

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  1. Ch. 14 - Rising Capital in The Financial Markets  2002, Prentice Hall, Inc.

  2. Q: What are SECURITIES? A: Financial Assets that Investors purchase hoping to earn a high rate of return.

  3. Types of Securities • Treasury Bills and Treasury Bonds • Municipal Bonds • Corporate Bonds • Preferred Stocks • Common Stocks Which of these are RISKY? Which promise HIGH RETURNS? Is there a relationship betweenRISK and RETURN?

  4. Corporate FinancingSources • In 1999, over $400 billion in external corporate financing was raised. • From 1996 through 1999, capital has been raised through the following sources: • Corporate Bonds and Notes 75.3% • Equities 24.7%

  5. Movement of Savings • Direct Transfer of Funds

  6. saver Movement of Savings • Direct Transfer of Funds

  7. firm saver Movement of Savings • Direct Transfer of Funds

  8. cash firm saver Movement of Savings • Direct Transfer of Funds

  9. cash firm saver securities Movement of Savings • Direct Transfer of Funds

  10. Movement of Savings • Indirect Transfer using Investment Banker

  11. investment banker Movement of Savings • Indirect Transfer using Investment Banker

  12. investment banker firm Movement of Savings • Indirect Transfer using Investment Banker

  13. funds investment banker firm Movement of Savings • Indirect Transfer using Investment Banker

  14. funds investment banker firm securities Movement of Savings • Indirect Transfer using Investment Banker

  15. funds saver investment banker firm securities Movement of Savings • Indirect Transfer using Investment Banker

  16. funds funds saver investment banker firm securities Movement of Savings • Indirect Transfer using Investment Banker

  17. funds funds saver investment banker firm securities securities Movement of Savings • Indirect Transfer using Investment Banker

  18. Movement of Savings • Indirect Transfer using a Financial Intermediary

  19. financial intermediary Movement of Savings • Indirect Transfer using a Financial Intermediary

  20. financial intermediary firm Movement of Savings • Indirect Transfer using a Financial Intermediary

  21. funds financial intermediary firm Movement of Savings • Indirect Transfer using a Financial Intermediary

  22. funds financial intermediary firm firm securities Movement of Savings • Indirect Transfer using a Financial Intermediary

  23. funds financial intermediary saver firm firm securities Movement of Savings • Indirect Transfer using a Financial Intermediary

  24. funds funds financial intermediary saver firm firm securities Movement of Savings • Indirect Transfer using a Financial Intermediary

  25. funds funds financial intermediary saver firm intermediary securities firm securities Movement of Savings • Indirect Transfer using a Financial Intermediary

  26. Financial Market Components • Public Offering

  27. Financial Market Components • Public Offering • Firm issues securities, which are made available to both individual and institutional investors.

  28. Financial Market Components • Public Offering • Firm issues securities, which are made available to both individual and institutional investors. • Private Placement

  29. Financial Market Components • Public Offering • Firm issues securities, which are made available to both individual and institutional investors. • Private Placement • Securities are offered and sold to a limited number of investors.

  30. Financial Market Components • Primary Market

  31. Financial Market Components • Primary Market • Market in which new issues of a security are sold to initial buyers.

  32. Financial Market Components • Primary Market • Market in which new issues of a security are sold to initial buyers. • Secondary Market

  33. Financial Market Components • Primary Market • Market in which new issues of a security are sold to initial buyers. • Secondary Market • Market in which previously issued securities are traded.

  34. Financial Market Components • Money Market

  35. Financial Market Components • Money Market • Market for short-term debt instruments (maturity periods of one year or less).

  36. Financial Market Components • Money Market • Market for short-term debt instruments (maturity periods of one year or less). • Capital Market

  37. Financial Market Components • Money Market • Market for short-term debt instruments (maturity periods of one year or less). • Capital Market • Market for long-term securities (maturity greater than one year).

  38. Financial Market Components • Organized Exchanges

  39. Financial Market Components • Organized Exchanges • Buyers and sellers meet in one central location to conduct trades.

  40. Financial Market Components • Organized Exchanges • Buyers and sellers meet in one central location to conduct trades. • Over-the-Counter (OTC)

  41. Financial Market Components • Organized Exchanges • Buyers and sellers meet in one central location to conduct trades. • Over-the-Counter (OTC) • Securities dealers operate at many different locations across the country.

  42. Financial Market Components • Organized Exchanges • Buyers and sellers meet in one central location to conduct trades. • Over-the-Counter (OTC) • Securities dealers operate at many different locations across the country. • Connected by Nasdaq system (National Association of Securities Dealers Automated Quotation system).

  43. Investment Banking How do investment bankers help firms issue securities? Underwriting the issue. Distributing the issue. Advising the firm.

  44. Distribution Methods • Negotiated Purchase

  45. Distribution Methods • Negotiated Purchase • Issuing firm selects an investment banker to underwrite the issue.

  46. Distribution Methods • Negotiated Purchase • Issuing firm selects an investment banker to underwrite the issue. • The firm and the investment banker negotiate the terms of the offer.

  47. Distribution Methods • Negotiated Purchase • Issuing firm selects an investment banker to underwrite the issue. • The firm and the investment banker negotiate the terms of the offer. • Competitive Bid

  48. Distribution Methods • Negotiated Purchase • Issuing firm selects an investment banker to underwrite the issue. • The firm and the investment banker negotiate the terms of the offer. • Competitive Bid • Several investment bankers bid for the right to underwrite the firm’s issue.

  49. Distribution Methods • Negotiated Purchase • Issuing firm selects an investment banker to underwrite the issue. • The firm and the investment banker negotiate the terms of the offer. • Competitive Bid • Several investment bankers bid for the right to underwrite the firm’s issue. • The firm selects the banker offering the highest price.

  50. Distribution Methods • Best Efforts

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