Lecture 5 Flashcards
Primary market
new issues of securities are sold to initial buyers by the institution
borrowing the money (corporation, government agency etc.).
Secondary market
securities that have been issued can be resold
Debt/bond markets
enable corporations and governments to borrow money to finance their
activities,
AND are where interest rates are determined.
Issue a debt instrument
the borrower contractually agrees to pay the holder of the
instrument fixed amounts at regular intervals until the maturity date when the final
payment is made
Stock markets
Stock market is a public entity for the trading of company stocks (shares) listed on a
stock exchange.
Allows for:
- Publicly traded
- Raise additional financial capital for expansion by selling shares of ownership of the company in a public market.
Exchanges
? Originally trading took place at the exchange. This has been replaced mostly
by electronic trading.
? Defines the contracts that trade
? Organises trading so as to ensure that agreements will be honoured
- Over-the-Counter (OTC) Market
Huge telephone- and computer-linked network of
traders who work for financial institutions, large corporations or fund managers.
? Contracts are negotiated bilaterally.
? OTC markets are less transparent than exchanges
Money markets
only short-term debt securities are traded.
- Money market securities tend to be more widely traded and therefore
more liquid.
Capital markets
longer-term debt and equity instruments are traded
Purpose of money markets
* For Investors
Money markets provide a place for warehousing surplus funds for short
periods of time, until needed
Purpose of money markets for borrowers
Money markets provide a low-cost source of temporary funds
Secured bonds
Have collateral attatched to it
Unsecured bonds
Do not have collateral attached to it
Junk Bonds
Low liquiditiy and a high default risk. It is debt that is rated below BBB.
Credit ratings
Credit Ratings describe the creditworthiness of corporate bonds
