Beruflich Dokumente
Kultur Dokumente
4-1
Channel funds from savers to borrowers
Help firms and governments raise cash by
selling securities (financial claims on issuer)
Provide a place where investors can earn a
return
Help allocate cash to where it is most
productive
Help lower the cost of exchange
4-2
Primary Market
Securities are issued in the primary market
◦ Initial public offerings (IPOs)
Average investors generally benefit little from
IPOs
◦ Seasoned offerings
Issuance is facilitated by investment banks
◦ Buy securities from issuer at a discount and
resell to investors
Difference between two amounts is spread
4-3
1. Determine issue features - $'s required, type of
security, security features, etc.
Investors
4-5
Private (direct) placement - new securities
are sold directly to investors, bypassing the
open market
◦ SEC registration not required
4-7
Market where investors trade previously
issued securities
Allow for trading of stocks, bonds,
derivatives
NYSE, NASDAQ, and BATS are major U.S.
exchanges
Investors are represented by brokers who
facilitate trades between buyers and sellers
for a fee
4-8
Other Secondary Markets
Over-the-Counter (OTC)
◦ Not an organized marketplace or
exchange
◦ Forum for securities not listed on a U.S.
exchange
◦ Many firms are small and/or financially
distressed
◦ May trade via Pink Sheets or OTC Bulletin
Board
4-9
Offers low transactions costs
Provides anonymity
4-11
Stock index levels do not incorporate dividends
Three Index Weighting Methods
Equal or un-weighted: good indicator for
investors that invest equal $’s in each member
Price-weighted: good indicator for investors
that purchase the same number of shares in
each stock
Value-weighted: best indicator of overall
market movement
Foreign Stock Market Indicators
MSCI EAFE Index
◦ A non-American developed market index
Dow Jones World Stock Index
◦ Capitalization-weighted, represents about
80% of world’s stock markets
Euro STOXX 600
◦ Covers 18 European countries
S & P Asia 50 (major Asia countries) and
Nikkei 225 (largest Japanese firms)
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Bond and Derivatives Markets
Secondary bond markets
◦ Necessary or investors might avoid bonds
◦ Primarily an over-the-counter network of
dealers
◦ Bond brokers often buy for their own
accounts and resell
Derivatives
◦ Options trade on exchanges
◦ Futures markets mostly electronic
4-14
Bond universe is broader - T-bonds to D
Bond universe is constantly changing: bonds
mature, are converted, or are retired
Volatility changes constantly with duration
Bond prices are less reliable
Bond index values incorporate total returns
High yield bonds have equity characteristics
Foreign bond indexes are primarily govt.
Market Globalization
Electronic trading systems allow for after-
hours trading
Stock prices can change even when
exchanges are closed
Bonds also being traded around the clock
Individual investors can benefit from
globalization
◦ Can trade in foreign markets and in foreign
currencies
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