Raising Capital in the Financial Markets

3675 WordsJun 14, 201115 Pages
CHAPTER 14 Raising Capital in the Financial Markets CHAPTER ORIENTATION This chapter considers the market environment in which long-term capital is raised. The underlying rationale for the existence of security markets is presented, investment banking services and procedures are detailed, private placements are discussed, and security market regulation is reviewed. CHAPTER OUTLINE I. The mix of corporate securities sold in the capital market. A. When corporations raise cash in the capital market, what type of financing vehicle is most favored? The answer to this question is corporate bonds. The corporate debt markets clearly dominate the corporate equity markets when new (external) funds are being raised. B. From our…show more content…
2. The capital market consists of the institutions and procedures that provide for transactions in long-term financial instruments. This market encompasses those securities that have maturity periods extending beyond 1 year. D. Organized security exchanges can be distinguished from over-the-counter markets. 1. Organized security exchanges are tangible entities whose activities are governed by a set of bylaws. Security exchanges physically occupy space and financial instruments are traded on such premises. a. Major stock exchanges must comply with a strict set of reporting requirements established by the Securities and Exchange Commission (SEC). These exchanges are said to be registered. b. Organized security exchanges provide several benefits to both corporations and investors. They (l) provide a continuous market, (2) establish and publicize fair security prices, and (3) help businesses raise new financial capital. c. A corporation must take steps to have its securities listed on an exchange in order to directly receive the benefits noted above. Listing criteria differ from exchange to exchange. 2. Over-the-counter markets include all security markets except the organized exchanges. The money market is a prominent example. Most corporate bonds are traded over-the-counter. a. NASDAQ, a telecommunication system providing an information link among brokers and dealers in the OTC markets, accounted for 43% of the

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