Essay on Test Bank Ch 1

This section will give a short introduction to this dissertation, by identifying a context for the placement of the research in terms of the literature and also why this topic is worthy of research. An overview of the private equity industry will be given, followed by the research objectives, contributions and targeted audience.

- Sole Traders normally only require a small amount of capital to be invested and this reduces the initial start-up cost.

The secondary mortgage market was on the up-rise when Michael Lewis accepted a job at Salomon Brother’s. The secondary mortgage market was the selling of bonds, with a promise to be paid back with mortgage loans. The lender, whomever that

Furthermore, depository institutions that do not meet the requirements for primary credit but needs a short-term loan for liquidity purposes can still use secondary credit. Higher level of administration is necessary for secondary credit due to the institution being less stable than those who are eligible for the primary credit. Thus, secondary credit is priced slightly higher than the primary credit.

A secondary market is a financial market in which securities that have been previously issued can be resold. An investment bank assists in the initial sale of securities in the primary market by underwriting the securities: it guarantees a price for a corporation’s securities and then sells them to the public. A corporation acquires new funds only when its securities are first sold in the primary market.

Securities: special vehicles issuing securities by mortgage of housing loan backed by a pool of asset.

A rights issue is an issue of rights to purchase new shares, which are issued pro rata to the existing shareholders, Armitage (2007). Rights issues were the dominate form of seasoned equity offers for fund raising in the United Sates and the United Kingdom . However, there has been a swing to other forms of share issues. The US has shifted towards firm commitments, Eckbo and Masulis (1992). In this the underwriter guarantees the sale of the issued stock at the agreed-upon price. The shift in the US occurred in the 1960’s. In the UK there has been a move towards open offers. Open offers are similar to rights issues but investors are unable to sell the stocks that they purchase under the open

Moving on to the next process the secondary market. The secondary market is the market for buying and selling mortgages.

If a public company is listed on the ASX, members of the public can buy and sell securities (such as shares) issued by the company on the secondary market conducted by the ASX. People wishing to buy or sell securities must do so through a broker who is a participant in the ASX.

The secondary market dictates what the value of a firm is. If there is a lot of trading going on for a certain firm’s securities then the value of the firm will go up. But if everyone sells the securities in a firm then the firm will lose a lot of money and value.

If the original mortgage holder makes the decision to sell the mortgage in the secondary market, the buyer may choose to hold the mortgage and continue to receive payments from the borrower. Another option the buyer has is to securitize the mortgage, meaning it is pooled together into a security with other mortgages, and payment streams associated with the pool are sold to investors. Fannie Mae and Freddie Mac are privately owned enterprises which receive support from the federal government and also take on some public responsibilities. These enterprises provided a liquid secondary market in home mortgages in which they purchase mortgages from those who emanate them. Other financial institutions offer mortgage-backed securities known as private-label

relatively large number of sellers. The various products available in this market are similar and

The Financial Times is a newspaper. To access its online content subscribers have to pay for a subscription or make micro payments for individual articles. The pay-wall that requires users to pay for articles is a(n) ____ resource.

The complex process of securitisation has five stages to show the basic structure. The first step of the process starts with the commercial banks. The commercial banks are the originators of the loan since they decide to securities a part of their loans. The following step is the aggregator buys loans from one or more originators which then means that the aggregator can sell the loans to a multiple amount of buyers. The third step is when the loans that have been sold to many buyers are sold off to the

Therefore, these concerns can only be handled after the company decides on the offering structure, which defines investor’s demographic and a precise stock exchange to list on. Afterward, the company and its underwriters must begin to prepare the required documentation for both potential investors and regulators. The main documents are registration statements and a prospectus which contains all the financial and non-financial information that potential investors require in order to make the investment decision. In most countries, the contents of the prospectus must be approved by the local securities regulators before it can be distributed to potential buyers. (Bodie et al. 2005,