Chapter 2

• Forums that allow suppliers and demanders of securities to make financial transactions.
• Goal is to permit transactions to be made quickly and at a fair price.

• S/T debt securities. 
• Investors use Money Markets for s/t borrowing and lending.

• L/T debt securities.
• e.g. stocks, bonds
• Either Primary or Secondary

• Markets in which new issues of securities are sold to investors.
• In this market, issuer of equity/debt receives the proceedds from the sales.
• Also provide forum for the sale of additional stock, called seasoned equity issues, by already Public Companies.

• 1.Public Offering: where firms offers their securities for sale to public investors.
• 2.Rights Offering: where firms offers shares to existing stockholders, on pro rata basis.
• 3.Private Placement: where the firm sells securites directly without SEC registration to select groups of private investors.e.g. insurance companies, investment management funds, pension funds.

Describes key aspects of the securites to be issued in IPO, the issuer's management, and the issuer's financial position.

• Financial intermediary that specializes in assisting companies to issue new securities and advising firms with regard to major financial transactions.
• Main activity: Underwriting - involves purchasing the securities from the issuing firm at an agreed-on price and bearing the risk of reselling them to the public.

• Shares financial risk associated with buying the entire issue from the issuer and reselling the new securities to the public.
• Forms in cases of large security issues.
• Consists of numerous investment banks.

• aka Aftermarket.
• Market in which securities are traded after they have been issued.
• Do not involve the corporation that issued the securities.
• Permits investor to sell their holdings to another investor.

• Consists of National and Regional "securities exchanges".
• e.g. NYSE, NYSE Amex
• When a trade occurs, the 2 sides of the transaction are brought together, the seller directly sells their shares to the buyer with the help of a broker.

• The DMM is an exchange member who specializes in making transactions in one or more stocks.
• They manage the auction process.
• The DMM buys or sells to provide a continuous, fair, and orderly market in those securities assigned to them.

• Has no central trading floors.
• Made up of market makers who are linked together via telecommunications networks.
• Each market maker is a securities dealer who makes a market in oen or more securities by offering to buy or sell them at stated bid/ask prices.

• Bid: Price an investor receives when selling a security.
• Ask: Price an investory pays when buying a security..

Markets normally associated with rising prices, investor optimism, economic recovery, government stimulus

Markets Normally associated with falling prices, investor pessimism, economic slowdown, government restraint.

• Transaction in which investors buy securites in the hope that they will increase in value and can be sold at a later date for profit.
• Buy Low Sell High.

• Refers to amount of security that the investory must supply with their own funds.
• e.g. 75% Margin means investor must supply 75% of the balance.

The use of debt financing to magnify investment returns.

• Official vehicle through which the borrowed funds are made available in a margin transaction.
• All loans are made at a stated interest rate.
• Usually 1-3% above the Prime Rate.

• Minimum amount of equity that must be provided by the investor at the time of purchase.
• Prevents overtrading and excessive speculation.

• Aboslute minimum amount of margin that an investor must maintain i nthe margin account at all times.
• When an insufficient amount of maintenance margin exists, investor will receive a Margin Call- gives investor short period of time to bring the equity up above the maintenance margin. If it doesn't happen, the broker is authorized to sell enough of the investor's margined holdings to bring the equity in the account up to this standard.

• Margin = (Value of Securities - Debit Balance)/Value of Securities
• Debit Balance - Amount Borrowed in Margin Loan

=(Total Current Income Received - Total Interest Paid on Maring Loan + Market Value of Securites at Sale - Market Value of Securities at Purchase)/Amount of Equity at Purchase

• When an investor purchases a stock expecting the value to fall.
• Start when an investor borrows securities from a broker and sells those securities in the marketplace.
• When price of issue has declined, the short seller buys back the securities and then returns them to the lender.
• Buying Low Selling High.
• Start Sale with Sale and End with Purchase.