Question

I.Financial Intermediaries:

Briefly describe each of the following financial intermediaries in terms of the way they help issuers raise capital:

Commercial Bank: Lending and deposit- taking; also expanded into investment advisory/trust services.

Investment Bank: Handle securities issuance, merger/acquisition and reorganization advisory services.

Financial Services Company: Includes broker/dealers, investment advisory firms.

B.  In what ways do efficient capital markets help both issuersand investors?

II Capital Raising by Corporations:

Identifyand describetwo typesof securities corporationsmay issue in order to raise capital.

Is an initial public offering (IPO) a form of primaryor secondarymarket transaction? What is (are) the difference(s) between primary and secondary markets?

III.       “The Crash of 1929”:

The economic aftermath of the Crash of 1929 – as has been the aftermath of most stock market crashes – was devastating.

List and describe two precursors(economic events or trends, general investment approaches) that have been known to lead to market crashes.

            

Under the above scenario – and what you have learned about investing in this course and what we have discussed in class -- when confronted with the various investment alternatives of which asset classes to allocate your savings to, what asset class (gold, cash, common stocks etc.) would you select as your principal investment holding and why?

Answer 1

B) Efficient capital market help issuer and investor many ways

        It helps issuer to raise capital as and when required

        It helps investors to invest in capital market to returns from the market

        It helps issuer to raise capital with less cost of borrowing compare to borrowing in other ways

       It helps investor to be shareholder of the company and be involved in company decision making

:Corporation can issue equity capital or debt capital to raise capital

:IPO is always primary market transaction

Difference in primary and secondary market:

Primary market as the word suggests means initial stage where Any company looking for acquisition of funds issue its shares in the open market in the form of Initial Public Offer. Interested investors apply for such public offer and put their money to buy the shares offered to get an ownership in the company.This offer may be given to acquire large funds that could be helpful for the expansion of the company. Also known as ‘Going Public’ this process actually is the conversion of a Private company into Public company.

After the process of IPO is done, the Secondary market comes into play.

Secondary market is the stage where securities are traded among the investors, without any participation from the company. Any individual can buy or sell securities if they are willing to, at the prevailing prices. Unlike the IPO any one is eligible to invest their money in this form of market. There is no boundation on any entry or exit.

Crash: Dot com bubble in 1995-2000 of internet companies

2008 hosing market crash

Asset class: i would always selct comman stock as it helps compunding your income which other asset classes do not offer, it also helps to beat the inflation and get good returns however it does involve risk so one should choose right stock like warren buffet and hold it for long term after anlaysing the potential companies