Question

Question 2a.

OPK, a company that went public in 2015, announced the sale of an additional 50 million shares of its common stock on June 1, 2018. Before deciding on the additional stock, OPK analyzed how its stocks and bonds were trading in the secondary markets. Why did OPK study the secondary markets if the additional shares of common stock were considered new issues, thus being sold in the primary markets? [7 marks]

Question 2b.

Some economics suspect that one of the reasons that economies in developing countries grow so slowly is that they do not have well-developed financial markets. Does this argument make sense?

Answer 1

Q-2)

A) Even though the shares are issued in the primary market the company tries to issue shares during those periods when the economy is doing well. The price of stocks in the secondary market is a barometer of the performance of the stock. The company would like to raise the maximum amount through the issuance of the stock. If the stock price in the secondary market is doing very well then it is appropriate time for the company to raise the capital by issuing the equity shares however if the stock performance in the secondary market is not very good then by issuing shares not much capital can be raised or it can also happen that the shares might not be subscribed at all. Most company uses secondary market stock price as a barometer of whether the stock should be issued or buyback should be done.

B) This reason is correct to at certain extent. Financial market plays a very vital role in the development of the economy, it acts as a platform where the borrower and lenders can interact. Developed financial market creates a sustainable and reliable channel through which the company can raise funds for investment purposes and retail investors can also participate in the process. The lack of a developed and regulated market can hinder the investment process and the capital investment will be negatively affected and that will affect the overall growth of the economy. Capital investments plays a key role in the growth and sustainable development as they crate the channel through which different industries can operate.