CHAPTER 5 The Financial Environment: Markets and Institutions

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Presentation transcript:

CHAPTER 5 The Financial Environment: Markets and Institutions Financial markets Types of financial institutions

What is a market? A market is a venue where goods and services are exchanged. A financial market is a place where individuals and organizations wanting to borrow funds are brought together with those having a surplus of funds.

Types of financial markets Physical assets vs. Financial assets Money vs. Capital Primary vs. Secondary Spot vs. Futures Public vs. Private

How is capital transferred between savers and borrowers? Direct transfers Investment banking house Financial intermediaries

Types of financial intermediaries Commercial banks Savings and loan associations Mutual savings banks Credit unions Pension funds Life insurance companies Mutual funds

Physical location stock exchanges vs. Electronic dealer-based markets Auction market vs. Dealer market (Exchanges vs. OTC) NYSE vs. Nasdaq Differences are narrowing

Stock Market Transactions Apple Computer decides to issue additional stock with the assistance of its investment banker. An investor purchases some of the newly issued shares. Is this a primary market transaction or a secondary market transaction? Since new shares of stock are being issued, this is a primary market transaction. What if instead an investor buys existing shares of Apple stock in the open market – is this a primary or secondary market transaction? Since no new shares are created, this is a secondary market transaction.

What is an IPO? An initial public offering (IPO) is where a company issues stock in the public market for the first time. “Going public” enables a company’s owners to raise capital from a wide variety of outside investors. Once issued, the stock trades in the secondary market. Public companies are subject to additional regulations and reporting requirements.

Where can you find a stock quote, and what does one look like? Stock quotes can be found in a variety of print sources (Wall Street Journal or the local newspaper) and online sources (Yahoo!Finance, CNNMoney, or MSN MoneyCentral). finance.yahoo.com, prophet..net, www.morningstar.com