FINA3770 11-01.txt

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FINA3770 11-01.txt
2012-11-07 22:36:55
UNT FINA3770 Financial Markets

Notes from FINA3770 at UNT, Dr. James McDonald, class of 11-01-2012, Financial Markets
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  1. What defines a private placement market?
    The limited number of investors
  2. In a private placement market (both
    debt and equity), what does an investment banker do?
    • Acts as finder
    • matches buyers with sellers
  3. What are the two types of organized private markets?
    • equity market
    • debt market
  4. What is a private equity market?
    where small, unseasoned firms seek first outside investment
  5. What is a venture capitalist?
    • initial outside investor in a business
    • operates in both private markets (equity and debt)
    • high risk high return business
  6. What does unseasoned mean?
    firm has not sought outside financing before
  7. Why do small, unseasoned firms need venture capitalists?
    • 1) no one else wants to invest in small, unseasoned firms
    • 2) firms have no historical records of operating results
    • 3) firms have extremely uncertain growth projection
  8. Why do venture capitalists invest in unseasoned companies?
    • 1) to keep or acquire intellectual capital
    • 2) to keep or acquire new technology
  9. In the private equity market, where does the money come from?
    venture capitalists
  10. What do venture capitalists get in return for the investment (besides monetary reasons)?
    seats on the Board of Directors of the company they invest in
  11. Besides individuals, who else can be a venture capitalist?
    large seasoned companies usually have a venture capital subsidiary
  12. What usually happens when venture capitalists get on the Board of a small unseasoned company?
    minority position, but take over as soon as firm stumbles
  13. Is venture capital money related to the US economy?
    Yes - it is directly related
  14. What is a primary market?
    where securities are sold for the very first time
  15. What is a secondary market?
    where securities are bought and sold for the second and subsequent time
  16. What does a money market deal with?
    financial instruments with a maturity of less than 1 year
  17. What does a capital market deal with?
    financial instruments with a maturity of more than 1 year
  18. Except organized exchanges, all financial markets are ___
    over the counter markets
  19. What does ECN stand for and what is it?
    • electronic communication network
    • telecommunication network without physical location
    • provides information (quotes), but there is no trading
  20. What is the disadvantage of over the counter markets?
    not as continuous as organized exchanges, trades happen less often
  21. What is a broker?
    finder of buyers and sellers, does not hold securities in own account
  22. What is a dealer?
    finds buyers and sellers, does hold inventories of securities
  23. Where are over the counter markets located?
    wherever the dealer or broker is, not one set physical location
  24. What are the characteristics of organized exchanges (3)?
    • 1) they have a physical location
    • 2) they are registered with the SEC
    • 3) they are auction markets (must have buyers and sellers, which have to be matched)
  25. What are the benefits of organized exchanges (3)?
    • 1) continuous market = securities trade more often
    • 2) establish and publish relatively fair security prices (prices consider all public information available)
    • 3) they are extremely helpful in helping firms raise new capital
  26. What are some listing requirements for organized exchanges?
    • profitability
    • size of the firm (assets, revenue, etc)
    • market value
    • public ownership
  27. What is an investment banker?
    financial specialist who serves as intermediary in the selling of securities, can be individual or firm (Goldman-Sachs, Merill-Lynch)
  28. What are the 3 functions of an investment bank(er)?
    • 1) to underwrite a security's issue (buy from firm then sell to first buyer on primary market)
    • 2) to distribute securities (syndicate is wholesaler, dealer's organization is retailer)
    • 3) to advise buyers and sellers
  29. What is a syndicate in relation to financial markets?
    group of investment bankers
  30. When and why is a syndicate formed?
    when issuing new securities to spread the risk between the investment bankers