Raising Capital in the Financial Markets Essay

3686 Words Jun 3rd, 2011 15 Pages
CHAPTER 14
Raising Capital in the Financial Markets

CHAPTER ORIENTATION
This chapter considers the market environment in which long-term capital is raised. The underlying rationale for the existence of security markets is presented, investment banking services and procedures are detailed, private placements are discussed, and security market regulation is reviewed.

CHAPTER OUTLINE

I. The mix of corporate securities sold in the capital market.
A. When corporations raise cash in the capital market, what type of financing vehicle is most favored? The answer to this question is corporate bonds. The corporate debt markets clearly dominate the corporate equity markets when new (external) funds are being raised.
B. From our
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(2) Venture capital is often provided by established non-venture-capitalist firms that take a minority investment position in an emerging firm or create a separate venture capital subsidiary.
(a) The investment approach allows the established firm to gain access to new technology and to create strategic alliances.
(b) The subsidiary approach allows the established firm to retain human and intellectual capital.
B. Primary markets can be distinguished from secondary markets.
1. Securities are first offered for sale in a primary market. For example, the sale of a new bond issue, preferred stock issue, or common stock issue takes place in the primary market. These transactions increase the total stock of financial assets in existence in the economy.
2. Trading in currently existing securities takes place in the secondary market. The total stock of financial assets is unaffected by such transactions.
C. The money market can be distinguished from the capital market.
1. The money market consists of the institutions and procedures that provide for transactions in short-term debt instruments which are generally issued by borrowers who have very high credit ratings.
a. "Short-term" means that the securities traded in the money market have maturity periods of not more than 1 year.
b. Equity instruments are not traded in the money market.
c. Typical examples of money market instruments

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