The financial markets where direct transactions take place are wholesale markets with a typical minimum transaction size of $1 million. Major buyers and sellers of securities in direct financial markets include commercial banks, large corporations, the federal government, hedge funds, and some wealthy individuals. Why might a firm prefer to have a security issue underwritten by an investment banking firm? In the most common type of underwriting arrangement, called firm-commitment the investment banker assumes the risk of buying the new securities from underwriting, the issuing company and reselling them to investors. The investment banker guarantees to buy the entire security issue from the company at a fixed price. Section 2.3 What is the difference between primary and secondary markets? Primary markets are markets where new securities are sold for the first time. Secondary markets are where the owners of outstanding securities can sell them to other investors. They provide the means for investors to sell their securities and get cash. How and why do large business firms use money markets? Large businesses use money markets to adjust their liquidity positions. If a firm has idle cash sitting around, it can invest it in negotiable CDs, Treasury bills, or other money market instruments. On the other hand, if a company has a temporary cash shortage, it can borrow in the money markets by selling commercial paper at lower interest rates than it could borrow through a commercial bank. 3. What are capital markets, and why are they important to corporations?
The financial markets where direct transactions take place are wholesale markets with a typical minimum transaction size of $1 million. Major buyers and sellers of securities in direct financial markets include commercial banks, large corporations, the federal government, hedge funds, and some wealthy individuals. Why might a firm prefer to have a security issue underwritten by an investment banking firm? In the most common type of underwriting arrangement, called firm-commitment underwriting, the investment banker assumes the risk of buying the new securities from the issuing company and reselling them to investors. The investment banker guarantees to buy the entire security issue from the company at a fixed price. Section 2.3 What is the difference between primary and secondary markets? Primary markets are markets where new securities are sold for the first time. Secondary markets are where the owners of outstanding securities can sell them to other investors. They provide the means for investors to sell their securities and get cash. How and why do large business firms use money markets? Large businesses use money markets to adjust their liquidity positions. If a firm has idle cash sitting around, it can invest it in negotiable CDs, Treasury bills, or other money market instruments. On the other hand, if a company has a temporary cash shortage, it can borrow in the money markets by selling commercial paper at lower interest rates than it could borrow through a commercial bank. 3. What are capital markets, and why are they important to corporations?
Solution-manual-for-Fundamentals-of-Corporate-Finance-2nd-edition-by-Robert-Parrino.docx