Structure and characteristics of financial markets. Briefly explain the distinct
ID: 2732861 • Letter: S
Question
Structure and characteristics of financial markets. Briefly explain the distinction between the two items that make lowing pairs: Direct financing versus indirect financing Primary markets versus secondary markets Organized exchanges versus over-the-counter markets Domestic securities versus international securities Domestic securities versus foreign securities Private placement versus public offering Rights issue versus general cash offering Underwritten issue versus best efforts distribution Originating house versus selling group Seasoned issue versus secondary distributionExplanation / Answer
Answer:g. Rights Issues vs General Cash Offering:
"Firms issue shares and bonds either through private placement or through public offerings. For an equity issue, firms can raise capital through a general cash offering or via a rights issue. In a rights issue, current shareholders are givensubscription rights that allow them to purchase new shares; in a general cash offering, shares are offered to the public at large and no distinction is made between current shareholders and other investors. The various sources of debt financing available to firms include bank loans, lease agreements , and bond issues."
Answer:h .Underwritten issue versus Best effort Distribution:
A best efforts agreement does not guarantee that all of the securities in the issue must be sold. Anissuer and underwriter agree upon a minimum level of sales and once the minimum has been reached, the underwriter is not responsible for any unsold securities.
Answer:i. Originating house versusSelling group:
The investment bank will enlist the help of other investment banks to sell the securities, forming a underwriting syndicate. One investment banker in the group, usually the originating house, is selected to manage the syndicate. the selling group is simply the underwriting group and does not include anyone who is not responsible for underwriting a portion of the new issue. The reason why the selling group may include only the underwriters is that these underwriters are unwilling to let competitors who are not bearing any of the risk to participate in the selling process.
Answer:j Seasoned issue vs. Secondary distribution:
An initial public offering (IPO) is the original sale of a company’s securities to the public. An IPO is also called an Secondary distribution . A seasoned new issue is a new issue of stock after the company’s securities have previously been publicly traded.