RECAP LAST LECTURE 5. FINANCIAL SECURITIES & MARKETS DEBENTURE A DEBENTURE ALSO CALLED A NOTE IS AN UNSECURED CORPORATE BOND OR A CORPORATE BOND THAT

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RECAP LAST LECTURE 5FINANCIAL SECURITIES & MARKETS DEBENTURE

A DEBENTURE ALSO CALLED A NOTE IS AN UNSECURED CORPORATE BOND OR A CORPORATE BOND THAT DOES NOT HAVE A CERTAIN LINE OF INCOME OR EQUIPMENT TO GUARANTEE REPAYMENT OF PRINCIPAL UPON THE BONDS MATURITYFINANCIAL SECURITIESPREFERRED STOCK

COMMON STOCKMOST IMPORTANT FEATURES PF PREFERRED STOCK

PREFERNCE TO DIVIDENDSPREFERNCE TO ASSETSBASICALLY A FIXED RETURNINDEFINITE LIFEUSUALLY NONVOTINGCUMULATIVE DIVIDENDS

FINANCIAL MARKETS & INSTITUTIONSTWO MAIN TYPES OF FINANCIAL MARKETS ARE:

MONEY MARKET

CAPITAL MARKETCAPITAL MARKETIS THE MARKET FOR SECURITIES, WHERE COMPANIES AND GOVT CAN RAISE LONG-TERM FUNDS

IT IS MARKET IN WHICH MONEY IS LENT FOR PERIOD LONGER THAN A YEAR

THE CAPITAL MARKET INCLUDES THE STOCK MARKET AND THE BOND MARKETCAPITAL MARKET THE CAPITAL MARKET CONSISTS OF THE PRIMARY MARKET AND 2. SECONDARY MARKET

CAPITAL MARKET PRIMARY MARKET

THE PRIMARY MARKETS ARE WHERE NEW STOCK AND BONDS ISSUES ARE SOLD (UNDERWRITING) TO INVESTORS.

THIS IS ALSO CALLED INITIAL PUBLIC OFFERING (IPO)CAPITAL MARKET PRIMARY MARKET

A PRIMARY ISSUE IS THE OFFERING OF SHARES OR BONDS THAT HAVE NEVER BEEN PREVIOUSLY ISSUED.

THE OFFERING MAY BE MADE IN TWO WAYSDIRECT PLACEMENTUNDERWRITTEN PLACEMENTCAPITAL MARKET PRIMARY MARKET

DIRECT PLACEMENT, A BOND OR SHARE ISSUE MAY BE PLACED DIRECTLY WITH THE INDIVIDUALS OR COMPANY WHO WILL OWN THE SECURITIES

CAPITAL MARKET PRIMARY MARKET

UNDERWRITTEN PLACEMENT, AN OFFERING MAY BE MADE BY A CORPORATION THROUGH AN INVESTMENT BANKER, A PRINCIPAL WHO ACTS AS THE MIDDLEMAN BETWEEN THE ISSUER AND THE PUBLIC.

CAPITAL MARKETWHAT IS UNDERWRITING MEAN?CAPITAL MARKETWHAT IS INITIAL PUBLIC OFFERING MEAN (IPO)?CAPITAL MARKET UNDERWRITINGIN THIS ROLE, THE INVESTMENT BANKER IS AN UNDERWRITER OF THE OFFERING, WHO BRINGS TOGETHER A GROUP OF OTHER INVESTMENT BANKERS TO UNDERWRITE OR PURCHASE THE ENTIRE OFFERING.

ONCE THE UNDERWRITING SYNDICATE HAS MADE THE PURCHASE, IT WILL RESELL THE SHARES TO A VARIETY OF INDIVIDUALS AND INSTITUTIONS THROUGH THE MECHANISMS OF THE OVER-THE-COUNTER MARKET

CAPITAL MARKET SECONDARY MARKETSSHARES THAT HAVE BEEN PREVIOUSLY ISSUED ARE TRADED IN THE DIFFERENT SECONDARY MARKETS, WHICH INCLUDE THE ORGANIZED EXCHANGES AND OVER-THE-COUNTER MARKETCAPITAL MARKET SECONDARY MARKETS

THE TRADING IS AIDED BY DEALERS BROKERS

DEALERS ACT AS PRINCIPALS AND BUY FOR THEIR OWN ACCOUNTS AND SELL SHARES FROM THEIR OWN INVENTORIESCAPITAL MARKET SECONDARY MARKETS

BROKERS DO NOT BUY OR SELL FROM THEIR OWN INVENTORY OF SECURITIES. THEY ACT AS AGENTS FOR OTHERS AND RECEIVE A COMMISSION FOR ASSISTING A TRANSACTION

THE SAME FIRM OR INDIVIDUAL MAY ACT AS EITHER A BROKER OR A DEALER AT DIFFERENT TIMES AND IN DIFFERENT TRANSACTIONS IN THE SECONDARY MARKETS, AS LONG AS DISCLOSING THIS CAPACITY TO THE CUSTOMERCAPITAL MARKET SECONDARY MARKETS

OVER-THE-COUNTER MARKETIA AN INFORMALLY ORGANIZED GROUPING OF BROKERS AND DEALERS FROM ALL OVER THE COUNTRY. IT HANDLES BOTH PRIMARY ISSUES AND SECONDARY TRANSACTIONS AND IS THE LARGEST SECURITIES MARKETCAPITAL MARKETSECONDARY MARKETS

IT HANDLES ALL CORPORATE SECURITIES AND VIRTUALLY ALL GOVERNMENT BONDSOTC MARKET IS A NEGOTIATED MARKET, BECAUSE PRICES ARE ESTABLISHED BY INDIVIDUAL BARGAINING BETWEEN BUYERS AND SELLERSCAPITAL MARKETSECONDARY MARKETS

NORMALLY, A CUSTOMER WORKS THROUGH A BROKER TO LOCATE A DEALER WHO IS ALWAYS PREPARED EITHER TO BUY OR SELL A CERTAIN STOCK OR BOND. THESE DEALERS MAKE A MARKET FOR THE SPECIFIC SECURITY.EXAMPLE: DEALER WHO MAKES A MARKET FOR THE COMMON STOCK OF ANGRO LTDCAPITAL MARKET SECONDARY MARKETS

STOCK EXCHANGES

IN ADDITION TO THE OVER-THE-COUNTER MARKET, CORPORATE SECURITIES CAN BE TRADED ON THE VARIOUS STOCK EXCHANGES.

WHAT IS STOCK EXCHANGE?CAPITAL MARKETA STOCK EXCHANGE IS A CENTRAL LOCATION WHERE MEMBERS MAY BUY OR SELL SECURITIES.STOCK AND BONDS MAY BE LISTED BY COMPANIES SEEKING GREATER MARKETABILITY OF THE STOCK AND GREATER LIQUIDITY FOR SHAREHOLDERS, WHO MY, THROUGH THEIR BROKERS, BRING THE STOCKS TO THE EXCHANGE TO BE TRADEDCAPITAL MARKETIF A COMPANY NEEDS TO RAISE FUNDS FOR THE LOMG-TERM, IT CAN ACCESS THE CAPITAL MARKETS; THIS IS A MARKET ON WHICH THE FOLLOWING ARE TRADED:

CAPITAL MARKETJUNK BONDS (UNSECURED)DEBENTURES / LOAN NOTES SHARES TRADED ON THE MAIN STOCK MARKETSHARES IN ALTERNATIVE INVESTMENT MARKET WHAT IS ALTERNATIVE MARKET?CAPITAL MARKET EUROMARKETS

IN RECENT YEARS A STRONG MARKET HAS BUILT UP WHICH ALLOWS LARGE COMPANIES WITH EXCELLENT CREDIT RATINGS TO RAISE FINANCE IN A FOREIGN CURRENCYCAPITAL MARKET EUROMARKETS

THIS MARKET IS ORGANISED BY INTERNATIONAL COMMERCIAL BANKS. THIS MARKET IS MUCH BIGGER THAN THE MARKET FOR DOMESTIC BONDS / DEBENTURES

CAPITAL MARKET EUROMARKETS KEY FEATURES

CHEAP DEBT FINANCE: CAN BE SOLD BY INVESTORS, AND A WIDE POOL OF INVESTORS SHARE THE RISK

CAPITAL MARKET EUROMARKETS KEY FEATURES

UNSECURED OR NO COVENANTS:ONLY ISSUED BY LARGE COMPANIES WITH AN EXCELLENT CREDIT RATINGCAPITAL MARKET EUROMARKETS KEY FEATURES

LONG-TERM DEBT IN A FOREIGN CURRENCY:TYPICALLY 5-15 YEARS, NORMALLY IN EUROS OR DOLLARS BUT POSSIBLE IN ANY CURRENCYCAPITAL MARKET REGULATION OF THE SECURITIES MARKETTHE SECURITIES MARKETS IN ANY COUNTRY ARE CAREFULLY REGULATED TO ENSURE THAT INDIVIDUAL INVESTORS ARE TREATED HONESTLY AND FAIRLY

IN PAKISTN THE SECURITY EXCHANGE COMMISSION OF PAKISTAN IS THE MAIN REGULATORY BODYCAPITAL STRUCTURECAPITAL STRUCTURE IS THE COMPOSITION OF DEBT AND EQUITY SECURITIES THAT COMPRISE A FIRMS FINANCING OF ITS ASSETS.BOTH DEBT AND EQUITY SECURITIES ARE USED IN MOST LARGE CORPORATIONS.

CAPITAL STRUCTURETHE CHOICE OF THE AMOUNT OF DEBT AND EQUITY IS MADE AFTER A COMPARISION OF CERTAIN CHARACTERISTICS OF EACH KIND OF SECURITY, OF INTERNAL FACTORS RELATED TO THE FIRMS OPERATIONS, AND OF EXTERNAL FACTORS THAT CAN AFFECT THE FIRM