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    ECO 240 Chapter 2

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    Casper John Nanas Muñoz
    Capital can be transferred from suppliers to demanders through direct transfers of securities, primary market transactions where a corporation sells new securities, or through financial intermediaries. An initial public offering is an example of a primary market transaction as it issues new securities. Money market securities include treasury bills and commercial paper, while capital market securities include stocks and long-term bonds. Dealer markets connect dealers and brokers electronically, while stock markets have physical locations for trading. The two leading US stock exchanges are the New York Stock Exchange, which trades on a physical floor, and Nasdaq, an electronic exchange.

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    ECO 240 Chapter 2

    Uploaded by

    Casper John Nanas Muñoz
    16 views2 pages
    Capital can be transferred from suppliers to demanders through direct transfers of securities, primary market transactions where a corporation sells new securities, or through financial intermediaries. An initial public offering is an example of a primary market transaction as it issues new securities. Money market securities include treasury bills and commercial paper, while capital market securities include stocks and long-term bonds. Dealer markets connect dealers and brokers electronically, while stock markets have physical locations for trading. The two leading US stock exchanges are the New York Stock Exchange, which trades on a physical floor, and Nasdaq, an electronic exchange.

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    ECO_240___Chapter_2

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    ECO_240___Chapter_2

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    Capital can be transferred from suppliers to demanders through direct transfers of securities, primary market transactions where a corporation sells new securities, or through financial intermediaries. An initial public offering is an example of a primary market transaction as it issues new securities. Money market securities include treasury bills and commercial paper, while capital market securities include stocks and long-term bonds. Dealer markets connect dealers and brokers electronically, while stock markets have physical locations for trading. The two leading US stock exchanges are the New York Stock Exchange, which trades on a physical floor, and Nasdaq, an electronic exchange.

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    Download as docx, pdf, or txt
    16 views2 pages

    ECO 240 Chapter 2

    Uploaded by

    Casper John Nanas Muñoz
    Capital can be transferred from suppliers to demanders through direct transfers of securities, primary market transactions where a corporation sells new securities, or through financial intermediaries. An initial public offering is an example of a primary market transaction as it issues new securities. Money market securities include treasury bills and commercial paper, while capital market securities include stocks and long-term bonds. Dealer markets connect dealers and brokers electronically, while stock markets have physical locations for trading. The two leading US stock exchanges are the New York Stock Exchange, which trades on a physical floor, and Nasdaq, an electronic exchange.

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    Chapter 2 – Financial Markets and Institutions

    2-2 Describe the different ways in which capital can be transferred form suppliers of capital

    to those who are demanding capital.

    The different ways in which capital can be transferred from suppliers of capital to

    those who are demanding capital are through direct transfers of money and securities,

    which occurs when a business sells its stocks or bonds directly to savers, without going

    through any type of financial institution. Another way in which capital can be transferred

    between the two is through a primary market transaction, which involves new securities

    and the corporation receives the proceeds. Finally, transfers can be made through a

    financial intermediary such as a bank, an insurance company, or a mutual fund. The

    intermediary obtains funds from savers in exchange for its securities. The intermediary

    uses this money to buy and hold businesses’ securities, while the savers hold the

    intermediary’s securities.

    2-3 Is an initial public offering an example of a primary or secondary market transaction?

    Explain.

    An initial public offering is an example of a primary market transaction. This is

    because a primary market a market in which corporations raise capital by issuing new

    securities and initial public offerings issue new securities.

    2-4 Indicate whether the following instruments are examples of money market or capital

    market securities.

    a. U.S. Treasury bills – money market securities.


    b. Long-term corporate bonds – capital market securities.
    c. Common stocks – capital market securities.
    d. Preferred stocks – capital market securities.
    e. Dealer commercial paper – money market securities.
    2-7 Differentiate between dealer markets and stock markets that have a physical location.

    The difference between dealer markets and stock markets that have a physical

    location is that a dealer market is defined to include all facilities that are needed to

    conduct security transactions not made on the physical location exchanges. These

    facilities include relatively few dealers, thousands of brokers who act as agents in

    bringing the dealers together with investors, and the computers, terminals, and electronic

    networks that provide a communication link between dealers and brokers.

    2-8 Identify and briefly compare the two leading stock exchanges in the United States today.

    The two leading stock exchanges in the United States today are the New York

    Stock Exchange and Nasdaq. Nasdaq is completely an electronic exchange where all

    transactions are made on computer. On the other hand, the New York Stock Exchange is

    conducted on a trading floor, but it too is starting to trade electronically. Generally the

    New York Stock Exchange has larger companies and Nasdaq is balanced towards smaller

    companies.

    2-9 Describe the three different forms of market efficiency.

    The three different forms of market efficiency are weak-form efficiency,

    semistrong-form efficiency, and strong-form efficiency. The weak form states that all

    information contained in past stock price movements are fully reflected in current market

    prices. The semistrong form states that current market prices reflect all publicly available

    information. The strong form states that current market prices reflect all pertinent

    information, whether publicly available or privately held.

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