- What are the three primary ways in which capital is transferred between savers
ID: 2768559 • Letter: #
Question
- What are the three primary ways in which capital is transferred between savers and borrowers? Describe each one.
- What are the two leading stock markets? Describe the two basic types of stock markets.
- If Apple computer decided to issue additional common stock and Varga purchased 100 shares of this stock from make Smyth Barry, the underwriter, would this transaction be a primary or a secondary market transaction? Would it make a difference if Varga purchased previously outstanding Apple stock in the dealer market? Explain.
- What is an initial public offering (IPO)?
- What does it mean for a market to be efficient? Explain why some stock pricesmay be more efficient than others.
Explanation / Answer
1) three primary ways in which capital is transferred between savers and borrowers
2) The New York stock Exchange and the Nasdaq are the two leading stock markets. The two basic types of stock markets are:primary market where new issues are first sold through IPOs(Initial public offerings) where in the investment bank sells the issue to the public and the secondary market where all the subsequent trading of the stock is done.
3)If Apple computer decided to issue additional common stock and Varga purchased 100 shares of this stock from make Smyth Barry, the underwriter, this transaction would be a primary market transaction as the newly issued securities are directly purchased form the issuing company via a underwriter.
if Varga purchased previously outstanding Apple stock in the dealer market then the transaction is secondary market transaction since the stocks are not directly purchased form the company but from the dealer and the stocks purchased are already outstanding.
4)An IPO is the Initial public offering of the stock to the general public for the first time in the primary market where the issuing company sells the stock to the public via a underwriter.
5)Markets are efficient when security prices restores quickly to the fair prices therefore reflecting all the information.The security prices always have all the information assimilated in them therefore no new information can move their prices because that information i already reflected in their prices.
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