Primary Market vs Secondary Maarket

Toronto Metropolitan University **We aren't endorsed by this school
FIN 300
Oct 20, 2023
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Primary Market vs. Secondary Market Primary Market: market for the sale of new securities by corporations Secondary market: market in which already issued securities are traded among investors Capital market vs Money Market Capital Market - long term financing Money Market - short term financing oExamples of Financial Institutions Bank, credit unions, insurance companies, mutual funds, pension fundsFinancial Trading TerminologyoBid price: the highest price in a market for which someone is willing to purchase a security (stock) Ask (or offer) price: the lower price in a market for which someone is willing to sell a security (selling it for the asking price of the buyer) oBid-ask spread is some implicit transaction cost investors must pay in order to trade quickly Limit order: order to buy at a specified price; until your doer matches the ask price (the amount for which someone will sell the stock to you), no trade will take place oMarket Order: order to buy immediately because it automatically takes the best price already posted; customers end up always buying at the ask(the higher price) and selling atthe bid (lower price) Chapter 2 Financial Statement Analysis oKey source of information for decision makingoNeed to know where you stand before you can make plans for the future FOCUS OF THIS COURSE IS ON THE ANALYSIS OF CASH FLOW One of the most important pieces of information that is a financial manager can derive from financial statements Balance Sheet oFinancial statement which shows the value of the firm's assets and liabilities at a time A snapshot (ex as of Dec 2010) What a firm owes and owns Where to money to buy those assets came from and shareholder equity Liquidity Ability to convert to cash quickly without a significant loss in value Liquid firms are less likely to experience financial distress However, liquid assets earn a lower return Trade-off between liquid and illiquid assets Liquidation value = value left after the firm's assets were sold and liabilities paid In finance, whenever you're in liquid assets (in your comfort zone) always create a lower return bc less risk. Vice versa as well
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