Financial Markets & Institutions Chapter 2. CapitalAllocation Financial Markets Market Efficiency. FINANCIAL INTERMEDIARIES. JOB #1: ALLOCATING CAPITAL Direct investment Investment Bankers Advise Underwrite Distribute Indirect Financial Intermediaries
A. Types of Markets
2. Secondary; where seasoned issues are bought and sold.
3. Money markets; where short-term debt instruments are bought and sold.
B. Market Makers (Specialists and Dealers);
1. New York Stock Exchange (NYSE) Specialist System; (AMEX also) (auction market)
2. Over-The-Counter Market Maker/Dealer System (NASDAQ system); (dealer market)
C. Security exchanges
1. Owned by its members, regulated by the SEC.
2. Trade as principals or as agents.
D. Reporting of transactions;
1. Reported on the ticker tape; Ticker Symbol, price, volume.
2. Summary of trading activity in the WSJ, Barron’s, other periodicals.
3. The "Market" = highest offer to buy (bid), lowest offer to sell (ask).
E. Foreign Securities; must be registered to trade in US markets.
1. ADR's; shares of foreign companies trading like those of American companies.
2. US. subsidiaries of foreign corporations which have stock outstanding.
1. Dow Jones Industrial Average (DJIA); 30
2. S&P 500 (composite index) ; 400 (industrials
3. NASDAQ Series; Composite, Industrials
B. Media Sources
1. Nightly Business Report; daily wrap-up.
2. Wall Street Week; analysis, strategies, etc.
3. Barrons, Forbes, Financial Section of the NY Times, Investors daily, letters.
A. Efficient Markets Hypothesis
1. Prices reflect all known information.
2. Three Levels of Market Efficiency;
B. Investigate before you invest – and remember – there are NO SURE THINGS – ONLY FOOLS