Employ Investment Bankers
Homework week 7
1. Why do corporations employ investment bankers?
Corporations rarely issue securities while Bankers do it all the time. Bankers with their experience can help issuers to design adequate security, obtain a wide distribution and get a fair price for it. Investment bankers have experience in the sale and distribution of securities. They have sales networks and are constantly in touch with the financial market.
2. Identify the primary market functions of investment bankers.
The primary market functions of investment bankers originate, or identify through the growth companies that can benefit from stock offers. Here, the investment banker markets his company as the best to help the company raise capital. These bankers can subscribe or risk a new offer using their capital to buy the securities of the issuer and then sell the securities to investors. For small and high risk issuers, they can help in a better effort offer by selling securities on a fee-for-equity basis. …show more content…
3. Briefly describe the process of competitive bidding and discuss its relative advantages and disadvantages.
After being notified the signature that wants to issue a particular type of security, the investment banking companies will enter the offers to obtain the rights to subscribe the offer. The bank that offers the highest price will get the business. The advantage of the tender is that the competition can help the issuer to obtain a higher price for its securities. On the other hand, bankers argue that the constant advice they provide in a negotiated offer is beneficial to the issuer. The due diligence they perform with a negotiated offer also helps to inform the market of the value of the securities offered for sale. With competitive bidding, there is no such process of advice and due diligence.
4. Explain market stabilization.
Market stabilization is an intervention in the secondary markets by an investment banker to stabilize the price of a new supply of securities during the period of the offer. The purpose of market stabilization is to provide a stable market for the distribution of the new issue. Following the offer, members of the union are willing to repurchase the shares offered at an offer price. This action helps to support the price of a new stock offering and can help calm the market nervousness about an action.
5. Identify the costs associated with going public.
There are three types of costs: direct costs which include printing rates and accounting rates. The differential result of the difference between the offer price and the price that the issuer receives for the securities and the existing undervaluation of the difference between the offer price and the market price shortly after issuance.
6. What are some of the characteristics of an organized securities exchange?
Some characteristics of an organized securities exchange are they use the latest communications, trading is executed in a physical location, and they operate under the rules established by the exchange.
A securities exchange that operates under the rules and regulations formulated by the exchange. Investors actively trading on the exchange are aware of these rules and conduct trades accordingly. Another characteristic of an organized securities exchange is growth capital which is issuing of stock is the cornerstone of a capital formation for enterprise in capitalist economic systems. Another one is liquidity, which is the free and transparent trading that takes place in the stock market prices all stocks according to demand and supply, bid and ask. Lastly, but not including all is regulated risk or reward, which is a organized and regulated stock market serves as a way for investors who seek large returns on their investments to access organized, liquid, regulated and transparent risk
investing.
7. Why is there a difference between bid and ask prices at some point in time for a specific security?
A two-way price quotation that indicates the best price at which a security can be sold and bought at a given point in time. The bid price represents the maximum price that a buyer or buyers are willing to pay for a security. The ask price represents the minimum price that a seller or sellers are willing to receive for the security. A trade or transaction occurs when the buyer and seller agree on a price for the security. The difference between the bid and asked prices, or the spread, is a key indicator of the liquidity of the asset generally speaking, the smaller the spread, the better the liquidity.
8. Describe the differences among the following three types of orders: market, limit, and stop loss.
Market Order : A Market Order is an investor makes a market order through a broker or brokerage service to buy or sell an investment immediately at the best available current price. The market order is the default option and is likely to be executed because it does not contain restrictions on the time frame in which the order can be executed. A market order is also sometimes referred to as an unrestricted order.
Limit Order: A limit order is a take-profit order placed with a bank or brokerage to buy or sell a set amount of a financial instrument at a specified price or better; because a limit order is not a market order, it may not be executed if the price set by the investor cannot be met during the period of time in which the order is left open. Limit orders also allow an investor to limit the length of time an order can be outstanding before being canceled.
Stop-Loss Order: An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit an investor’s loss on a position in a security. Although most investors associate a stop-loss order only with a long position, it can also be used for a short position, in which case the security would be bought if it trades above a defined price. A stop-loss order takes the emotion out of trading decisions and can be especially handy when one is on vacation or cannot watch his/her position.
9. What is a short sale?
A short sale is a transaction in which an investor sells borrowed securities in anticipation of a price decline and is required to return an equal number of shares at some point in the future. A short seller makes money if the stock goes down in price, while a long position makes money when the stock goes up. In real estate, short sale means selling a house for less than the mortgage owed with the lender's approval. The shares are borrowed by the broker and sold, and if the price fall actually occurs, the actual seller hedges the position by buying enough shares to pay the investor who lent the shares.
10. .Describe buying on margin. In the United States, the Federal Reserve Board regulates the amount of margin an investor must pay for a security. Beginning in 2016, the Federal Reserve Board requires an investor to fund at least 50% of the purchase price of a cash value. The investor can borrow the remaining 50% from a broker or dealer. Buying on margin is the purchase of an asset by paying the margin and borrowing the balance of a bank or broker. Buy in margin refers to the initial or initial payment made to the broker for the asset to be purchased; The guarantee for the borrowed funds is the marketable securities in the investor's account. Before buying on margin, an investor needs to open a margin account with the broker.
1. Why do corporations employ investment bankers?
Corporations rarely issue securities while Bankers do it all the time. Bankers with their experience can help issuers to design adequate security, obtain a wide distribution and get a fair price for it. Investment bankers have experience in the sale and distribution of securities. They have sales networks and are constantly in touch with the financial market.
2. Identify the primary market functions of investment bankers.
The primary market functions of investment bankers originate, or identify through the growth companies that can benefit from stock offers. Here, the investment banker markets his company as the best to help the company raise capital. These bankers can subscribe or risk a new offer using their capital to buy the securities of the issuer and then sell the securities to investors. For small and high risk issuers, they can help in a better effort offer by selling securities on a fee-for-equity basis. …show more content…
3. Briefly describe the process of competitive bidding and discuss its relative advantages and disadvantages.
After being notified the signature that wants to issue a particular type of security, the investment banking companies will enter the offers to obtain the rights to subscribe the offer. The bank that offers the highest price will get the business. The advantage of the tender is that the competition can help the issuer to obtain a higher price for its securities. On the other hand, bankers argue that the constant advice they provide in a negotiated offer is beneficial to the issuer. The due diligence they perform with a negotiated offer also helps to inform the market of the value of the securities offered for sale. With competitive bidding, there is no such process of advice and due diligence.
4. Explain market stabilization.
Market stabilization is an intervention in the secondary markets by an investment banker to stabilize the price of a new supply of securities during the period of the offer. The purpose of market stabilization is to provide a stable market for the distribution of the new issue. Following the offer, members of the union are willing to repurchase the shares offered at an offer price. This action helps to support the price of a new stock offering and can help calm the market nervousness about an action.
5. Identify the costs associated with going public.
There are three types of costs: direct costs which include printing rates and accounting rates. The differential result of the difference between the offer price and the price that the issuer receives for the securities and the existing undervaluation of the difference between the offer price and the market price shortly after issuance.
6. What are some of the characteristics of an organized securities exchange?
Some characteristics of an organized securities exchange are they use the latest communications, trading is executed in a physical location, and they operate under the rules established by the exchange.
A securities exchange that operates under the rules and regulations formulated by the exchange. Investors actively trading on the exchange are aware of these rules and conduct trades accordingly. Another characteristic of an organized securities exchange is growth capital which is issuing of stock is the cornerstone of a capital formation for enterprise in capitalist economic systems. Another one is liquidity, which is the free and transparent trading that takes place in the stock market prices all stocks according to demand and supply, bid and ask. Lastly, but not including all is regulated risk or reward, which is a organized and regulated stock market serves as a way for investors who seek large returns on their investments to access organized, liquid, regulated and transparent risk
investing.
7. Why is there a difference between bid and ask prices at some point in time for a specific security?
A two-way price quotation that indicates the best price at which a security can be sold and bought at a given point in time. The bid price represents the maximum price that a buyer or buyers are willing to pay for a security. The ask price represents the minimum price that a seller or sellers are willing to receive for the security. A trade or transaction occurs when the buyer and seller agree on a price for the security. The difference between the bid and asked prices, or the spread, is a key indicator of the liquidity of the asset generally speaking, the smaller the spread, the better the liquidity.
8. Describe the differences among the following three types of orders: market, limit, and stop loss.
Market Order : A Market Order is an investor makes a market order through a broker or brokerage service to buy or sell an investment immediately at the best available current price. The market order is the default option and is likely to be executed because it does not contain restrictions on the time frame in which the order can be executed. A market order is also sometimes referred to as an unrestricted order.
Limit Order: A limit order is a take-profit order placed with a bank or brokerage to buy or sell a set amount of a financial instrument at a specified price or better; because a limit order is not a market order, it may not be executed if the price set by the investor cannot be met during the period of time in which the order is left open. Limit orders also allow an investor to limit the length of time an order can be outstanding before being canceled.
Stop-Loss Order: An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit an investor’s loss on a position in a security. Although most investors associate a stop-loss order only with a long position, it can also be used for a short position, in which case the security would be bought if it trades above a defined price. A stop-loss order takes the emotion out of trading decisions and can be especially handy when one is on vacation or cannot watch his/her position.
9. What is a short sale?
A short sale is a transaction in which an investor sells borrowed securities in anticipation of a price decline and is required to return an equal number of shares at some point in the future. A short seller makes money if the stock goes down in price, while a long position makes money when the stock goes up. In real estate, short sale means selling a house for less than the mortgage owed with the lender's approval. The shares are borrowed by the broker and sold, and if the price fall actually occurs, the actual seller hedges the position by buying enough shares to pay the investor who lent the shares.
10. .Describe buying on margin. In the United States, the Federal Reserve Board regulates the amount of margin an investor must pay for a security. Beginning in 2016, the Federal Reserve Board requires an investor to fund at least 50% of the purchase price of a cash value. The investor can borrow the remaining 50% from a broker or dealer. Buying on margin is the purchase of an asset by paying the margin and borrowing the balance of a bank or broker. Buy in margin refers to the initial or initial payment made to the broker for the asset to be purchased; The guarantee for the borrowed funds is the marketable securities in the investor's account. Before buying on margin, an investor needs to open a margin account with the broker.