Fin 370 Week 1 Dq 1

Week 1 DQ 1

What is the capital market?

The capital market refers to long-term debt and equity instruments. Examples: Common stock, Preferred stock, corporate bond, Treasury bond, Municipal bond. From what I am understand the capital market is where a business can sell, trade their long-term debt, and equity instruments to raise money. This would be like the primary market and the secondary market.

How is the primary market different from the secondary market?

The primary market is where securities are created to be bought and sold for the very the first time, a firm that is selling the securities receives the money for the sell. Secondary market is where securities are traded between investors basically an investor trades the securities they have for another investor’s securities. The simplest way I can explain this is I have two apples; I trade them to Bobby Jo for a bag of miniature Reese’s cups just like the investors do in the stock market.

In your opinion, are these markets efficient? Why or why not?

In my opinion I believe that capital market, primary market, and secondary market is efficient because a business is able to create revenue by creating securities with their long-term debt, and equity instruments by selling to create revenue. Then investor’s that have bought the securities can trade to other investors, this provide liquidity for the investors. In turn provides opportunity for all business as well as individual investor’s by allowing capital to be borrowed, sold.

Reference: Sheridan Titman, John D. Martin, and Arthur J. Keown (2011), Financial Management: Principles and Applications (11th Ed.). Retrieved from University of Phoenix eBook Collection database