Financial Management: Principles and Applications, 13/e

Chapter Summaries

2.1 Describe the structure and functions of financial markets. (pg. 20)

Summary:

Financial markets allocate the supply of savings in the economy to the individuals and companies that need the money. A primary market is a market in which new, as opposed to previously issued, securities are bought and sold for the first time. In this market, firms issue new securities to raise money, which they can then use to help finance their businesses. The key feature of the primary market is that the firms that raise money by selling securities actually receive the money.

The secondary market is where all subsequent trading of previously issued securities takes place. In this market, the issuing firm does not receive any new financing, as ...