Principles of Managerial Finance, 15th Edition

2.2 Financial Markets

1. LG2

2. LG3

Whereas savers who deposit funds into financial institutions have no direct knowledge of how those funds are lent, suppliers of funds in the financial markets know where their money goes. Financial markets are forums in which suppliers and demanders of funds can transact business directly. The two key financial markets are the money market and the capital market. Short-term debt instruments, or marketable securities, trade in the money market. Long-term securities—bonds and stocks—trade in the capital market.

To raise money, firms can use either private placements or public offerings. A private placement involves the sale of a new security directly to an investor or group of investors, such as an insurance company ...