Financial Markets: Capital, Money, and Investment Banking

Decision Trees: Excellent tools for choosing between courses of action. They help form a balanced picture of risks and rewards for each option.

Capital Markets: Markets where governments or companies raise money (capital) to fund operations and long-term investments. Selling bonds and stocks are two ways to generate capital.

Primary vs. Secondary Markets:

In the primary market, securities are first issued to investors through an initial public offering (IPO). Investment banks assist with IPOs by guaranteeing a minimum price before selling to the public.

The secondary market—where people buy and sell previously issued securities—includes stock exchanges, bond markets, and other entities that trade financial instruments. Securities trade based on their liquidity (ability to be sold without financial risk).

Money Markets vs. Capital Markets: Capital and money markets are where large banks, governments, and corporations raise money. Money markets trade short-term public and private debt. Capital markets trade long-term securities.

All capital and money markets are regulated by the SEC (Securities and Exchange Commission).

Sectors of the Economy:

1. Primary Sector
2. Secondary Sector
3. Tertiary Sector
4. Government and Technology Sector
5. Quaternary Sector

Investment Banking: A field of banking that aids companies in acquiring funds. It also offers advice for a wide range of company transactions. The Gramm-Leach-Bliley Act legalized commercial and investment banking branches.

Syndicate: In banking, a group of banks that lend money to a borrower simultaneously and for the same purpose. In investment banking, a group of underwriters responsible for placing a new security issue with investors.

Investment bankers link corporations needing funds with investors. They design and package securities, and offer and sell them to the public.

Dilution: Occurs when a company issues additional shares, resulting in lower earnings per share and book value per share.

A leveraged buyout is a tactic to acquire control of a corporation by buying a majority of its stock using borrowed money.