Capital markets comprise all the investable securities available both domestically and internationally, generally with maturities longer than 1 year. Money markets refer to the investable securities that have a short-term maturity of less than 1 year. This week you will focus on the capital markets.

Capital market securities are issued by various entities to raise financing for projects. In the U.S., these entities include the U.S. federal government, state and municipal entities, and corporations. Capital markets serve an important function of matching investors with entities in need of financing. There is substantial competition in the U.S. capital markets among both investors and offering entities. As corporations have expanded, the international capital market has gained greater prominence.

As individuals amass investable funds, they turn to financial intermediaries to invest those funds. These financial intermediaries include banks, insurance companies, pensions, and mutual funds/ETFs through brokerage firms. As corporations and other entities seek to raise financing, they turn to financial intermediaries such as investment banks. Investment banks play a critical role in providing firms with access to capital but at often very steep costs.

For additional insight into investment banking or IPOs, consider viewing these videos: https://www.youtube.com/watch?v=eVu99Mr45H8(Links to an external site.)

https://www.youtube.com/watch?v=SiAuBVrwqbw(Links to an external site.)

Security markets exist to enhance the flow of funds between investors and entities seeking financing. The New York Stock Exchange is a well-known example of a security market. The efficiency of the markets as well as the costs to access these markets is an important concern for you individually and as a manager. Securities markets in the U.S. have been regulated since the 1930s.

For background on security regulations, consider viewing this video: https://www.youtube.com/watch?v=bI9wZenbcs4(Links to an external site.)

For additional information on Sarbanes-Oxley, consider viewing this video: https://www.youtube.com/watch?v=eeQagPytR-o

Questions

• Discuss the evolution of the securities markets, including the impact of the NASDAQ, CME, ECNs, and foreign exchanges.
• Explain the role of securities markets in the efficient allocation of capital among issuers and investors based on the efficient market hypothesis.
• Evaluate if the presence of dark pools enhances or reduces capital market efficiency.
• Finally, find a real-life company that has made raised capital in 2020 and discuss the method used.

References

Block, S. B., Hirt, G. A., & Danielsen, B. R. (2019). Foundations of financial management (17th ed.). McGraw-Hill Higher Education.