1. Regulations (Chapter 10)
How have recent financial disruptions changed the ways that financial markets are regulated?
The subprime mortgage crisis is a huge example of a financial disruption that changed the ways that financial markets are regulated. Since bankers were giving out subprime mortgages that the house buyers could not repay, the house buyers all obtained way too much debt that they could not pay back. Because people couldn’t pay back their debts then they got foreclosed. Since this screwed up our entire economic status there have been a lot of regulations on that market.
2. Bonds (Chapter 10)
Describe the basic features and characteristics of bonds. What is a convertible bond and why do investors find such bonds attractive? What advantages do convertible bonds have for the issuing firms? What stakeholder group might be harmed when a firm issues convertible bonds?
A formal debt instrument issued by a corporation or government entity and is anywhere from 10 years to thirty years long. A convertible bond is a bond or share of preferred stock that gives its holder the right to exchange it for a stated number of shares of common stock. Investors like convertible bonds because it allows them to gain from an increase in the price of common stock, while limiting their risk if the price of the stock falls. The firm can also benefit from issuing convertible bonds because the popularity of this feature with investors allows it to offer a lower coupon rate on convertible bonds, thus reducing its fixed payments. The important group that can be harmed by convertible bonds is the corporation’s existing stockholders.
3. Security Markets (Chapter 10)
What is the key difference between the primary and secondary securities markets? Why are the trades that occur on the secondary market important to a firm's management?
· Primary securities: The market where newly issued securities are traded. The primary market is where the firms that...
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