Securities issuance is a vital process for corporations and governments to raise capital through financial instruments like stocks and bonds. It involves key participants including issuers, underwriters, and investors, and differentiates between debt and equity securities. The choice of security type has strategic implications for a company's financial health and market position, while the overall process contributes to economic growth and market liquidity.
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Securities are financial instruments that corporations and governments use to raise capital from investors
Primary Market
Securities are initially sold in the primary market, directly from the issuer to investors
Secondary Market
After the primary market, securities are traded in the secondary market
Securities issuance is crucial for companies to secure capital for various endeavors and plays a significant role in the functioning of the economy
The issuer, such as a corporation or government entity, initiates the securities issuance process by deciding to raise funds
The underwriter, typically an investment bank, plays a pivotal role in ensuring the success of the offering by conducting due diligence and determining pricing strategies
Investors provide the capital that the issuer seeks by purchasing securities
Debt securities, such as bonds, are loans made by investors to the issuer, with the commitment to repay the principal and interest over a specified period
Equity securities, such as stocks, represent ownership stakes in a company and grant shareholders a claim on the company's profits and voting rights
Derivative securities, whose value is based on an underlying asset, are often used for hedging and risk management purposes
Securities issuance can have varying implications for a company, including bolstering its market standing and facilitating the efficient allocation of capital
Securities issuance can pose challenges, such as increased levels of debt and economic volatility, if not managed prudently
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Entities like ______ and governments can gather funds by selling financial instruments to investors, a process known as securities ______.
corporations
issuance
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Financial instruments offered during securities issuance may include ______, ______, and derivatives among others.
stocks
bonds
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Initial Step in Securities Issuance
Issuer decides security type, amount, pricing strategy.
