Raising Funds And Cost Of Capital
Raising Funds and Cost of Capital
1. What are the three primary roles of financial markets? Explain.
Financial markets serve three major functions.
• Channel funds. Financial markets help channel funds from suppliers to demanders. Within an economy, some have a surplus of funds while others have a shortage of funds. Financial markets provide a mechanism to help move funds from those who have a surplus (suppliers) to those who have a shortage (demanders). Business firms are net users of funds.
• Provide a resale market. Financial markets provide a resale market. Such markets provide liquidity by enabling the holder to convert an asset into cash with ease. If investors believe that liquidating the investment would be difficult or costly, they would be reluctant to commit funds.
• Establish market prices and rates of return. Financial markets establish market prices and rates of return. Setting prices is difficult but occurs through the interaction of suppliers and......
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Approximate Word Count: 6413
Approximate Pages: 26 (250 words per double-spaced page)
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