Firms also raise capital through private placements. Using this method of finance, firms will issue and sell securities to a few, select investors rather than to the general public. Private placements are often structured so there is no need to register the issue with the SEC, saving considerable time and money.
Figure 2.3 illustrates the flow of cash and securities through primary and secondary markets.
Figure 2.3: Primary and secondary capital markets
Corporations issue bonds and stock.
Governments issue bonds and bills.
Investors buy and sell previously issued securities.
Secondary Security Markets
Newly Issued Securities
Investors play an important role in both the primary and secondary capital markets.
Money and Capital Markets Companies access the financial markets to obtain funds for long-term growth as well as for short-term or seasonal needs. Within finance, short-term has come to mean securities with maturities of one year or less. Short-term securities trade in money markets. Money market instruments include commercial paper and U.S. treasury bills. Commercial paper is a promissory note (with a maturity of 270 days or less) issued by a company. U.S. trea- sury bills (T-bills), which are sold weekly, have maturities of 13, 26, or 52 weeks. By con- vention, long-term refers to securities with a life greater than 1 year from the date of their original sale. Long- term securities include government and corporate bonds as well as stock (which has a conceptually perpetual life). Economists sometimes make a somewhat finer distinction: Intermediate-term securities have maturities of 1 to 10 years. U.S. Treasury
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