Sunday, April 19, 2009

providing risk-sharing,liquidity,and information services (3)

When the price of your shares of Hitechco rises,you are richer,which tells you that you can spend more if you want to.Likewise,the managers of Hitechco can get information on how well the market thinks they are doing from secondary market price. For example,a major increase in Hitechco,s stock price conveys the market,s good feelings about the firm,s investment possibilities and management skills,and the firm may decide to issue new debt or equity and expand. Hence secondary market prices are valuable sources of information for corporations thinking about issuing new debt or equity.As a result, we will focus mainly on secondary markets in our discussion.
Three aspects of secondary markets will figure in our analysis of financial markets in part II: (1)maturity of the claim, (2) how trading takes place,and (3) when settlement takes place.

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