Chapter 14
Capital Markets
FIGURE 14-1
Internally generated funds:
Depreciation and retained earnings
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PPT 14-1
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PPT 14-2
FIGURE 14-2
Flow of funds
through the
economy
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PPT 14-3
FIGURE 14-3
Suppliers of funds to
credit markets
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PPT 14-4
TABLE 14-3
Global stock markets
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Chapter 14 - Outline
LT 14-1
 Capital
Markets vs. Money Markets
 Government Securities
 Corporate Securities
 Organized Stock Exchanges
 Over-the-Counter Market
 Regulation of the Securities Markets
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Capital Markets vs.
Money Markets
LT 14-2
Capital Markets are where L/T securities with
maturities greater than 1 year are traded
ex., common stock, preferred stock, bonds, and
convertible securities
Money Markets are where S/T securities with
maturities less than 1 year are traded
ex., T-Bills, commercial paper, negotiable CDs
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Government Securities
LT 14-3
U.S. Government Securities
– due to recent budget surpluses, U.S. Treasury has
been repurchasing outstanding debt and reducing
government borrowing
 Federally Sponsored Credit Agencies
– issued separately from those sold directly by U.S.
Treasury
 State and Local Securities
– referred to as municipal securities and are exempt
from federal income taxes

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Corporate Securities
LT 14-4
Corporate Bonds
– most widely used form of financing in recent years
– corporations rely mainly on bonds over other
securities
Preferred Stock
– least used of all L/T corporate securities
Common Stock
– represents a small percentage of L/T financing
– not a very important source of funds
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Organized Stock Exchanges
LT 14-5
New York Stock Exchange (NYSE)
– largest and most important market for stocks in U.S.
– strict requirements in order for a firm to be traded here
American Stock Exchange (AMEX)
– national exchange but less significant than NYSE
– also located in New York City
Regional Stock Exchanges
– smaller exchanges located in cities like Chicago and Boston
– account for a very small percentage of trading
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Over-the-Counter Market
LT 14-6
Over-the-Counter Market (OTC)
–has no central location
– is a network of dealers connected by
computer terminals and telephones
– bulk of all bond trading is done OTC
– largest market for total $ volume of securities
– supervised by the National Association of
Securities Dealers (NASD)
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Regulation of the Securities
Markets
LT 14-7
 The
Securities and Exchange Commission (SEC)
is in charge of regulating the organized stock
exchanges
 Purpose
of the SEC is to protect investors from
fraud and manipulation
 Trend
in recent years has been toward more
legislation to avoid abuses in the market
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