FINANCIAL RESOURCES
Assets and Financial Markets

Companies can raise capital in two ways to finance the long term assets they need to produce revenue: By selling ownership interest in the form of stock or by borrowing long term in the form of corporate bonds. The initial gathering of the money and the issuance of paper is called the "primary transaction" and is generally done through a licensed intermediary called an "investment banker". The original buyer of these securities is supported by large "secondary markets" such as the New York Stock Exchange and NASDAQ, where such securities may be "listed" and traded to others interested in that stock or bond. The financial importance of such secondary markets rests in the fact that they provide a means for the original investors to sell stocks and bonds and to observe their value in the market. Thus, secondary markets facilitate original financing and encourage further financing of long term corporate needs by releasing dollars originally traded for paper to purchase new investment paper in new or growing companies.

Corporate managers are also interested in these long term financial markets because there is linkage between financing long terms assets and the cost of securing the funds to purchase them. The type of security sold to secure funds represents a decision on the part of the management of the company to finance at certain cost and risk levels. The goal of the investor is to obtain the highest return at the lowest levels of risk, while the goal of the corporate manager is to obtain the required amount of financing at the lowest cost overall. The large secondary markets for securities arbitrate the percentage of return to the investor and the related percentage cost to the company in securing those funds by establishing "fair market" prices in what is called an "efficient market" setting.

Efficient financial markets evolve from the "listing" for trading in the recognized secondary markets those securities which are held by a sufficiently large numbers of investors and in sufficiently large quantities. These conditions permit a fair market price to be established by buyers and sellers who are willing to buy or sell based on current conditions within the listed company or in the economic system. The efficiency of the system is, therefore, key to providing investment opportunity at fair prices for the risk undertaken and providing necessary financing dollars to the companies within the system at the most competitive cost.

The New York Stock Exchange (NYSE), the largest of the secondary markets, currently lists over 3000 companies with over 260 billion shares with a market value of over 15 trillion dollars (U.S.). This market has a physical market location on Wall Street in the city of New York. Many companies, particularly some high tech companies, prefer to be listed in the NASDAQ, as do companies too small to meet the listing requirements of the major exchanges. Since many companies sold "over the counter" are small, the market for their shares is not considered "efficient" and thus prices and returns can be a matter of individual negotiation. NASDAQ recently merged their operations with the smaller, floor based exchange called AMEX. The combined exchanges are now known as NASDAQ/AMEX.

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