Question

Do both financial markets and financial institutions help businesses raise money to fund new investment for growth? Why or why not?

Answer 1

Financial markets like primary market, secondary market, money market help raise equity capital for the new/existing business investors. Financial institutions like banks and custodians safeguard the businesses and it's credit default risks. Some other financial institutions offer anger investing, private equity to the new ventures and small to medium size scale businesses. Merchant banking helps businesses and companies with underwriting an IPO to raise large amount of equity, which is also a form of capital for the business investment growth. Reasons as why financial markets/institutions help business raise money is that they offer the placement for raising money via equity, debt, company debentures and other mixed investment products like derivatives and alternative investments. Investments can outrun the losses and overlap with the gains along with the time and by saving risk also by giving in the expected returns to the business. Reasons for why financial markets/institutions help business may not be able to offer the promised growth could be possibly risk oriented investments, highly volatile markets which leads to the market risk, insolvency risk and bank credit default risks etc. Also market risk is involved as the company may survive with the competition and higher risks involved within the business which again creates the business investment endure a loss.