Question

1. Explain in a few sentences (100 words or less) why the US Treasury market is important generally and specifically to the global financial markets.

2.Explain in a few sentences (100 words or less) if you believe the purpose of a corporation should be to enhance shareholder wealth only.

3.Explain in a few sentences (100 words or less) the main differences between the 'primary' and 'secondary' financial markets. Mention though which market a company would actually receive cash and give one example of a secondary market transaction.

Answer 1

1. US economy is one of the strongest economy with strong currency since the Gold Standard. All the major economies like India and China also have huge US Dollar reserve and Investment in US treasury markets for the simple reason that they are very safe and are backed by huge tax base and It is very difficult for them to default. They have a default free rate of return.

2. The main purpose of the corporation is to maximize the wealth of their shareholders thereby increasing the stock price of the company. The profit of the company is linked to its shareholders who are the owners of the company. It is very important for the management to keep their shareholders happy by giving them a good return on investment.

3. Primary market is a market for issuing the securities for the very first time, For example- A startup planning to raise money through public through an Initial Public Offer (IPO). This is the first source of raising the money from the shareholders by issuing the shares of the company.

These shares given to the shareholders are further traded on a stock exchange which is also known as secondary market, where buyers and sellers come in contact with each other to trade the securities. Primary market can be considered the source of cash and an example of secondary market transaction is the trading of Apple, Google or Netflix shares on the US Stock exchange.