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Role Of The US Financial System. Role of the US Financial System From time
to time, corporations and other types of business must ...
US Financial System. Running Head: ROLE OF THE US FINACNIAL SYSTEM Role
of the US Financial System Corporations have the need to ...
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Role of the US Financial System Paper. Role of the US Financial System
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Submitted by akmann86 on May 20, 2008
Category: Business
Words: 648 | Pages: 3
Views: 59
Popularity Rank: 104,671
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Running Head: ROLE OF THE U.S. FINACNIAL SYSTEM
Role of the U.S. Financial System
Corporations have the need to raise capital for a number of reasons. Smaller firms need capital to start up operations. Larger firms need capital to expand operations and to finance inventory. There are various ways in which a firm can raise capital through the financial system and numerous individuals and entities that can assist a corporation in this crucial venture.
Start-up firms and small businesses petition investors for what is known as venture capital. Venture capital comes from wealthy investors, usually a group, who see the potential for growth in smaller businesses. In the early 1990’s the Securities and Exchange Commission (SEC) expanded its role to assist small businesses. The SEC made it easier for small businesses to raise capital through public stock offerings (Iannaconi, 1993).
Corporations also raise money to finance debt. Businesses sell bonds to investors in order to raise money for working capital and capital expenditures. The corporation agrees to pay back the principal plus interest, therefore making the investors creditors. (Venture Capital Glossary, 2008). Bond holders are able to sell bonds to others before they are due. Selling bonds are beneficial to corporations because, in addition to raising capital, bonds also have much lower interest rates that are tax deductible. The down side is that corporations must make interest payments regardless of whether they turn a profit. This often is not an option for smaller businesses.
Larger corporations that exist as public companies can also sell bonds in order to raise capital. Public companies can issue preferred stock along with common stock. Preferred stock is a higher-ranking stock...
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