SIE Exam | 555 Questions and Answers(A+ Solution guide)

purpose of securities industry - matching investors with money to issuers that need that money to finance issuer - legal entity that sells securities in order to finance its operations (business, governments) ie. us treasury, us gov agencies, foreign governments, state and local governments, corps, banks methods issuers use to raise capital - 1) issue debt securities (bonds) and 2) issues equity securities (stocks) debt securities - publically traded loans = bonds, notes, or debt instruments. The person loaning money/buying a bond is considered a creditor to the issuer and the amount they paid for is the principal that the issuer owes them and also makes interest payments throughout the duration of the loan -can be issued by banks, corps, etc equity securities (common vs preferred) - raise capital by issuing stock (equity), this time when you buy this, you have ownership in the company and if the company is profitable then you may be entitled to a portion of the profits (this is received through dividend distribution). differs from bonds bc 1) typically no maturity date and 2) dividend payments are optional -only banks/corporations sell these and can do so publically or privately to specific group of investors preferred=paid a predetermined dividend (usually received first and higher than those of common holders, but don't get a vote in company matters) common=paid a dividend based on company fortunes broker dealer = brokerage firm (2 capacities) - 2 capacities 1) broker= (ABC - agency, broker, commission)engages in agency transactions in security accounts of others. they match up buys and sells and earn a commission for their work (like a real estate broker,acting on behalf of customers to make commission). no risk to firm, they find party willing to take other side of trade 2) dealer= (PDM - principal, dealer, markup/markdown) firms buying and selling securities for its own accounts. buy securities from clients and hold them in inventory and allow clients to buy from them. like a car dealer... buys for its inventory and sells from its inventory and can mark up and down accordingly. acts as principal and can take other side of the trade, MARK UP OR MARK DOWN -risk & Inventory broker-dealer departments/structure of firms (5) - 1) investment banking 2) research 3) sales/private client 4) trading 5) operations