Capital Markets

1. What is the intended role of each of the institutions and intermediaries discussed in the case for the effective functioning of capital markets?

Institutions:

- Companies

Companies are looking for capital to finance and grow their businesses. In return they should become profitable and therefore be a valuable investment at the capital market.

- Investors

Investors want to increase their savings. They are investing in stocks in order to receive return rates to cover the risk of investing.

Intermediaries:

- Venture Capitalists

The capital of venture capitalist is used by companies to finance their business at the beginning. In return venture capitalists expect high return rates. In most cases those return rates are realized by selling their stake when the companies go public.

- Investment Bank Underwriters

Investment Banks assist Entrepreneurs in the process of going public by providing help with pricing the offers, underwriting shares and financial services. Moreover they are introducing the Entrepreneurs to investors, to sell the shares.

- Sell-Side Analysts

The main function of Sell-Side Analysts is to provide Investment Banks and Brokerage Houses with Buy or Sell recommendations.

These recommendations are based on information received from managements of the companies and trends in the industry.

Another part of their work is to collaborate with Buy-Side Analysts by providing them with their research. Thus they support the companies in the process of going public.

- Buy-Side Analysts