13.11 Summary: Interest Rates, the Corporation, and Financial Markets
Corporations are intimately connected with the financial markets because the value of the corporation depends on ever-changing prices reflected in the markets, and because corporations periodically require access to the financial markets in order to acquire capital for growth. In this chapter, we outlined four financial markets: money, capital, derivatives, and foreign exchange markets. The focus was, of course, on securities markets, that is, the markets for stocks and bonds. Securities markets, in turn, are connected to the macroeconomic world, and monetary and fiscal policies are a key component of security markets analysis.
The means by which corporations gain access to the financial markets and its capital raising function is the subject of investment banking. In particular, we are interested in new securities’ issuance, or initial public offerings (IPOs), but I-banking serves various other essential roles in our financial sector.
Interest rates affect securities’ valuations, most visibly affecting bonds’ prices, but the impact on equities is notable also. This is but one example of the connections between macroeconomics and securities markets. In this section, we also glanced at the interconnections between interest rates of various sorts.
There is much to know.
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