1. Capital allocation process The capital allocation process involves the transfer of capital among different entities that include individuals, small businesses, banks, financial intermediaries, companies, mutual funds, and other market participants. In a developed market economy, capital flows freely between entities that want to supply capital to those who want it. This flow of capital can be classified in three ways. In the table below, identify the nature of capital transfer given in the scenario with its appropriate classification: Indirect Transfers Direct Transfers through Investment Banks Indirect Transfers through Financial Intermediaries Scenario California Public Employees' Retirement System (CalPERS) manages pension and health benefits of California public employees and retirees. CalPERS collects money from its participants and creates a pool of assets. It manages these assets by making investments across domestic and international markets. Based in Grass Valley, California, L & M Seeds Co. is a small company that manufactures organic seeds. To raise capital, the company sells stocks directly to savers in Grass Valley without involving any bank or financial intermediary. Erin borrows money from her uncle to buy a new laptop. XEdu.com is an early-stage start-up company that plans to issue its first public common stock-called an initial public offering (IPO)-in six months. It hires an investment bank to underwrite the issue.
1. Capital allocation process The capital allocation process involves the transfer of capital among different entities that include individuals, small businesses, banks, financial intermediaries, companies, mutual funds, and other market participants. In a developed market economy, capital flows freely between entities that want to supply capital to those who want it. This flow of capital can be classified in three ways. In the table below, identify the nature of capital transfer given in the scenario with its appropriate classification: Indirect Transfers Direct Transfers through Investment Banks Indirect Transfers through Financial Intermediaries Scenario California Public Employees' Retirement System (CalPERS) manages pension and health benefits of California public employees and retirees. CalPERS collects money from its participants and creates a pool of assets. It manages these assets by making investments across domestic and international markets. Based in Grass Valley, California, L & M Seeds Co. is a small company that manufactures organic seeds. To raise capital, the company sells stocks directly to savers in Grass Valley without involving any bank or financial intermediary. Erin borrows money from her uncle to buy a new laptop. XEdu.com is an early-stage start-up company that plans to issue its first public common stock-called an initial public offering (IPO)-in six months. It hires an investment bank to underwrite the issue.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:1. Capital allocation process
The capital allocation process involves the transfer of capital among different entities that include individuals, small businesses, banks, financial
intermediaries, companies, mutual funds, and other market participants. In a developed market economy, capital flows freely between entities that
want to supply capital to those who want it. This flow of capital can be classified in three ways. In the table below, identify the nature of capital
transfer given in the scenario with its appropriate classification:
Indirect Transfers
Indirect Transfers
Direct
Transfers
through
Investment Banks
through Financial
Intermediaries
Scenario
California Public Employees' Retirement System (CalPERS) manages pension
and health benefits of California public employees and retirees. CalPERS
collects money from its participants and creates a pool of assets. It manages
these assets by making investments across domestic and international
markets.
Based in Grass Valley, California, L & M Seeds Co. is a small company that
manufactures organic seeds. To raise capital, the company sells stocks
directly to savers in Grass Valley without involving any bank or financial
intermediary.
Erin borrows money from her uncle to buy a new laptop.
XEdu.com is an early-stage start-up company that plans to issue its first
public common stock-called an initial public offering (IP0)-in six months.
It hires an investment bank to underwrite the issue.
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