ASSIGNMENT #3

1. Analyze the motivations of firms to raise funds inside and outside of the local capital market. 
2. Distinguish the need of a secondary market

1. Firms may be motivated to raise funds inside and outside the local capital market. Inside the
local market, firms may prefer to raise funds by issuing securities such as stocks or bonds to
finance their operations, expansion, or investments. This allows firms to tap into the available
resources of local investors and financial institutions. Additionally, raising funds locally may
help to build stronger relationships with local investors and financial institutions and increase the
firm's visibility and reputation within the local market.
On the other hand, firms may look to raise funds outside of the local market when the
cost of capital is lower or when no adequate funding sources are available locally. For instance,
firms may choose to issue securities in foreign markets with lower interest rates or where there is
high demand for their securities. This can help firms reduce the cost of borrowing and access a
broader pool of investors with different investment objectives and risk tolerance levels.

2. The secondary market refers to the market where investors trade already-issued securities,
such as stocks or bonds, among themselves rather than buying them directly from the issuing
company. The primary function of the secondary market is to provide liquidity to investors,
allowing them to buy and sell securities easily and quickly. This is important because it gives
investors an exit strategy and the ability to adjust their investment portfolios according to
changing market conditions or personal circumstances.
Additionally, the secondary market helps to determine the fair market value of securities
based on the forces of supply and demand. By allowing investors to buy and sell securities, the
secondary market establishes market prices for those securities, which can help to attract more
investors and increase the efficiency of the overall capital market. Finally, the secondary market
can also serve as a source of funding for companies looking to raise additional capital by issuing
additional securities or selling their existing securities in the market.