Question 3 - Financial Markets [10 points]: Kampfire, Inc., a very successful manufacturer of camping equipment, is considering going public next month to raise funds to help finance the company's future growth. The financial manager of Kampfire has approached the investment banking firm at which you work seeking help with its decision. Your boss asked you to explain the nature of the U.S. financial markets and the process of issuing equity to the financial manager. To help with this task, your boss has asked you to answer the following questions in explaining the U.S. financial system to the financial manager: rkets for C- Differentiate between a primary market and a secondary market. If Microsoft decided to issue additional common stock, and an investor purchased 1,000 shares of this stock from Merrill Lynch, the underwriter, would this transaction be a primary market transaction or a secondary market transaction? D- Describe the three primary ways in which capital is transferred between savers and borrowers. O E- Securities can be traded on physical exchanges or in the over-the-counter market. Define each of these markets, and describe how stocks are traded in each one. Question 2 - Effect of Deposit Increase [4 points]: Through its open market operations, the Federal Reserve recently increased deposits at financial institutions by $80 billion. If the reserve requirement for all deposits is 8 percent, what is the maximum effect that the Fed's actions can have on total deposits? (Hint: You first need to figure out the change in excess reserve, given the $80 billion increase in deposits at financial institutions.)