Question

What is the purpose of stock warrants? How are they used by lenders/investors?

Answer 1

Purpose of Warrants: Warrants are issued by company to raise the capital. Further it provides company option to raise fund in the event of bankruptcy.

Warrants are a type of instrument attached with specif right to buy anything at specific fixed price without any obligation.  Warrant that allows the investor to buy is a “call” warrant. A “put” warrant gives the investor a right to sell. The set price is called the “strike price,” the expiration date is the “expiry,” and the initial purchase price is called the “premium.”

benefits

Warrants give the investor an opportunity for higher returns -- but at higher risk. However, the maximum an investor can lose is the original investment. It is easy to purchase warrants and they are also regularly traded on the equity market. They are very liquid, allowing the buyer to easily sell it. Warrants are available from countries around the world, giving the investor financial opportunities not typical available through the buying and selling of traditional shares.