Boring Chapter 14 notes Flashcards
What are the major competitors?
- The federal government
- Federal crown corporations
- The provinces
- The provincial crown corporations
- Municipalities
- The private sector
What happens when the economy is healthy?
Tax revenues increase causing the government deficit to shrink and therefore reduce the amount of funds the finance department must raise.
What happens when the economy is in a recession?
Tax revenues decline, and deficits increase. If the government tries to stimulate the economy by increasing spending, the likely effect will be to create larger deficits in the short run and a much greater need for financing.
What was the average maturity of the federal government debt in 2008?
It had increased to about 7 years from under 4 years in 1989.
What do shorter terms do?
They cause regular rollover of the debt and may cause a certain amount of market instability.
What have we seen now that the federal government has been reducing their debts?
We have seen the corporate sector (and individuals) increasing their debt loads. Also there has been decreased pressure on interest rates and we have seen rates decline.
What is the division of Stocks and Bonds used in Canada?
On average, bonds and stocks have been used in equal proportions to fund external debt of Canadian corporations. In more recent years, more use of debt.
What happened during the recessions of the mid-70s and early 80s?
The corporate reliance on internal funds increased dramatically.
How much do corporations normally depend on internal funds?
Usually about 50%
What do financial intermediaries such as banks, trust companies, insurance companies, mutual funds, pension funds and credit unions provide?
In a 3-sector economy of business, households and government, these financial intermediaries indirectly invest excess funds in areas of the economy where funds are needed.
What is the difference between organized exchanges and the over-the-counter markets?
The organized exchanges have one central location ad operate as auction markets.
The over-the-counter markets have no central location, instead a network of dealers all over the country is linked by computer display terminals, telephones and teletypes.
What do listing requirements provide?
They provide some assurance to the investor that corporations trading on a specific exchange can meet demonstrated requirements as to income, number of stakeholders, total asset value, and number of shares outstanding.
What does abnormal profits mean?
it is describing returns above what the market anticipates given the risk assumed in financial investment. NPV is greater than 0.
What as ‘the 4 pillars of finance’ structure?
It was an attempt to reduce the possibility of conflict of interest when managing other peoples money.
Why is the 24 hour trading day becoming increasingly more important?
Because of internationalization of security markets. Already several markets have linked up their trading floors so that trading can be maintained at all hours of the day.
