Ch. 1 - The Capital Market Flashcards

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1
Q

What are the characteristics of Capital?

A

1- Mobility: can be easily moved from one investment to another, one country to another, etc. 2- Sensitivity to its environment: will move to safer environment unless return adequately rewards the risk incurred.

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2
Q

What is the only source of capital?

A

Savings - when earnings exceed expenditures, non-financial institutions, individuals, governments & foreigners, have savings to invest.

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3
Q

Who/ what can be suppliers of capital?

A

1- Non-financial institutions 2- Individual investors (also called- retail customers) 3- Institutional investors: pension funds, mutual funds, etc. 4- Governments 5- Non-residents (foreigners)

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4
Q

Who are the users of capital?

A

3 ‘BIG’ Users B: business I: individuals G: government

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5
Q

What are the 4 different types of financial instruments?

A

1- Debt instruments: bonds & debentures 2- Equities: common & preferred shares 3- Derivatives: warrants, rights, options, futures 4- Investment funds: open-ended & closed-ended

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6
Q

Capital can be transferred from supplies of capital to users of capital via financial markets. Describe the difference between the ‘primary market’ and ‘secondary market’.

A

Primary market: - market on which security is first offered (IPO-initial public offering) - money goes to company Note: Governments raise money by selling T-bills, bonds, etc. Secondary market: - trading between investors - company receives no money

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7
Q

What are the 3 characteristics of a ‘liquid market’?

A

1- frequent sales 2- small price spreads between bid and ask prices 3- small price fluctuations from sale to sale

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8
Q

What is the opposite of a ‘liquid market’?

A

A ‘thin market’ - infrequent trades - large spread between ‘ask’ and ‘bid’ prices - large price fluctuation from sale to sale

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9
Q

What is the purpose of exchanges (auction markets)?

A

To increase liquidity in the market

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10
Q

Exchanges can also be referred to as…

A

Auction markets - prices are determined by supply and demand, through a ‘bid’ & ‘ask’ process.

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11
Q

Define the following terms: 1- Bid 2- Ask 3- Spread 4- Last price

A

Bid- highest price a buyer is willing to pay Ask- lowest price seller is willing to accept Spread- the difference between the ‘ask’ & ‘bid’ price Last price (market price)- price security was last traded at

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12
Q

What are the advantages to a company for listing shares on an exchange?

A

1- increased awareness/ marketability of shares 2- increased public confidence as listing companies must meet certain criteria

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13
Q

How do exchanges finance their operations? (3 ways)

A

1- transaction fees paid for each order processed 2- initial listing & annual fees paid by corporations 3-sale of historical trading data and market information

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14
Q

Name the 7 Canadian exchangesq

A

1) TSX - Toronto Stock Exchange 2) TSX Venture Exchange 3) Alpha Exchange 4) MX/ Bourse de Montreal - Montreal Exchange 5) Natural Gas Exchange 6) Canadian Securities Exchange 7) ICE Futures Exchange

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15
Q

What type of financial products are listed on the Toronto Stock Exchange (TSX)

A
  • senior equities & some debt instruments such as bonds, which are converted into listed equities
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16
Q

What type of financial products are listed on the TSX Venture Exchange?

A
  • Junior equities (smaller companies) and some debentures
17
Q

What type of financial products are listed on the Alpha Exchange?

A
  • equities, debentures, exchange traded funds and other structured products - some crossover with TSX and TSX venture exchange
18
Q

What type of financial products are listed on the Montreal Exchange (MX/ Bourse de Montreal)?

A
  • treats ALL financial and equity futures and options
19
Q

What type of financial products are listed on the Natural Gas Exchange?

A
  • North American natural gas and electricity
20
Q

What type of financial products are listed on the Canadian Securities Exchange?

A
  • equities of emerging (newer) companies
21
Q

What type of financial products are listed on the ICE Futures Exchange?

A
  • agricultural futures and options
22
Q

Almost all bonds and departures are sold through what type of market?

A

Dealer markets - A network of dealers trade with each other through a computer network or over the telephone. - unlike auction markets in which individual buyers and sellers a bid and ask prices are entered, in dealer markets the actual dealers post the bid and ask prices there by acting as market makers for a particular security

23
Q

What are market-makers?

A

A trader employed by a securities firm who is authorized and required, by applicable self-regulatory organizations (SROs), to maintain reasonable the liquidity in securities markets by making firm bids or offers for one or more designated securities.

24
Q

What is SROs an acronym for?

A

Self-Regulating Organization