Chapter 2 Flashcards
What is investment capital?
WEALTH
What are the 3 characteristics of capital?
Mobility, sensitivity, scarcity
Other factors; political environment, economic trends, fiscal/monetary policy
Direct v Indirect Investments
Direct: person invests savings in a home
Indirect: person buys stock
What are the sources of capital?
Retail investors: individual clients buying for personal accounts
Institutional Investors: mutual funds trading in large volumes
Foreign Investors: direct investments into Canada
What are the users of capital?
Individuals: need capital to finance large purchases
Businesses: need capital to finance day-to-day operations
Government: need capital to undertake large projects
What are debt instruments? (5 types)
Fixed Income Securities: issuer promises to repay loan + interest
Equity Securities: ownership stake in the company
Derivatives: product whose value is derived from underlying asset
Managed Products: pools of capital gathered together, mutual funds
Structured Products: financially engineered products
What are equities?
Ownership stake in the company that issued them (stock)
What role do financial markets play in Canada?
Provides a forum for buyers and sellers to meet
Primary market/secondary market
Auction market/dealer market
Auction vs. Dealer markets
Auction Market: exchanges, securities are bought and sold by investors, trade executed when bid and ask price match
Dealer Market: OTC market, market makers post bid and ask quotes via electronic platform, bonds and debentures sold on dealer market
What is the purpose of the primary market?
Newly issued securities sold by companies, governments, IPO’s
Investors purchase directly from company
What is the purpose of the secondary market?
Trade securities that have already been issued
Stock exchange
List 5 exchanges in Canada
TSX: equities, some debt
TSX-V: equities, some debenture
TSX-Alpha: trading in securities listed in TSX/V
Montreal Exchange: futures, options
ICE NGX: electronic trading, gas/electricity markets
Canadian Securities Exchange; emerging companies
NEO: TSX/V
What is an electronic trading system?
ATS: electronic marketplace, automatic executions
How do ATS function?
ATS must be registered as an investment dealer, and member of SRO
Equity electronic trading system
Fixed-income electronic trading system
Who are CanDeal, CBID, CanPX?
Fixed-income Electronic Trading Systems:
CanDeal: IIROC member, big 6, institutional investors
CBID: ATS for retail and institutional
CanPX: joint venture between Canadian dealers and inter-dealer broker. Provides real time quotes
