Chapter 2 - Capital Markets & The Financial Industry Flashcards
2 ways capital can be used
Directly through the purchase of material things ie land, buildings.
Indirectly through the purchase of representational things such as stocks and bonds or deposits in a savings account.
What is capital?
Capital is wealth
Characteristics of capital.
It is mobile, sensitive and scarce. It’s glow is guided by:
Political environment; economic trends; fiscal policy; monetary policy; opportunities for investment with acceptable risk and satisfactory return and characteristics of the labour force.
What is the only source of capital?
Savings
Are corporations important providers of permanent funds to others in capital markets?
No, they tend to retIn their savings in the corporation rather than invest in other companies stocks.
What is the liquidity objective.
At nearly all times there are buyers at some price point for the securities. This is for investors who need money on short notice.
Why is tax minimization as an investment objective
The tax treatment of any investment varies depending on whether the returns are categorized as interest, dividends of capital gains.
Normally the investment in any one security should be limited to what % of the total portfolio?
10%
A balanced portfolio consists of?
Securities from cash equivalents, fixed income securities (bonds and preferred shares) and common shares.
In addition to balancing a portfolio how else can it be diversified?
Invest in different industries, geographical areas, maturity dates
Name the 3 groups of users of capital
Individuals, corporation and government
Name 3 instruments the federal government uses to finance it’s debt.
Treasury Bills (T-bills) Long and short term bonds Canada savings bonds.
How many stock markets are in Canada and what type are they?
Canada has 5 stock exchanges and they are auction markets.
Almost all bond trading in Canada takes place in what type of market?
Dealer/over the counter
What Canadian stock exchanges accept debt security listings?
Alberta and Toronto
A liquid market is characterized by
Frequent sales
Narrow price spread between bid and offering prices
Small price fluctuations from sale to sale.
When a stock exchange is founded how are memberships obtained?
They are sold to different individuals
On the ASE membership involves acquisition of one or more stock exchange seats. What does this entitle the owner to?
It entitles the owner, upon election, to exchange as a member, trade listed securities on the exchange, participate in the corporate affairs of the exchange.
Can you sell a stock exchange seat?
Yes, it is a valuable asset which may be sold subject to conditions in the exchanges bylaws.
How does one become a member of an existing stock exchange?
In addition to obtaining the necessary approvals an applicant broker must purchase a seat from an existing member who is willing to sell.
What are the conditions of stock exchange membership?
At least 40% of the firm must be involved in the securities business.
Applicant must have sufficient capital to carry on business
Key personnel must have completed the required course of study.
Member firms may be publicly owned.
Who is responsible for administration and policy setting of the exchange.
The administration and policy setting of the exchange is the responsibility of each exchanges governing body
The exchanges governing body is made up of…
Governors - senior exchange officials.
Public Governors - elected from outside the brokerage community.
President.
What is the makeup of the governing body of the Alberta Stock Exchange?
1 president
3 public governors
11 governors.
Who assists the exchanges governing body?
Exchange committees are formed from exchange membership to perform supervisory functions and delegated responsibilities.
Describe the position and responsibilities of the president of the exchange
A full time position that is filled by appointment of the governing body.
Responsible directs all aspects of the exchanges day to day operations. Takes initiative to promote the exchange and does PR.
