Chapter One - The Capital Market Flashcards
What is investment capital?
It is available and investable wealth ( real estate, stocks, bonds, money)
What is the difference between direct and indirect investing ?
Direct investment is when an individual or company invests directly in an item ( house, new road )
Indirect investment occurs when an individual buys a security and the issuer invests the proceeds.
How do individuals use capital ?
Generate through savings
Use capital to finance major purchases or for consumption
What are three characteristics of capital?
1) sensitive
2) mobile
3) in short supply
How do businesses use capital?
to finance day to day operations, to renew and maintain plant and equipment, and expand activities
How do Governments use capital?
when expenditures exceed revenue and to finance large projects
How do foreign investors use capital?
they invest in Canada to access returns on investment
Describe Debt (bonds or debentures)
the issuer promises to repay a loan at maturity, and in the interim makes payments of interest. Term of maturity can be short or long. (5 or 10 years)
Equity (stocks)
the investor buys a share that represents a stake in the company
Investment funds (mutual funds, segregated funds)
a company or trust that manages investments for its clients.
Derivatives (options , futures, rights)
products derived from an underlying instrument , such as a stock, financial instrument commodity or index
other investment products ( linked notes, exchange-traded funds)
investments that are relatively new and do not fit into any of the standard categories.
What is private equity?
is the financing of firms unwilling or unable to find capital using public means- via stocks and bonds
Who is the main investors in the private equity market?
private pension plans, endowments, foundations, wealthy individuals.
What is the primary market?
initial sale of securities to an investor
What is the secondary market?
the transfer of already issued securities among investors
What are dealer markets?
they are a network of dealers that trade with each other directly on a negotiated market with market makers.
Most bond and debentures trade on these markets?
Dealer Markets
What is an auction market?
clients bid and ask quotations for stock are channeled to a single central market (stock exchange) and compete against each other.
What is political environment?
whether the country is involved or likely to be involved in internal or external conflict
What are economic trends?
growth in gross domestic product, inflation rate, levels of economic activity etc.
What is a Fiscal Policy?
levels of taxes and government spending and the degree to which the government encourages savings and investment.
What is a monetary policy?
the sound management of the growth of the nation’s money supply and the extent to which it promotes price and foreign exchange stability
Investment Opportunities?
opportunities for investment and satisfactory returns on investment when considering the risks to be accepted
What are characteristics of the labour force?
whether it is skilled and productive…
What is the only source of capital?
SAVINGS
What are retail investors?
They are individual investors who buy and sell securities for their own personal accounts, and not for another company or organization
What are institutional investors?
are organizations such as a pension fund or mutual fund company, that trade large volumes of securities and have steady flow of $$ to invest.
What are foreign investors tend to concentrate on?
tended to concentrate in particular industries: petroleum, natural gas, manufacturing and mining and smelting.
What is a leveraged buyout?
The acquisition of companies financed with equity and debt. Buyouts are one of the most commonly used forms of private equity
What is growth capital?
the financing of expanding firms for their acquisition or high growth rates.
What is turnaround?
investments in underperforming or out of favour industries that are in financial need or operating restructuring
What is Early Stage Venture Capital?
Investment in firms that are in the infancy stages of developing products or services in high growth industries ( health care and technology)
What is Late Stage Venture Capital?
The financing of firms which are more established but still not profitable enough to be self-sufficient. Revenue growth is still high.
What is distressed debt?
This is the purchase of debt securities of private or public companies that are trading below par due to financial troubles
What is a bid?
the highest price a buyer is willing to pay for the security being quoted.
What is the ask ( or offer)?
this is the lowest price a seller will accept
What is the spread?
this is the difference between the bid and ask prices
What is the last price?
is the price at which the last trade on that stock took place
What is a stock exchange?
is the market place where buyers and sellers of securities meet to trade with each other and where prices are established according to the laws of supply and demand
What does the TSX stand for and list?
Toronto Stock Exchange - senior equities, some debt instruments (convert to equity), income trusts, exchange traded funds (ETFs)
What does TSX Venture Exchange trade?
-junior securities and a few debenture issues
What dose CNSX stand for and trade?
Canadian National Stock Exchange - trades securities of emerging companies
What does MX stand for and trade?
The Montreal Exchange - trades all financial and equity futures and options.
What does ICE Futures Canada trade ?
agricultural futures and options
CanDeal?
Offers institutional investors access to Government securities and to money market instruments.
CBD?
operates two distinct marketplaces: retail and institutional .
CANPX?
information processor for government and corporate debt securities that provides investors with real time bid and offer prices and hourly trade data.
