Economic Factors

Question 1

What are the 4 pillars of the Canadian financial system?

Answer 1

1) chartered banks
2) alternate banks
3) specializes lending, saving intermediaries
4) investment dealers

Question 2

What is the Canadian financial system

Answer 2

Facilitate the flow of money, they control trade, deposits, loans

Question 3

Describe chartered banks, their roles and who they serve

Answer 3

Profit seeking companies
Highly regulated, high barriers
Bank act limits foreign banks
Serve individuals and businesses
Source of Short term loans for businesses
Role: make deposits, bottom, source of small and medium companies

Question 4

Describe alternate banks

Answer 4

Trust companies; protect bond holders interests, certified investors that stock issues are correctly stated
Credit unions: savings and lending associations formed by a group with common interests

Question 5

Describe specialized lending/ saving intermediaries

Answer 5

Insurance companies 
Venture capitalist firms 
Pension funds
They take money you give them and invest it 
Role: specializes lending/ saving 
Mid to large enterprises

Question 6

Describe investment dealers

Answer 6

Facilitate trade of stock, bonds and other products in security markets

1) primary- investment dealers/ bankers
2) secondary- toronto stock exchange

Role: investment dealer for large and established

Question 7

What is a bond?

Answer 7

Legal, binding agreement, represents debt for issuing corporation, gov, will have to pay back w interest

Question 8

What is the approximate yield to market formula

Answer 8

What you made/ what you paid

Question 9

Rate of return definition

Answer 9

Often paid semi- annually

Coupon

Question 10

What is a fixed term

Answer 10

The principal paid at mature (face value and maturity date)

Question 11

What do bond holders have priory over?

Answer 11

Stockholders

Question 12

How do you calculate interest with a bond?

Answer 12

(Coupon rate) (face value)

Question 13

How do you calculate capital gain?

Answer 13

Face value- purchase price

Question 14

What factors affect bond prices

Answer 14

1) environment: prevailing interest rates
2) company: credit rating
3) product: features/ coupon rate relative to equally risky investments

Question 15

What are stocks?

Answer 15

Represents equity/ capital for the issuing company. Investors get voting rights, no fixed term, variable return, dividends

Question 16

What is a common stock

Answer 16

You have voting rights BUT there are no fixed payments, dividends discretionary

Question 17

What is a preferred stock?

Answer 17

You have no voting rights, your payments are promised but not legally required, dividends are % of par value

Question 18

What impacts the stock prices?

Answer 18

1) environment: bull vs. Bear market
2) environment: industry conditions, competitors, consumers
3) company; choices- strategies/ changes to diamond E

Question 19

What are the 2 market conditions?

Answer 19

Bull vs bear

Question 20

What is margin buying?

Answer 20

The purchase of an asset by using leverage and borrowing balance from a broker, created potential to make a longer return

Question 21

What are the 4 margin buying rules

Answer 21

1) quality for margin account
2) sign marking account agreement form
3) must pay interest on loans
4) the investors % equity must always be greater than/ equal to the minimum margin requirement

Question 22

What variable are you usually using in calculating margin transactions?

Answer 22

X

Question 23

Do you calculate interest on margin transactions?

Answer 23

Yes- on loan, whatever margin account

Question 24

Do you calculate commissions on margin transactions?

Answer 24

Yes

Question 25

What is short selling?

Answer 25

Buying low, selling high, selling shares you don’t own

Question 26

4 short selling rules?

Answer 26

1) deposit must be 150% CMV at start
2) maintenance margin must be met (125-140%)
3) agreement may be terminated by anyone at any time
4) dividends declared are the responsibility of the seller

Question 27

Do you have a loan/ interest on a loan for short selling

Answer 27

No

Question 28

Do you calculate commission on short selling

Answer 28

Yes

Question 29

What is an annuity?

Answer 29

Multiple and equal payments over equal periods of time

Question 30

If the interest and payment periods are the same then…

Answer 30

Multiply N x payment frequency

Divide R/ payment frequency

Question 31

If interest and payment periods NOT same?

Answer 31

Effective rate formula

Question 32

What is a mortgage?

Answer 32

A loan to buy real estate

Question 33

How do you calculate principal paid

Answer 33

Amount originally owed- amount still owing

Question 34

What is a vehicle lease

Answer 34

A rental agreement

Question 35

What does a retirement TVM question usually have?

Answer 35

FVoa, PVoa, effective rate

Question 36

What does a vehicle lease usually have

Answer 36

PVad + PVsa