INTERSEMESTRAL Flashcards
What is a Primary Market?
A formal organization where an issuer, through a public offering, offers financial securities to be acquired by investors.
What is a Secondary Market?
The sector of the financial market where the buying and selling of previously issued securities or financial instruments takes place.
What is an Underwriter?
A financial institution that helps a company issue shares for the first tim
Describe the 3 services an Underwriter can do?
- Due diligence: Process of thoroughly analyzing a company to verify the information.
- Valuation
◦Discounted Cash Flow (DCF)
◦Comparable company analysus (Comps)
◦Precedent transactions - Roadshow
What is Market Capitalizatión and how do we obtain it?
Value of a company
Market Cap=Price per Share x Total Shares
What does Leave money on the Table means and how do we get it?
Challenge of valuating the shares properly.
LMT=(Closing IPO Price - Opening IPO Price) x Total Shares
What is the Stock Exchange?
- A specific platform of organization where securities are traded.
- Facilitating the Trading of Securities
- Listing Securities through IPOs - Ensuring market regulation and fairness
- Provide information of the companies listed, such as their prices and securities
What is a Dealer?
Buys and sells securities for their own account.
They own the securities they trade.
Set the prices at which they are willing to buy (bid) and sell (ask).
How does a Dealer gain money?
Spread: difference between bid and ask prices.
What is a Broker?
Facilitates transactions by acting as an intermediary. Do not own securities
How does a Broker gain money?
Earn profits by the fees for arranging the trade.
Does a Dealer own securities?
Yes.
What are Over the Counter Operations?
Trading stocks directly between two parties.
Can also have dealers, brokers and institutions.
Less regulated so it might be riskier
What are the 2 stock exchanges in Mexico?
Bolsa Mexicana de Valores (BMV)
Bolsa Institucional de Valores (BIVA)
What does MILA means?
Mercado Integrado Latinoamericano
What is te purpose of MILA?
It is an initiative that integrates the stock markets of several Latin American countries to create a larger, more liquid market for investors and companies.
Which are the 4 members of MILA?
- Chile: Bolsa de Comercio de Santiago (BCS)
- Colombia: Bolsa de Valores de Colombia (BVC)
- Mexico: Bolsa Mexicana de Valores (BMV)
- Peru: Bolsa de Valores de Lima (BVL
What are the main 2 divisions in the Debt Market?
Fixed Income and Money Market
In the Debt Market, what is Fixed Income conformed of?
- Bonds (Corporate, Government)
- Medium Term Notes (Certificados Bursátiles CEBUREs)
- Trust Certificates (CPOs: Certificados de Participación Ordinaria
In the Debt Market, what is Money Market conformed of?
*1. Treasury Bills (CETEs): issued by the government
2. Commercial Paper (Papel Comercial): issued by corporates3
3. Bank Certificate Deposits (Pagarés con Rendimiento Liquidable al Vencimiento “PRLV”): issued by financial institutions
4. Banker’s Acceptance (Aceptaciones bancarias): issued by corporates through a financial institution
What are the main 2 divisions of Capital Markets?
Fixed Income and Variable Income
In the Capital Market, what is Fixed Income conformed of?
- Corporate Bonds
- Trust Certificates (CPOs: Certificados de Participación Ordinaria)
- Medium Term Notes (CEBUREs o Pagaré
In the Capital Market, what is Variable Income conformed of?
- Stocks
- REIT (Real Estate Investment Trust) -> FIBRA (Fideicomiso de Infraestructura y Bienes Raíces)
- Development Capital Certificates (DCC) -> CKD (Certificados de Capital de Desarrollo) JUST IN MEXICO
- Warrants
- ETF (Exchange Traded Funds)
Explain the 2 types of Trust Certificates
- Right to a future cash flowPublicly traded
- Classification by method of participation
1. Amortizable: the investor gets paid the capital periodically and the interest (returns)
2. Non amortizable: the investor only gets the capital at the end of the term.
-Classification by type of participation
1.Ordinary Participation Certificates (CPO: Certificado de Participación Ordinaria): Any asset or project
2. Investment Participation Certificates (CPI: Certificado de Participacion Inmobiliaria)* Only real estate, One Project
Name the 7 different types of Variable Income Securitites in the Capital Markets
- Development Capital Certificates, DCC; (CKDs, Certificados de Capital de Desarrollo)
- Investment Project Securities (CerPis, Certificados Bursátiles de Proyectos de Inversión)
- Structured Notes
- REITS, Real Estate Investment Trusts (FIBRAs, Fideicomisos de Inversión y Bienes Raíces)
- Exchange-Traded Funds (ETF)
- Trackers
- Warrants
What are Development Capital Certificates, DCC; (CKDs, Certificados de Capital de Desarrollo)?
Securities designed to finance
long-term development projects.
Only for institutional investors
No nominal value
Just in Mexico
Sold on the Mexican Stock Exchange
What are Investment Project Securities (CerPis, Certificados Bursátiles de Proyectos de Inversión)?
Only for institutional Investors
Sold OTC
Like CKDs but open to domestic or international projects
What are Structured Notes?
Financial security created by a financial institution to mix fixed and variable income.
Financial securities traded OTC *
Linked to an underlying asset
What are REITS, Real Estate Investment Trusts (FIBRAs, Fideicomisos de Inversión y Bienes Raíces)?
Securities on a trust of different buildings.
The holders get a periodical payment.
Sold on stock exchanges.
Publicly traded, but can only be acquired by qualified investors or institutions
What are Exchange-Traded Funds (ETF) ?
Investment fund designed to track the performance on a group of stocks.
Can be traded on stock exchanges
Settlement period: T+2
Sold on stock exchanges
What are Trackers?
Replicate the performance of a specific Index.
Made by each financial institution.
Traded OTC.
What are Warrants?
Derivative sold on stock exchanges
Option to buy or sell a security
What are the 2 main Stock Order Types?
Market order : to buy at the available price in the market.
Limit order: to buy at a specific price.
◦The order must contain: total of shares, share price, and for how long the order will be active before being canceled
At what time do Debt securities and CKDs trading ends?
14:00 at BMV and BIVA
What are Ordinary Shares?
Right to vote
Variable dividends.
Last to be paid in case of bankruptcy.
Higher gains with the growth of the company.
Cannot be repurchased.
What are Preferred Shares?
Priority of dividends:( Fixed dividends* Paid before ordinary shareholders)
Priority in case of bankruptcy
Callable: Can be repurchased by the company
Usually, no right to vote
What are the 5 Corporative Events?
- Cash Dividend
- Stock Dividend
- Split and Reverse Split
- Stock Swap
- Stock Subscription
Explain Cash Dividend
- Ordinary: 4 times a year
- Liquidating dividend: when a company goes to bankruptcy
- Extraordinary: specific events
ASV=Prev. Stock Value - Dividend per Share
What is an Ex-Dividend?
An ex-dividend stockmeans that the right to receive the next dividend payment has expiredfor anyone who buys the stock on or after the ex-dividend date.
Explain Stock Dividend
A stock dividend is a payment to shareholders that consists of additional shares of a company’s stock rather than cash.
It does not affect the value of the company
Explain Split and Reverse split
A stock splitoccurs when a company increases the number of its outstanding shares by issuing more shares to its current shareholders.
A reverse splitoccurs when a company reduces the number of its outstanding shares by merging multiple shares into one
Explain Stock Swap
Stock swap is a technical process aimed at making unlisted shares tradable on a stock exchange.
It does not alter the shareholder’s investment value but enhances their ability to sell the shares easily.
Occurs when a share exchange involves an old series of shares (not listed on the stock exchange) being exchanged for a new series of shares (listed and tradable on the stock exchange)
Explain Stock Subscription
A stock subscription is a formal agreement between a company and an investor in which the investor agrees to purchase a certain number of shares of the company’s stock, typically at a preferential price.
If the the Mexican Stock Market drops by 20% in a day, the BMV will suspend operations for the rest of the day?
True
What does PRLV stands for?
Pagaré con Rendimiento Liquidable al Vencimiento
Which variable income security allows investors to participate in diversified, income-producing real estate portafolios?
FIBRA (Fideicomiso de Inversión en Bienes Raíces)
After its IPO, a company does not gain money from the Secondary Market, unless they sell sahres previously owned.
True
Money Market Security issued by corporations to finance their short-term needs.
Commercial Paper
Corporate Bonds are considered to be exclusively part of the Capital Market
False.
What does DCF mean?
Disocunted Cash Flow: Calculating the present value of the future cash flows of the company.
What is the DCF formula?
DCF= (FCF) / (WACC-g)
What do we call the Discounting Rate?
WACC (Weighed Average Cost of Capital)
What do we call the Rate of Equity Cost?
CAPM (Capital Asset Pricing Model)
What is the Stock Beta?
Measure of the stock volatility in relation to the market:
Beta = 1: The stock’s return moves in line with the market’s return
Beta > 1: The stock is more volatile than the market
Beta < 1: The stock is less volatile than the market
Beta = 0: The stock is not correlated with the market
Beta < 0: The stock is negatively correlated with the mark
What is Risk Premium?
The difference between the Market Return and the Risk Free Rate
What is Working Capital?
Current Assets - Current Liabilities
What is CapEx?
Money invested by a company to acquire or upgrade fixed, physical or nonconsumable assets.
