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Canadian Securities Course > Chapter One > Flashcards

Chapter One Flashcards

1
Q

What are the 3 characteristics off capital?

A

Mobile, sensitive and scarce

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2
Q

Name the 6 country risk evaluations?

A
  1. Political environment
  2. Economic trends
  3. Fiscal policy
  4. Monetary policy
  5. Investment opportunity and labour force
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3
Q

What happens if capital investment is in adequate? Name 4.

A
  1. Insufficient output,
  2. Declining productivity
  3. Rising unemployment
  4. Decreasing competitiveness
    basically lowest standard of living
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4
Q

What is the only source of capital?

A

Savings

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5
Q

Who are the 3 significant sources off investment capital?

A

Retail, institutional, foreign

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6
Q

Who are retail investors?

A

Individuals who buy sell securities for their own account

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7
Q

Who are institutional investors?

A

Organizations such as pension funds, mutual fund companies basically they trade in large volumes and typically have a steady flow of money to invest.

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8
Q

What does foreign direct investment tend to focus on?

A

Manufacturing, petroleum, gas, mining, smelting

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9
Q

Who are the 3 users of capital?

A

Individuals, businesses, governments

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10
Q

Who do you businesses usually borrow from?

A

Short term money market paper, medium and long-term debt and preferred and common shares

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11
Q

What do you federal governments issue?

A

T-bills, marketable bonds, Canada savings bonds, Canada premium bonds

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12
Q

What do you provincial governments issue?

A

Bonds, borrow from CPP, short time T-bills and savings bonds

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13
Q

What do municipal governments issue?

A

Installment debentures or serial debentures

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14
Q

What are securities?

A

Formal legal documents which sets out rights and obligations of the buyers and sellers

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15
Q

What are the three key components of the securities industry?

A

Financial instruments, financial markets, financial intermediaries

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16
Q

What are financial instruments?

A

Debt, equity, investment funds, derivatives, other such as linked notes and exchange traded funds

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17
Q

What is an investment fund?

A

It is a company or trust that manages investments for clients the common form is open end fund also known as mutual fund

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18
Q

Who are derivatives suited for?

A

Sophisticated investors

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19
Q

What are derivatives and provide an example?

A

Products based on or derived from an investment such as a stock or index, common derivatives are options and forwards

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20
Q

Provide the six means by which private equity investors finance firms.

A
  1. Leveraged buyout
  2. Growth capital
  3. Turnaround
  4. Early-stage venture capital
  5. Late stage venture-capital 6. Distressed debt.
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21
Q

Who typically are private equity investors? Name 5

A
  1. Public pension plans
  2. Private pension plans
  3. Endowments
  4. Foundations
  5. High net worth investors
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22
Q

What is the capital/securities market made up off? Name the 3.

A

Stock markets, bond markets, money markets

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23
Q

What is the primary market?

A

New securities are sold on the primary market the company issues stock for the first time as initial public offering.

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24
Q

What is an auction market?

A

Buyers enter bids and sellers enter offers for stock

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25
Q

What is a bid?

A

Highest price a buyer is willing to pay

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26
Q

What is an ask or offer?

A

Lowest price a seller will accept

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27
Q

What is spread?

A

The difference between bid and ask prices

28
Q

What is the last price also known as market price?

A

The price at which the last trade on that stock took place.

29
Q

What is a stock exchange?

A

A marketplace where buyers and sellers meet to trade with each other and where price is established according to the laws of supply and demand.

30
Q

What is a liquid market characterized by? Name 3.

A
  1. Frequent sales.
  2. Narrow price spread.
  3. Small price fluctuations.
31
Q

Name the 5 stock exchanges.

A
  1. Toronto Stock exchange (TSX)
  2. TSX Venture Exchange
  3. Montreal Exchange
  4. Canadian National Stock Exchange (CNSX)
  5. ICE Futures Canada exchange
32
Q

What does the TSX trade?

A

Senior equities, debt that are convertible into a listed equity, income trust and exchange traded funds (ETFs).

33
Q

What does the TSX venture exchange trade?

A

Junior securities and debenture issues

34
Q

What does the CNSX trade?

A

Securities of emerging companies

35
Q

What does the Montreal Exchange trade?

A

Financial and equity futures and options

36
Q

What does ICE Futures Canada trade?

A

Agricultural futures and options

37
Q

What is the dealer market?

A

It is the second major type of market network of dealers who trade with each other over the phone or computer and where only dealers bid and ask quotes are entered.

38
Q

What are almost all bond and debentures sold through?

A

Dealer market

39
Q

What is Dealer markets also referred to?

A

Over-the-counter (OTC) or unlisted markets.

40
Q

Where is there a requirements for a firm to report unlisted trades?

A

Ontario through Ontario securities commission by reporting through CUB.

41
Q

What is CUB and what does it do?

A

It is the Canadian unlisted board. It offers a internet web-based system for dealers to report completed trades.

42
Q

What does QTRS mean?

A

Quotation and trade reporting system. QTRS must be recognized by provincial securities authority

43
Q

What does ATS stand for?

A

Alternative trading systems they are privately owned computerized trading facilities can be owned by individual, brokerage firms or groups of brokerage firms they are all members and regulated by IIROC.

44
Q

What does IIROC stand for?

A

Investment Industry Regulatory Organization of Canada

45
Q

What is Can Deal?

A

It is a member of IIROC it is a joint venture between six investment dealers operated by TMX Group. Offers institutional investors access to government securities and money market instruments.

46
Q

What is CBID?

A

It is a member of IIROC and an ATS it offers 2 fixed income market places - retail and institutional.

47
Q

What is CANPX?

A

It is a joint venture of Investment industry Association of Canada. It is an IIROC member. It is an information processing system for government and corporate debt securities real time, government of Canada bonds, T-bills, provincial bonds and corp. bonds.

48
Q

What are derivatives?

A

They are products derived from underlying instruments such as stock, financial instrument, commodity or index e.g. options, futures, rights.

49
Q

What our financial intermediaries?

A

Banks, trust companies and investment dealers

50
Q

What market is the exclusive exchange for trading financial futures and options in Canada?

A

The Montreal exchange

51
Q

What is the difference between a bond and debenture?

A

A bond is secured by specific assets while a debenture is secured only by the general credit.

52
Q

How does capital investment affect Canada’s growth? Name the 5.

A
  1. Insufficient output
  2. Diminishing productivity
  3. Rising unemployment
  4. Decreasing competitiveness
    Lead to lower living standards.
53
Q

How do corporations rate as sources of capital?

A

Corporations are not an important source of capital—they are seen as users of capital.

54
Q

What is the difference between the primary market and the secondary market?

A

The primary market is the market where a security is sold when it is first issued and sold to investors.

The secondary market is where subsequent trading takes place and individual investors trade among themselves.

55
Q

What is the difference between auction markets and dealer markets?

A

Canada’s stock exchanges are auction markets. In an auction market, clients’ bids and offers for a stock are channelled to a single central market and compete against each other. Brokerage firms usually act as agents for their clients. The prices of all transactions are publicly visible.

Dealer markets, also known as over-the-counter (OTC) or unlisted markets, do not necessarily have a central trading location or exchange where trades flow. Market makers post their bid and ask prices, but the prices at which transactions occur are less publicly visible and may differ from the posted prices.

56
Q

What is the difference between debt instruments and equity instruments?

A

A debt instrument is an agreement whereby the issuer promises to repay a loan on a specified date. In the interim, the issuer makes fixed interest payments to the investor.

An equity instrument (a stock or share) allows the investor to buy an ownership stake in the company.

57
Q

What is the difference between a Quotation and trade reporting systems (QTRS) and Alternative Trading Systems (ATS)?

A

Quotation and Trade Reporting Systems (QTRSs) are entities, other than an exchange or registered dealer, that disseminate price quotations for the purchase and sale of securities and report completed transactions to the applicable securities commission. A QTRS must be recognized by a provincial securities regulatory authority.

Alternative Trading Systems (ATSs) are privately owned computerized trading facilities that match buy and sell orders for securities traded outside of recognized exchanges. ATSs can be owned by individual brokerage firms or by groups of brokerage firms. ATSs must be members of the Investment Industry Regulatory Organization of Canada (IIROC).

58
Q

What is the difference between CanDeal and CBID?

A

Both CanDeal and CBID are IIROC members and are considered to be ATSs. However, CanDeal offers institutional investors access to Government securities and to money market instruments while CBID operates retail and institutional fixed-income marketplaces. The CBID retail fixed-income marketplace is accessible by registered dealers on behalf of retail clients and the institutional fixed-income marketplace is accessible by registered dealers, institutional investors, governments and pension funds.

59
Q

What is leveraged buyout?

A

This is the acquisition of companies financed with equity and debt. Buyouts are one of the most commonly used forms of private equity.

60
Q

What is turnaround?

A

Investments in underperforming or out of favour industries that are in either financial need or operating restructuring.

61
Q

What is early stage venture capital?

A

Investments in firms that are in the infancy stages of developing products or services in high growth industries such as health care or technology. These firms usually have a limited number of customers.

62
Q

What is late stage venture capital

A

The financing of firms which are more established but still not profitable enough to be self-sufficient. Revenue growth is still very high.

63
Q

What is distressed debt?

A

This is the purchase of debt securities of private or public companies that are trading below par due to financial troubles at the firm.

64
Q

Where do almost all bond trading in Canada takes place?

A

Dealer market

65
Q

What are the differences between common and preferred shares?

A

Investors with common shares participate in a proportional claim to profits, losses and any declared dividends and they can vote.
Owners of preferred shares are entitled to a fixed dividend and have a prior claim on the company’s assets, but do not participate in the company’s growth and are not allowed to vote.

Canadian Securities Course (6 decks)

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