What are the characteristics of Capital?
1- Mobility: can be easily moved from one investment to another, one country to another, etc. 2- Sensitivity to its environment: will move to safer environment unless return adequately rewards the risk incurred.
What is the only source of capital?
Savings - when earnings exceed expenditures, non-financial institutions, individuals, governments & foreigners, have savings to invest.
Who/ what can be suppliers of capital?
1- Non-financial institutions 2- Individual investors (also called- retail customers) 3- Institutional investors: pension funds, mutual funds, etc. 4- Governments 5- Non-residents (foreigners)
Who are the users of capital?
3 'BIG' Users B: business I: individuals G: government
What are the 4 different types of financial instruments?
1- Debt instruments: bonds & debentures 2- Equities: common & preferred shares 3- Derivatives: warrants, rights, options, futures 4- Investment funds: open-ended & closed-ended
Capital can be transferred from supplies of capital to users of capital via financial markets. Describe the difference between the 'primary market' and 'secondary market'.
Primary market: - market on which security is first offered (IPO-initial public offering) - money goes to company Note: Governments raise money by selling T-bills, bonds, etc. Secondary market: - trading between investors - company receives no money
What are the 3 characteristics of a 'liquid market'?
1- frequent sales 2- small price spreads between bid and ask prices 3- small price fluctuations from sale to sale
What is the opposite of a 'liquid market'?
A 'thin market' - infrequent trades - large spread between 'ask' and 'bid' prices - large price fluctuation from sale to sale
What is the purpose of exchanges (auction markets)?
To increase liquidity in the market
Exchanges can also be referred to as...
Auction markets - prices are determined by supply and demand, through a 'bid' & 'ask' process.
Define the following terms: 1- Bid 2- Ask 3- Spread 4- Last price
Bid- highest price a buyer is willing to pay Ask- lowest price seller is willing to accept Spread- the difference between the 'ask' & 'bid' price Last price (market price)- price security was last traded at
What are the advantages to a company for listing shares on an exchange?
1- increased awareness/ marketability of shares 2- increased public confidence as listing companies must meet certain criteria
How do exchanges finance their operations? (3 ways)
1- transaction fees paid for each order processed 2- initial listing & annual fees paid by corporations 3-sale of historical trading data and market information
Name the 7 Canadian exchangesq
1) TSX - Toronto Stock Exchange 2) TSX Venture Exchange 3) Alpha Exchange 4) MX/ Bourse de Montreal - Montreal Exchange 5) Natural Gas Exchange 6) Canadian Securities Exchange 7) ICE Futures Exchange
What type of financial products are listed on the Toronto Stock Exchange (TSX)
- senior equities & some debt instruments such as bonds, which are converted into listed equities
What type of financial products are listed on the TSX Venture Exchange?
- Junior equities (smaller companies) and some debentures
What type of financial products are listed on the Alpha Exchange?
- equities, debentures, exchange traded funds and other structured products - some crossover with TSX and TSX venture exchange
What type of financial products are listed on the Montreal Exchange (MX/ Bourse de Montreal)?
- treats ALL financial and equity futures and options
What type of financial products are listed on the Natural Gas Exchange?
- North American natural gas and electricity
What type of financial products are listed on the Canadian Securities Exchange?
- equities of emerging (newer) companies
What type of financial products are listed on the ICE Futures Exchange?
- agricultural futures and options
Almost all bonds and departures are sold through what type of market?
Dealer markets - A network of dealers trade with each other through a computer network or over the telephone. - unlike auction markets in which individual buyers and sellers a bid and ask prices are entered, in dealer markets the actual dealers post the bid and ask prices there by acting as market makers for a particular security
What are market-makers?
A trader employed by a securities firm who is authorized and required, by applicable self-regulatory organizations (SROs), to maintain reasonable the liquidity in securities markets by making firm bids or offers for one or more designated securities.
What is SROs an acronym for?