Ch. 1 - The Capital Market Flashcards Preview

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Flashcards in Ch. 1 - The Capital Market Deck (24):
1

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.

2

What is the only source of capital?

Savings - when earnings exceed expenditures, non-financial institutions, individuals, governments & foreigners, have savings to invest.

3

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)

4

Who are the users of capital?

3 'BIG' Users B: business I: individuals G: government

5

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

6

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

7

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

8

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

9

What is the purpose of exchanges (auction markets)?

To increase liquidity in the market

10

Exchanges can also be referred to as...

Auction markets - prices are determined by supply and demand, through a 'bid' & 'ask' process.

11

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

12

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

13

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

14

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

15

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

16

What type of financial products are listed on the TSX Venture Exchange?

- Junior equities (smaller companies) and some debentures

17

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

18

What type of financial products are listed on the Montreal Exchange (MX/ Bourse de Montreal)?

- treats ALL financial and equity futures and options

19

What type of financial products are listed on the Natural Gas Exchange?

- North American natural gas and electricity

20

What type of financial products are listed on the Canadian Securities Exchange?

- equities of emerging (newer) companies

21

What type of financial products are listed on the ICE Futures Exchange?

- agricultural futures and options

22

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

23

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.

24

What is SROs an acronym for?

Self-Regulating Organization