Financial Securtities Flashcards
(89 cards)
Business, household, government, and banking sectors are all providing a source of income to the economy, which one of these is the primary source of savers?
Out of the business, household, government and banking sectors, households are the primary source of savers.
What is a broker, a financial intermediaries, dealer, and market intermediary?
A broker is an individual or a firm that acts as an intermediary between a buyer and a seller in financial transactions. They earn a commission or fee for their services.
Financial intermediaries are institutions or entities that act as intermediaries between savers and borrowers in the financial system.
A dealer is a person or entity that engages in the buying and selling of financial instruments, such as stocks, bonds, or derivatives, for their own account. Unlike brokers who facilitate transactions between buyers and sellers, dealers trade securities on their own behalf.
Market intermediaries are a broad term that can encompass both brokers and dealers. It refers to any entity that operates in the financial markets, facilitating the flow of funds and securities between buyers and sellers.
What is fiscal policy vs monetary policy?
In a fiscal policy a government adjusts its levels of spending in order to monitor and influence a nation’s economy. Ex: Taxes and Spending.
In a monetary policy, the actions of a central bank, Bank of Canada, currency board or other regulatory committee, that determines the size and rate of growth of the money supply which in turn, affects interest rates. Ex: Interest Rate, Currency, Open Market Operations
What are the two methods in calculating GDP?
The Income approach and the Expenditure approach are two ways to calculate GDP.
The Income approach is based on the sum of a country’s wages, rent, interest and profits.
The Expenditure approach is based on the sum of a country’s goods and services bought by the four sectors of the economy: Household Consumers (C and I), Business (C and I), Governments (G), Foreign Buyers (Exports and Imports).
GDP = C + I + G + (X-M)
What is the circular flow for an economy?
Shows that an economy’s total spending equals the income earned by its citizens. The significance of the flow is that GDP can be calculated using the information.
What are the factors of inflow and the factors of outflow?
Factors of Inflow
Revenue: Income generated from sales, services, or other business activities.
Investment Income: Returns on investments such as interest, dividends, and capital gains.
Financing: Capital raised through borrowing or equity financing.
Grants and Subsidies: Financial assistance from government or other entities.
Factors of Outflow
Operating Expenses: Day-to-day costs of running a business.
Capital Expenditures: Investments in long-term assets like equipment or property.
Debt Repayment: Payments toward loans or other debt obligations.
Dividends and Distributions: Payments to shareholders or partners.
Taxes: Payments to government authorities.
Operating Costs: Costs associated with regular business operations.
What is factor market and what is product market in a circular flow
Factor Market: The factor market is where factors of production (such as labor, land, capital, and entrepreneurship) are bought and sold. In this market, individuals sell their services to businesses, and businesses pay for the productive resources they need.
Product Market: The product market is where goods and services produced by businesses are bought and sold by households or other businesses. It is the market where the final products or services are exchanged for money. Consumers purchase goods and services, creating revenue for businesses in the product market.
What is CPI?
A Consumer Price Index is a measure of price movements, produced by Statistics Canada and obtained by comparing the retail prices of a representative “shopping basket” of goods and services at two different points in time
How is CPI calculated? (Basis point vs real GDP or GDP deflator)
It is calculated by comparing the retail prices of a representative “shopping basket” of goods and services at two different points in time
TBD
What is a leading, lagging and coincident indicator?
Leading indicators: Economic indicators that tend to change before the economy as a whole changes. They are used to predict future trends and can provide insights into the direction of the economy. Examples include stock market performance, building permits, and consumer confidence.
Lagging indicators: Economic indicators that change after the overall economy has already changed. They confirm long-term trends and are often used to assess the impact of past economic events. Examples include unemployment rates and corporate profits.
Coincident indicators: Economic indicators that change at the same time as the overall economy. They provide a real-time snapshot of the current economic conditions. Examples include GDP, industrial production, and retail sales.
What type of exchange rate can a government use to control its currency?
A government can use fixed exchange rates or floating exchange rates but in this case a fixed exchange rate would prove to be more beneficial. In a fixed exchange rate system, a government or central bank pegs its currency to another major currency or a basket of currencies. In a floating exchange rate system, the value of a currency is determined by market forces of supply and demand in the foreign exchange market.
What is the Bank of Canada?
The Bank of Canada is the central bank of Canada. It is responsible for monetary policy, issuing the Canadian dollar, promoting the stability and efficiency of the financial system, and acting as the fiscal agent for the Canadian government.
How is the Bank of Canada different from chartered banks?
The Bank of Canada is the country’s central bank, responsible for monetary policy and issuing the national currency. Chartered banks, on the other hand, are commercial banks that operate within the financial system, providing services such as deposits, loans, and other financial products to the public.
Which business cycle has the highest output and employment of the lowest output and employment?
The peak has the highest point/output on the business cycle. Spending is at its highest level and at the end of its expansion, and low unemployment and rising prices.
The trough is the lowest point/output on the business cycle. Unemployment is at its highest level and prices are falling
What is the difference between a change in quantity demand vs a change in demand?
A change in quantity demanded refers to a movement along the same demand curve in response to a change in price, while a change in demand involves a shift of the entire demand curve due to factors such as income, preferences, or the prices of related goods.
What will happen to quantity demand or supply if the economy is not in equilibrium?
If the economy is not in equilibrium, there will be a tendency for quantity demanded and quantity supplied to be different. If quantity demanded exceeds quantity supplied, there is excess demand, leading to upward pressure on prices. Conversely, if quantity supplied exceeds quantity demanded, there is excess supply, leading to downward pressure on prices.
How are these forms of business different in terms of ownership, and liabilities (sole proprietorship, partnership and corporation)?
Sole Proprietorship
Sole proprietorships are owned by a single individual. The owner has unlimited personal liability for the business debts and obligations. Personal assets are at risk.
Partnership
Partnerships involve two or more individuals who share ownership and responsibilities. In a general partnership, partners have unlimited personal liability. In a limited partnership, some partners have limited liability, while others have unlimited liability.
Corporation
Corporations are owned by shareholders, and ownership is represented by shares of stock. Shareholders generally have limited liability, meaning their personal assets are protected. The corporation itself is a separate legal entity, responsible for its debts and obligations.
What are the advantages and disadvantages of sole proprietorship, partnership (general vs limited partnership), corporation?
Sole Proprietorship
Easy to start and manage; Direct control by the owner; Tax simplicity (profits taxed as personal income). Unlimited personal liability; Limited access to capital; Business continuity challenges.
Partnership (General)
Shared decision-making and resources; Tax simplicity (profits flow through to partners); Easy to establish. Unlimited personal liability for general partners; Potential for conflicts among partners; Limited access to capital compared to corporations.
Partnership (Limited)
Limited liability for some partners; Shared decision-making and resources; Tax advantages. General partners still face unlimited liability; Complexity in structure and regulations; Limited access to capital compared to corporations.
Corporation
Limited liability for shareholders; Access to capital through stock issuance.; Perpetual existence and easier transfer of ownership. Complex legal and regulatory requirements; Double taxation (corporate and individual levels); Separation between ownership and control (agency issues).
What is the difference between direct vs indirect intermediation
Direct intermediation involves financial institutions (like banks) directly interacting with individuals and businesses, taking in deposits and providing loans or other financial services. The intermediaries directly connect savers and borrowers.
Indirect intermediation involves financial markets where individuals and businesses interact indirectly through various financial instruments. Savers invest in financial assets (such as stocks or bonds) issued by corporations or governments, and these funds are then used by the issuers for investment or operational purposes.
What is the difference between debt financing vs equity financing?
Debt financing involves borrowing money, repaid with interest, without giving up ownership. Equity financing entails selling ownership shares to investors, who become partial owners and share in profits. Debt creates a legal obligation for repayment, while equity means sharing risks and rewards. The choice depends on factors like financial structure and strategic goals.
What are securities?
Securities are financial instruments that represent ownership or debt in an entity. Examples include stocks, which signify ownership in a company, and bonds, which represent debt that the issuer must repay with interest. Securities are bought and sold in financial markets, allowing investors to trade ownership or debt instruments.
What is stock or shares?
Stocks, also known as shares or equity, represent ownership in a company. When individuals or institutional investors buy stocks, they become shareholders, owning a portion of the company.
What is the biggest stock exchange in Canada?
The Toronto Stock Exchange (TSX) is the largest stock exchange in Canada.
What is the meaning of ‘going public’?
‘Going public’ refers to the process by which a private company transitions to become a publicly traded company by offering its shares for sale to the general public on a stock exchange. This involves an initial public offering (IPO), where the company issues new shares to investors, and existing private shareholders may also sell their shares to the public.
