Chapter 2

• What are the three characteristics of capital

  scarce, mobile and sensitive to its environment
• What are favorable conditions in the context of capital settlement

  stbale government, economic activity not heavily regulated, hospitable investment climate and lastly profitable investment opportunities.
• Direct vs indirect investing


  Indirect is the the purchase of representational items like stocks, bonds. Direct is the purchase of physical asets.
• What is capital

  both real and representative items that represent wealth
• Why are corporations not significant providers of permanent funds in capital markets?

  These non-financial domestic corporations retain their funds (corporate earnings) for internal use rather than other companie's stocks and bonds.
• What are the 3 sources of capital?

  retail, institutional and foreign investors
• Who are the 3 users of capital?

  Govenments, businesses and individuals
• What are the 5 type of financial instruments?

  Fixed income, equity, derivatives, managed products and sturcture products.
• What are fixed income securities

  T bills and bonds, also called debt securities. The issuer promises to repay the loan at maturity while making interest payments to the investor. Term length may vary.
• Equity securties


  Common stock, equities or common shares which represent a stake of ownership in the company.
• Derivaties


  Options or forwards. A product whose value is derived from the value of an underlying instrument such as a stock or index.
• Managed product


  Investment funds like mutual funds, private equity and ETFs. Pools of gathered capital from investors to buy securities according to a specific investment mandate
• Structured product


  Principal-protected notes and index-liked garaunteed investment certificated. A financially engineered product with the characteristics of debt, equity and investment fund.
• Primary markets


  newly issued securities sold by companies and governments to investors
• Secondary markets


  The trading of securities that have already been issued. Buyers and sellers are matched
• Auction markets


  Where buyers enter bids and sellers enter offers (ask). between trades, the best bid is lower than the best offer
• What type of market is the stock exchange

  auction
• hat represents a liquid exchange market

  Frequent trades (high volume), narrow bid-ask spread, small price fluctuations between trades (high liquidity)
• What are dealer markets

  over-the-counter markets composed of a network of banks and investment dealers. Auction markets are a centralized marketplace whereas dealer markets act as principals that make the markets by posting bid and ask quotes.
• Where are bonds and debentures sold?

  dealer markets
• What is another name for a dealer market?

  unlisted market. Securities that trade on them are on auction markets and not listed on an organized exchange
• What is the role of IIROC with investment dealers?

  They oversee all trading activity on debt and equity marketplaces in Canada. They set and enforce market integrity rules on trading in canadian equity trading marketplaces.
• What are IIROC's 5 regulatory functions

  Financial compliance, business conduct compliance, registration, enforcement of rules, market surveillance.