CSC Chapter 2 - The Capital Market

Direct Investment

A couple invests their savings in a home. • A government invests in a new highway. • A company pays start-up costs for a new plant are all examples of?

Indirect Investment

An investor buys stocks or bonds. • A parent invests in an education savings plan. • A couple deposits their savings at a bank are all examples of?

Retail investors

Individual investors who buy and sell securities for their own personal accounts, and not for another company or organization.

Institutional investors

Large organizations such as pension funds or mutual funds that invest their own funds or the funds of others.

Fixed income securities

Securities such as bonds, notes, and preferred stocks that offer purchasers fixed periodic income.

Equity securities

Represent some form of ownership stake in the company that issued them. Ex: Common Stock

Derivative

A product whose value is derived from the value of an underlying instrument, such as a stock or an index. Ex: options, forwards

Managed products

Are typically pools of capital gathered from investors to buy securities according to a specific investment mandate. Ex: Mutual funds, ETFs

Structured products

A _____________ is a financially engineered product with the characteristics of debt, equity, and an investment fund. Ex: Principal protected notes

Money markets

Only short-term fixed-income securities with a term of one year or less trade in the ___________

Primary market

The market in which new securities are originally sold to investors. Ex: IPOs

Secondary market

Previously issued securities are traded among investors. Ex: Trading on the TSX

Auction market

Securities are bought and sold by investors. Investment dealers, who typically act as agents, execute the buy and sell orders on behalf of their clients

Bid-ask spread

The difference between the bid price and the asked price

Bid price

Highest price a buyer is willing to pay for the security being quoted

Ask price

The lowest price a seller will accept

Last price

The price at which the last trade occurred on a stock

Stock exchange

An auction market where buyers and sellers of securities meet to trade with each other and where prices are established according to the laws of supply and demand

over the counter

Consist of a network of banks and investment dealers. Unlike an auction market, where the orders of individual buyers and sellers are entered in a centralized marketplace, a dealer market is a negotiated market where market makers post bid-and-ask quotations via electronic platforms and computer networks

Alternative trading systems

These systems are electronic marketplaces that provide automated matching and execution of trades in both the equity and fixed-income markets

CanDeal

Is a member of the Investment Industry Regulatory Organization of Canada (IIROC), and it is a joint venture between Canada's six largest bank-owned investment dealers. It offers institutional investors access to government securities and money market instrument

CBID

An electronic trading system for fixed-income securities operating in both retail and institutional markets

MarketAxess

Provides market data and a trading platform with access to multi-dealer competitive pricing for a wide range of corporate bonds and other types of fixed-income instruments

CanPX

Joint venture between several Canadian investment dealers and inter-dealer brokers. The service covers Government of Canada bonds and Treasury bills