1. The Canadian Investment Marketplace
CHAPTER 1: The Capital Market
CSI Global Education Inc.

2. Chapter1---The Capital Market
Chapter outline:
What is investment capital?
What are the sources and users of capital?
What are the financial instruments?
What are the financial market?
Presented To:
2017年4月22日星期六2017年4月22日星期六

3. Learning Objectives Define investment capital, describe its role.
Describe supply and use of capital.
Types of financial instruments.
Role of financial market, types of financial market.
Private equity.
Presented To:
2017年4月22日星期六2017年4月22日星期六

4. The Role of Capital Markets
“To bring together suppliers and users of funds.”
Financial markets drive economic growth by transferring
Money from those who have it (savers) >those who
need it (users)
Three key components of the securities industry:
Financial instruments
Financial markets
Financial intermediaries
Discussion corresponds to Questions 3 and 4
Presented To:
2017年4月22日星期六2017年4月22日星期六

5. The Role of Capital Markets
capital is wealth
example: land and buildings ,savings,
stocks and bonds,
Capital savings can be used directly
—Direct Investment ,
(e.g., land, building, equipment)
Capital savings can also be harnessed indirectly
— Indirect Investment
(e.g., stock, bonds, treasury bills)

6. Characteristics of Capital
Why do we say that capital is:
Mobile
Sensitive----political ;economic trends; fiscal policy
monetary policy ; opportunities ;labor force
Scarce---It is in great demand everywhere
Corresponds to Question 5
Presented To:
2017年4月22日星期六2017年4月22日星期六

7. Sources of Capital “The only source of capital is savings.”
What are the implications of this for the economy and for the operation of financial markets?
Corresponds to Question 6
Presented To:
2017年4月22日星期六2017年4月22日星期六

8. Main Sources of Investment Capital
Individuals through savings
Retail investors are individual investors who buy and sell securities for their own personal accounts
Institutional investors are organizations, such as a
pension fund or mutual fund company
Foreign Direct Investment
Retail Investor
Institutional Investor
Corresponds to Question 6
Presented To:
2017年4月22日星期六2017年4月22日星期六

9. Main Users of Investment Capital
Individuals
Businesses
All levels of Government:
Federal ----budget deficit---budget surplus
Provincial
Municipal----installment debentures----serial debentures
Corresponds to Question 6
Presented To:
2017年4月22日星期六2017年4月22日星期六

10. Financial Instruments
Debt Instruments---bond
Difference between bonds and debentures:
bond is secured by specific assets, debenture is
secured only by the general credit of the issuer
Equity Instruments---Stocks
common shares and preferred shares
Investment Funds---mutual fund
Derivatives---option, futures

11. Financial Instruments
Other investment products---income trusts,
exchange-traded funds(ETFs)

12. Financial Markets Categories: By product/instrument Money market
Stock market(s)
Bond market(s)
Etc.
Corresponds to Question 7
Presented To:
2017年4月22日星期六2017年4月22日星期六

13. Financial Markets By “Distribution”
Primary---the market where a security is sold when
it is first issued and sold to investors.
IPO---initial public offering
Secondary---individual investors trade among themselves.
secondary market provides liquidity

14. Financial Markets liquid market is characterized by: Frequent sales
Narrow price spread between bid and offering prices
Small price fluctuations from sale to sale

15. Financial Markets By Method of Operation
Auction markets---clients’ bids and offers for a stock are channeled to a single central market and compete against each other.
Bid price is the highest price a buyer is willing to pay.
Ask Price is the lowest price a seller will accept.
Dealer markets---a network of dealers who trade with each other
OTC (over-the-counter )market= dealer market
Almost all bonds and debentures are sold through dealer markets.
Corresponds to Question 7
Presented To:
2017年4月22日星期六2017年4月22日星期六

16. Financial Markets
By Longevity
Short – Money
Long – Capital

17. Primary and Secondary Markets
Questions:
What are the main features of the primary and secondary markets?
How do these two markets differ?
Corresponds to Question 8
Presented To:
2017年4月22日星期六2017年4月22日星期六

18. Primary and Secondary Markets
Primary Markets:
Deals with the issue of new securities.
Funds flow from an investment dealer to the firm.
The new securities are then sold at a higher price to the public.
Secondary Market:
Deals with already existing and outstanding securities.
Trading occurs between investors, not the company.
Corresponds to Question 8
Presented To:
2017年4月22日星期六2017年4月22日星期六

19. The Markets Money Market
Any debt maturing within one year, regardless of when issued
Treasury-bills, Bonds with < 1yr maturity, Bankers’ Acceptances
Debt instruments only
Capital Markets
Longer term securities (stocks, bonds > 1 yr)
Conducted through dealer markets (OTC) and auction markets (exchanges)
Corresponds to Question 9
Presented To:
2017年4月22日星期六2017年4月22日星期六

20. Auction and Dealer Markets
The auction and dealer markets are the two main ‘types’ of markets.
Discussion:
What are the main features of each?
How are they alike and how do they differ?
Corresponds to Question 10
Presented To:
2017年4月22日星期六2017年4月22日星期六

21. Auction Markets
Toronto Stock Exchange (TSX)
TSX Venture Exchange (TSX V)
The orders of individual buyers and sellers are entered to determine prices
Prices are established according to supply and demand forces
Form of competitive bidding
Corresponds to Question 10
Presented To:
2017年4月22日星期六2017年4月22日星期六

22. Auction Markets Exchanges: Enforce membership conditions
Monitor/audit members
Set trading rules
Control listing and trading of companies
Presented To:
2017年4月22日星期六2017年4月22日星期六

23. Dealer Markets
Also called over-the-counter (OTC) market or the unlisted market
A negotiated market where a network of dealers trade with each other
Dealers post bid and ask prices (Bid $1.50/Ask $1.60)
Profit is made on the spread
Bonds are sold on dealer markets
Corresponds to Question 10
Presented To:
2017年4月22日星期六2017年4月22日星期六

24. What is a Stock Exchange?
A marketplace where buyers and sellers of securities meet under competitive conditions to trade with each other, and where prices are established according to the laws of supply and demand.
Corresponds to Question 11
Presented To:
2017年4月22日星期六2017年4月22日星期六

25. Stock Market Criteria
What are the criteria for a stock exchange to function efficiently?
1. Low transaction costs
2. Liquidity
3. Timely and accurate information on price and volume
4. Consumer protection
Corresponds to Question 12
Presented To:
2017年4月22日星期六2017年4月22日星期六

26. A Liquid Market
Liquidity is fundamental to the operation of a stock exchange.
Liquidity is characterized by:
Frequent sales
Narrow price spreads
Small price fluctuations
Corresponds to Question 13
Presented To:
2017年4月22日星期六2017年4月22日星期六

27. Private Equity
is the financing of firms unwilling or unable to find capital
using public means.
Higher return, higher risk.
It complements publicly traded equity by allowing businesses
to obtain financing when issuing equity in the public markets
may prove difficult or impossible.
Several means used:
Leveraged Buyout Early Stage Venture Capital
Growth Capital Late Venture Capital
Turnaround Distressed Debt

28. History, Size of Private Equity
The growth of private equity has been remarkable
over the last 25 years.
Public and private pension plans, endowments, foundations,
and wealthy individuals are the main investors
in the private equity market.