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

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

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

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

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)

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

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

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

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

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

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

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

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

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

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

Financial Markets By Longevity Short – Money Long – Capital

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

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

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

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

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

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

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

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

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

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

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

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.