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Class 25 'Financial Institutions & the Securities Markets'

STUDY
PLAY
Suppliers of funds
Households across Canada
Demanders of funds
business and government
Financial intermediaries
Commercial banks, trust companies, credit unions, life insurance companies and pension funds
Depository institutions
Chartered Banks, Trust Companies, Credit Unions/Caisses Populaires
Chartered banks
accept deposits, makes loans to business and consumers (Royal Bank, TD, CIBC)
Trust companies
administers estates, trusts, and pension plans (Canada Trust)
Credit unions and Caisses Populaires
member-owned
Non-depositary institutions
Insurance Companies, Pension Funds, Brokerage Firms, Finance Companies
Insurance companies
customers pay premiums on policies (Manulife, Sun Life, Great West)
Pension funds
employees and employers pay into pension plans to be used for retirement benefits (Ontario Teachers Pension Plan, 9.6% return since 1990)
Brokerage firms
buy and sell securities on behalf of their clients (ScotiaMcLeod, TD Waterhouse)
Finance companies
automobile, property
Insuring Bank Deposits - Canadian Deposit Insurance Corporation
is a crown corporation providing insurance for the deposits of Canadians up to $100,000
International Banking & Insurance
Many of the Canadian banks and insurance companies have large international operations (e.g. BNS in the Caribbean)
investment certificates
issued by corporations or governments that represent either equity or debt
Preferred shares
ownership of the company and a fixed dividend
Value of Shares
rised and falls with the fortunes of the company and market conditions (economy)
Common shares
ownership of the company, voting at the annual general meeting, electing the Board of Directors
Bonds
debt obligations of corporations and governments; Regular interest payments and the repayment of principal at maturity
Corporate bonds
secured (mortgage) or unsecured (debentures), convertible (into shares)
Government bonds
federal, provincial, municipal
What is the highest rating (lowest risk of default)
AAA
Mutual funds
pool investors' funds (e.g. all the banks)
Mutual Funds 2 Types of Coverage
General coverage of the market (Canada, US, Global, Europe) or specialized (growth, value, gold, high tech, healthcare)
Advantage of Mutual Funds
someone selects stocks, bonds, and other assets for you
Disadvantage of Mutual Funds
Management expense ratio (MER)
What generally outperforms mutual funds?
Exchange Traded Funds
Futures contracts
obligations to buy or sell commodities or currencies at a specific price at some point in the future
Options
contracts to buy or sell stocks or other financial instruments at a specific price at some point in the future
Institutional investors
professionals who manage other people's money
CFA
Certified Financial Analyst
Investment banks
help companies raise funds by buying securities and then selling them to the public (underwriting)
Stockbroker
account executives; trades securities for clients
2 Types of Market
Primary & Secondary
Primary market
new securities are sold (IPO)
Secondary market
organized stock exchanges; foreign exchanges; over-the-counter market
over-the-counter market
NASDAQ
foreign exchanges
New York Stock Exchange (NYSE), Tokyo Stock Exchange, Shanghai Stock Exchange
organized stock exchanges
Toronto Stock Exchange (TSX); TSX Venture Exchange
Bull market
describes conditions of rising stock or bond prices (optimism)
Bear market
describes conditions of falling stock or bond prices (pessimism)
What are markets driven by?
fear and greed
What is a strong predictor of both overall market performance and specific company performance?
Insider trading
Trends in Finance
Finance goes global; Risk management (credit risk, market risk, operational risk)