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CA (630,000)
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Chapter 9-Understanding Securities and Investments

Management (MGT)
Course Code
H Laurence

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Chapter 9: Understanding Securities and Investments
Securities Markets
Securities ± Stocks and bonds (which represent a secured-asset-based claim on the part of investors) that can be bought
and sold
- 6WRFNKROGHUVKDYHFODLPVRQVRPHRIDFRUSRUDWLRQ¶VDVsets because each share represents part ownership
- Bonds represent strictly financial claims for money owed to holders by a company.
- The market in which stocks and bonds are sold are called securities markets
Primary and Secondary Markets for Securities
Primary Securities Markets ± The sale and purchase of newly issued stocks and bonds by firms or governments
- Selling to 1 buyer or a small group of buyers is called private placements, allows business to keep plans confidential
Investment Banking
Investment Banker ± Any financial institution engaged in purchasing and reselling new stocks and bonds
Provide these three types of investment banking services:
- They advise the company on the timing and financial terms for the new issue
- By underwriting (buying) the new securities, investment bankers bear some of the risk of issuing the
new security
- They create the distribution network that moves the new securities through groups of other banks and
brokers into the hands of individual investors
Secondary Securities Market ± The sale and purchase of previously issued stocks and bonds
Common Shares
Market Value ± The current price of one share of a stock in the secondary securities market; the real value of a share
- can be effected by:
- Objective factors ± a cRPSDQ\¶VSURILWV
- Subjective factors ± rumours, investor relations, stockbroker recommendations
Blue-Chip Stock ± Stocks of well-established, financially sound firms
Market Capitalization ± The dollar value (market value) of stocks listed on a stock exchange
Preferred Shares
- Usually issued with a stated value, and dividends are paid are expressed as a percentage.
- Some preferred shares are callable. The issuing firm can require the shareholder to surrender their shares in exchange
for a cash payment. The amount of cash is called as the call price.
Cumulative Preferred Shares ± Preferred shares on which dividends not paid in the past must first be paid up before
the firm may pay dividends to common shareholders
Stock Exchange
Stock Exchange ± A voluntary organization of individuals formed to provide an institutional setting where members can
buy and sell stock for themselves and their clients in DFFRUGDQFHZLWKWKHH[FKDQJH¶VUXOHV
- The trading floor is an actual physical location at which the trading occurs; filled with electronic communications, and
the latest news that may affect trading prices
Broker ± An individual licensed to buy and sell securities for customers in the secondary market; may also provide other
financial services
Discount brokers ± are brokers that offer discount prices; they earn fees or salaries, not commissions, and they do not
offer investment advice or person to person sales consultations
Online Trading ± is getting popular, and has driven commission fees downward.
- The Toronto Stock Exchange (TSX) is the largest stock exchange in Canada
- made of up 100 individual members who hold seats
- Companies must pay a fee before it can list its securities on the exchange
- There were also stock exchanges in Calgary, Vancouver, and Montreal that in 1999 formed an agreement that created
the Canadian Venture Exchange (CDNX) from the Vancouver and Alberta stock markets, shifted all derivative trading to
the Montreal Stock exchange, and consolidated all senior equity trading at the TSE.
- CDNX now focuses on junior companies
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