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Chapter 2

Management and Organizational Studies 3310A Chapter Notes - Chapter 2: Trust Company, Government Debt, Sovereign Default


Department
Management and Organizational Studies
Course Code
MOS 3310A
Professor
Bill Dawson
Chapter
2

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Mos 3310 Chapter 2 Notes
2.1 The Importance of Financial Markets and Institutions
Financial markets and institutions are critical to the success of business.
Businesses have to go to financial markets and institutions for the financing they need to grow.
When they have surplus cash, they have to invest in bank accounts or in securities.
A modern financial system offers financing in many different forms.
The Stock Market
Definitions
Financial Market: A market in which securities are issued and traded.
Primary Market: A new issue of stocks or bonds is known as a primary issue. The market where
these are traded is the primary market.
Secondary Market: The purchase and sale of existing securities is known as a secondary
transaction. The market where this happens is called the secondary market.

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Stock markets are also called equity markets, since shareholders are said to own the common
equity of the firm.
The Toronto Stock Exchange (TSX) is the main stock exchange for trading shares of large
Canadian corporations.
Trading in the shares of smaller emerging Canadian companies is done through the TSX Venture
Exchange (TSX-V) and the Canadian National Stock Exchange (CNSX), Canada’s new stock
exchange for emerging companies.
Other Financial Markets
Fixed Income Market: A market where securities promising fixed amount of income, such as
bonds, are traded among investors. Also known as Debt Market.
Capital Market: A market for long term (more than one year) debt and equity securities.
Money Market: A market where short term (less than one year) securities are traded among
investors.
Foreign Exchange Markets: Any corporation engaged in international trade must be able to
transfer money from dollars to other currencies or vice versa.
Commodities Markets: Markets where commodities such as corn, wheat, oil, and natural gas
are traded.
Markets for options and other derivatives: Markets where derivative securities, such as futures
and options, are traded among investors.
Financial Intermediaries
Financial intermediary: An organization that raises money from investors and provides financing
for individuals, corporations and other organizations.
The flow of savings between an investor, a bank (Intermediary), and a corporation is as follows:
Classes of Intermediaries
Mutual Funds
Exchange-traded funds (ETFs)
Hedge Funds
Private Equity Funds
Pension Funds
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