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Chapter 1 The Capital Market

Capital = Wealth Physical (Land, Building) & {Stocks, Bonds}

Investments Direct such as buying a home or

Indirect such as buying securities

Indirect is when a saver buys stocks in one company, who in return invest this money in direct investments such as equipment’s.

Characteristics of Capital; are mobile, sensitive and scarce and other factors such Political Environment, Economical Trends, Fiscal policy (Tax), Monetary Policy (Growth) and Investment Opportunities

Capital is needed for positive output that comes from productivity, lowering employment and increasing in competition.

Capital = Wealth=Savings // Government with surplus are called savers and who must borrow are called dis-savers.

Sources of Capital;

1. Retail Investors; Individuals who buy and sell securities on their behalf.

2. Institutional Investors; are organizations such as pension plan and mutual fund company that trade in large volumes

3. Foreign Investors; foreign includes direct and indirect investments.

Users of Capital; individuals, Foreign & Governments Provincial, Municipals and Federal.

When Dealing with large projects and in need of money the government have to borrow by issuing these instruments (T-Bills, Bonds, CSB & CPB)

Financial Instruments; {Transferee of capital}

1. Debt Instruments; the issuers promise to pay the loan at the end of the maturity date and the investor makes money form interest payments.

2. Equity Interments; includes capital gains which means after buying stocks or shares in a company and it increase in value. The gain is the deference in prices. Stocks could be either Preferred or common.

3. Investment Funds; is a company that manages investments for its clients. Most popular fund is the open end fund.

4. Derivatives; Options and Forwards.

Private Equity; is financing of firms that are unwilling or cant find financing in the traditional ways. Higher...