Essay on The Capital Market

1698 Words Nov 6th, 2015 7 Pages
Chapter 1: The Capital Market [Simplified CSC Notes]

• Capital is not what you make but what you keep
• Wealth is savings, capital comes from savings
• Savers: Individuals, corporations, governments
• You can take your savings and go into Direct Investments (like property, equipment, infrastructure) - these are called real assets
• Or you can take your savings into Indirect Investments (like stocks; we buy share of a company and we give company the money, bonds; we lend money to companies and governments, GIC; we leave money with the bank and the bank pays us a level of interest) - these are called financial assets/ claims
• Bonds are claims against asset
• The money we give to users, they give us one of these claims (financial
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• Business can also issue debt that can be short term debt or long term debt. Short term debt deal with own bank or in the money market. While long term debt can take a couple of forms, they can issue bonds and debentures. Bonds can be seen as secured debt and debentures as unsecured debt.
3) Governments, they need money to maintain a viable functioning economy. There's 3 levels of government; federal, provincial, and municipal.

Why is Capital needed? To invest in productive assets. If there was no savings, businesses could not have built huge factories until they had the money to do it

Financial Instruments
• Debt come in the form of bonds, debentures, mortgages, t-bills, commercial paper
• Debt can be both long term and short term
• Financial instruments that are publicly traded operate both sides of the market, entire debt financial instruments are called fixed income
• Equity comes in the form of common and preferred shares, savers can transfer their money to users by purchasing common and preferred shares.
• Investment Funds, this is neither debt nor equity. You buy shares of this fund and this fund will go out

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