© CSI GLOBAL EDUCATION INC.

(2013)
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KEY TERMS
A l t e r n a t i v e t r a d i n g s y s t e m
s ( A T S s ) I n v e s t m e n t f u n d A
u c t i o n m a r k e t
M a r k e t c a p i t a
l i z a t i o n C a n a d i a n N a t i o
n a l S t o c k E x c h a n g e ( C N S X ) M a r k e t m
a k e r s C a n a d i a n U n l i s t e d B o a
r d I n c . ( C U B ) M u t u a l f u n d
C a n D e a l M o
n t r e a l E x
c h a n g e ( M
E ) C a n P
X O p e n -
e n d f u
n d C a p
i t a l
O p t i
o n C B I
D P r e f e
r r e d s
h a r e s C o
m m o n s h a r e
s P r i m a r y m
a r k e t D e a l e r m a r
k e t s Q u o t a t i o n a n d t
r a d e r e p o r t i n g s y s t
e m s ( Q T R S ) D e
b t R e t a
i l i n v
e s t o r s
D e r i v a t i v
e S e c o n d a r
y m a r k e t E
q u i t y S
t o c k e
x c h a n g
e I C E F u t u r e s C a
n a d a T o r o n t o S t o c
k E x c h a n g e ( T S X )
I n s t i t u t i o n a l I n v e
s t o r s T S X V e n t u r e
E x c h a n g e Investment advisors (IAs)
ONE • THE CAPITAL MARKET
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© CSI GLOBAL EDUCATION INC. (2013)
WHAT IS INVESTMENT CAPITAL?
In general terms,
capital
is wealth – both real, material things such as land and buildings, andrepresentational
items such as money, stocks and bonds. All of these items have economic value.Capital
represents the invested savings of individuals, corporations, governments
and many otherorganizations and associations. It is in short supply and is arguably
the world’s most importantcommodity.Capital savings are useless by themselves.
Only when they are harnessed productively do they gaineconomic significance.
Such utilization may take the form of either direct or indirect investment.Capital
savings can be used directly by, for example, a couple investing their savings in a
home;a government investing in a new highway or hospital; or a domestic or
foreign company payingstart-up costs for a plant to produce a new product.Capital
savings can also be harnessed indirectly through the purchase of such
representationalitems as stocks or bonds or through the deposit of savings in a
financial institution. The indirectinvestment process is the principal focus of this
course.Indirect investment occurs when the saver buys the securities issued by
governments andcorporations, who in turn use the funds for direct productive
investment – equipment, supplies,etc. Such investment is normally made with the
assistance of the retail or institutional salesdepartment of the investment advisor’s firm.
Characteristics of Capital
Capital has three important characteristics. It is mobile, sensitive to its environment
and scarce.Therefore capital is extremely selective. It attempts to settle in countries
or locations wheregovernment is stable, economic activity is not over-regulated,
the investment climate is hospitableand profitable investment opportunities exist.
The decision as to where capital will flow is guidedby country risk evaluation,
which analyzes such things as:
The politicalenvironment:
whether the country is involved or likely to be involved in internal
orexternal conflict
Economic trends:
growth in gross domestic product, inflation rate, levels of economicactivity,
etc.
Fiscal policy:
levels of taxes and government spending and the degree to which
thegovernment encourages savings and investment
Monetary policy:
the sound management of the growth of the nation’s money supply andthe
extent to which it promotes price and foreign exchange stability
Investmentopportunities:
opportunities for investment and satisfactory returns on investmentwhen
considering the risks to be accepted
Characteristics ofthe labour force:
whether it is skilled and productive

WHAT IS INVESTMENT CAPITAL?

The political environment:
whether the country is involved or likely to be involved in internal
orexternal conflict
Economc trens:
growth in gross domestic product, inflation rate, levels of
economica c t v t y , e t c .
Fiscal policy:
levels of taxes and government spending and the degree to which
thegovernment encourages savings and investment
M on e t a r y p o l c y:
the sound management o the growth o the nation’s money supply
andthe extent to which it promotes price and foreign exchange stability
Investmentopportunities:
opportunities for investment and satisfactory returns on investmentwhen
considering the risks to be accepte
Characteristics ofthe labour force:
whether it is skilled and productive
CANADIAN SECURITIES COURSE • VOLUME 1
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© CSI GLOBAL EDUCATION INC. (2013)
Because of its mobility and sensitivity, capital moves in or out of countries or localities
inanticipation of changes in taxation, exchange policy, trade barriers, regulations,
governmentattitudes, etc. It moves to where the best use can be made of it and
attempts to avoid areas wherethe above factors are not positive. Thus, capital
moves to uses and users that offer the highestrisk-adjusted returns. Capital is scarce
worldwide and is in great demand everywhere.
Why Capital Is Needed
An adequate supply of capital is essential for Canada’s future well-being. Enough
new andefficient plant and equipment must be put in place to ensure expanded output
capability,improved productivity, increased competitiveness and the development of
innovative, sought-after new products. If capital investment is inadequate, the result
will be insufficient output,declining productivity, rising unemployment, decreasing
competitiveness in domestic andinternational markets – in short, lower living
standards.The securities industry attaches great importance to the savings and
investment process. It isconstantly in touch with governments with a view to
improving the saving and investment process. The industry advocates changes,
when appropri