The Stock Market

1. TSX, NYSE, NASDAQ, and others manage the flow of equity capital from investors and into the market. These exchanges provide places whereby investor savings can flow into the hands of the financial intermediary.
2. While shares of large established Canadian corporations are traded in Toronto Stock Exchanges, smaller and emerging companies are listed under the TSX Venture Exchanges (TSX-V).
3. Larger Canadian companies tend to be cross-listed on the TSX and NYSE.

Other Financial Markets

1. Financial markets enable businesses to raise funds, enable investors to invest in financial assets, change or trade their portfolio of financial assets, and provide a continuous evaluation or valuation of the firm's securities.
2. The sale of the securities is usually managed by a group of investment dealers.
3. The initial public offer (IPO), or sale of securities, where funds are acquired by the business, is called a primary issue or the securities are sold in the primary market.
4. Subsequent trading of the securities in the financial markets is said to trade on the secondary market, such as on stock exchanges or on the over-the-counter (OTC) market, where dealers trade inventories of securities held through the Canadian Dealing Network (CDN) system. Note: No "new funds" are raised by the firm in the secondary market, however, the firm's securities are evaluated or valued by the secondary market on a continuous basis.

Financial Intermediaries

1. They are organizations that raise money from savers/investors and provide financing for individuals and corporations. Mutual funds and pension funds are the two important groups.
2. Mutual funds are investment companies offering low-cost diversification and professional management on a portfolio of assets with various objectives.
3. Mutual funds pay no taxes on the income they receive, or on the capital gains they realize. The tax liability falls upon those who own the mutual fund shares.
4. Pension funds are employer-employee retirement plans of pooling and investing savings. They are among the biggest investors on the stock market, but they have traditionally kept a low profile in the affairs of the companies whose shares they own.
5. There are two types of plans: defined-contribution plans in which benefits vary according to accumulated contributions and the return on the fund's investment; and defined-benefit plans with specific guaranteed benefits.
6. Besides providing financing, private equity firms help nurture growing businesses whose equities are not publicly traded.

Financial Institutions

1. A more sophisticated financial intermediary stands in between the saver/investor and the borrower of funds, writing a separate contract for each. Such a role as an asset transformer makes financial institutions so special.
2. Assets of financial institutions include sources such as loans and securities issued by borrowers; liabilities are contracts with investors or depositors. Financial assets appear on two balance sheets: as an asset (accounts receivable) and as a liability (accounts payable). Real assets, such as equipment, appear only on one balance sheet.
3. Besides functioning as an intermediary between lenders and borrowers, financial institutions:
   1. Serve as the center of the payments system of checks and electronic payments.
   2. Engage in fiduciary and trust services such as asset management.
   3. Match liquidity and maturity through contracts permitting borrowers (loans) and savers (pension fund reserves) to transfer expenditures across time.
   4. Transfer risks by pooling various risks in a portfolio to reduce the total variability through diversification and manage risk exposure by centralization.

Financing Sources of Canadian Corporations

1. Financial institutions differ from manufacturing corporations because of the asset transformation. To provide financing for businesses, they arrange for the placing of stocks and bonds with ultimate investors.
2. While non-residents and institutional investors have strong presence in Canadian corporate bonds and debentures, individual investors and unincorporated businesses are the major holders of Canadian corporate equities.

Whenever financial managers want to estimate the appropriate returns for capital investments, financial institutions provide the needed information on commodity prices, interest rates, and company values.

The maturity and type of funds raised in financial markets is the financing decision.

The selection and mix of long-term debt and equity securities sold in capital markets determines the capital structure of the firm.

The need for liquidity requires a choice that impacts how easy it is to convert securities or other assets into cash.

Interest rates and opportunity cost of capital are the cost of money. All firms must pay this fee for the right to obtain funding.

Interest rates are usually related to actual loans or bond issues.

The (opportunity) cost of capital is the phrase used to describe the rate of return equity holders will expect in exchange for their cash. Put differently, the cost of capital is what a firm must earn on a project to compensate investors for use of their fund. The firm's overall cost of capital is made up of a mix of the cost of equity and the cost of debt.

Mutual funds, banks, and insurance companies help price money and send it from the investor to the ultimate user.