INTRODUCTION TO

CORPORATE FINANCE
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‡ Learning Objectives
‡ Important Terms
‡ Finance Defined
‡ Real versus Financial Assets
‡ The Financial System
‡ Financial Instruments and Markets
‡ The Global Financial Community
‡ Summary and Conclusions
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V
hat finance is and what is involved in the study of

finance
 ow financial securities can be used to provide
financing for borrowers and simultaneously to provide
investment opportunities for lenders
 ow financial systems work in general
 The channels of intermediation and the role played by
market and financial intermediaries within this system
 The basic types of financial instruments that are
available and how they are traded
 The importance of the global financial system

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‡ Bourse de Montréal
‡ brokers
‡ Canadian Trading and Quotation System Inc (CNQ)
‡ capital market securities
‡ common share
‡ corporate finance
‡ Crown corporations
‡ dealer or over
over--the
the--counter (OTC) markets
‡ debt instruments
‡ equity instruments
‡ exchanges or auction markets
‡ finance
‡ financial assets
‡ financial intermediaries
‡ fourth market
‡ intermediation
‡ investments
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‡ market capitalization
‡ market intermediary
‡ marketable financial assets
‡ money market securities
‡ New York Stock Exchange
(NYSE)
‡ non
non--marketable financial assets
‡ Ontario Securities Commission
‡ preferred shares
‡ primary markets
‡ real assets
‡ secondary markets
‡ third market
‡ Toronto Stock Exchange (TSX)
‡ TSX Group Inc
‡ TSX Markets
‡ TSX Venture Exchange
‡
innipeg Commodity Exchange
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‡ Finance is the study of how and under what

terms savings (money) are allocated
between lenders and borrowers
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‡ Financial contracts or securities occur
whenever funds are transferred from issuer
to buyer

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‡ The study of finance requires a basic

understanding of:
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‡ Real assets are tangible things owned by

persons and businesses
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‡ Financial assets are what one individual has
lent to another
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‡ The household is the primary provider of funds to

businesses and government
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‡ Financial intermediaries transform the nature of the
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‡ Market intermediaries simply help make markets
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‡ Funds can be channeled from saver to

borrower in three ways:
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‡ Banks and other deposit

deposit--taking institutions
‡ Insurance companies
‡ Pension Funds
‡ Mutual Funds

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‡ Banks take deposits from numerous depositors from across Canada

‡ The deposits are ¶pooled· in the Bank
‡ The bank takes these pooled funds and lends them out to households
and businesses in the form of mortgages and loans
‡ The bank transforms the original nature of the savers (depositors)
money:
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‡ Banks can perform this transformation function because they
become experts at risk assessment, financial contracting (pricing the
risk) and monitoring the activities of borrowers

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‡ Mutual funds give small investors access to

diversified, professionally-
professionally-managed portfolios of
securities
‡ Small investors often do not have the funds
necessary to invest directly into market-
market-traded
stocks and bonds
‡ This is called denomination intermediation because
the mutual fund makes investments available in
smaller, more affordable amounts of money
‡ Canadian indirect investment in the markets
through managed products such as mutual funds
and segregated funds has grown exponentially
(see Figure 1-
1-4 on the next slide)

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‡ Public Debt
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‡ There are two major categories of financial

securities:
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‡ Characteristics of non
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‡ Characteristics of Marketable securities

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‡ Market Capitalization
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‡ Primary Market
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‡ Exchanges or Auction Markets

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‡ Represents an important source of funds for

borrowers
‡ Provides investors with important
alternatives as they seek to build wealth
through diversified portfolios

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‡ In this chapter you have learned about:

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© 

‡ BMO InvestorLine: www bmoinvestorline com

‡ Investment Funds Institute of Canada: www ific ca
‡ Globe and Mail Report on Business:
www theglobeandmail com
‡ Toronto Stock Exchange (TSX): http://www tsx com/
‡ Canadian Trading and Quotation System Inc :
http://www cnq ca/
‡ Ontario Securities Commission:
http://www osc gov on ca/index jsp
‡
innipeg Commodity Exchange: http://www wce ca/
‡ New York Stock Exchange (NYSE) Euronext:
http://www nyse com/

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ohn
iley & Sons Canada, Ltd All rights
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iley & Sons
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