Canadian Capital Markets Flashcards

Short selling involves borrowing shares and selling them with the expectation that:

Answer: The share price will fall so shares can be repurchased at a lower price

A short seller profits when share prices decline, allowing repurchase of the borrowed shares at a lower price to return to the lender.

A 'limit order' in the securities market means the order will execute:

Answer: Only at a specified price or better

A limit order sets the maximum price a buyer will pay or the minimum price a seller will accept, providing price control but no execution guarantee.

Which financial intermediary pools investor funds and invests them in money market instruments with a focus on capital preservation?

Answer: Money market fund

Money market funds invest in short-term, high-quality instruments such as T-bills and commercial paper to preserve capital and provide liquidity.

What is 'clearing and settlement' in the context of Canadian capital markets?

Answer: The process of confirming, matching, and finalizing the transfer of securities and funds after a trade

Clearing and settlement ensures that after a trade is executed, the buyer receives the securities and the seller receives the funds, typically within two business days (T+2).

The 'bid-ask spread' represents:

Answer: The gap between the highest price a buyer will pay and the lowest price a seller will accept

The bid-ask spread is the cost of trading, with narrower spreads indicating greater liquidity and wider spreads indicating lower liquidity.

Which statement about over-the-counter (OTC) markets is correct?

Answer: OTC markets involve direct trading between parties without a centralized exchange

OTC markets are decentralized networks where dealers trade directly with each other or with clients, commonly used for bonds, currencies, and derivatives.