1. Understand that in the Canadian financial system, as well as any other financial system, funds flow from net savers (such as households) to net investors (such as businesses) through investment dealers and financial intermediaries
a. Investment dealers facilitate the direct transfer of funds to corporations, governments, and other organizations that issue new securities
b. Financial intermediaries include chartered banks, trust companies, credit unions and caisses populaires, insurance companies, pension fund management firms, and investment companies. Financial intermediaries facilitate the indirect transfer of funds among ultimate borrowers and lenders. Their activities are influenced by the Bank of Canada
c. Financial assets include money, debt securities, equity securities, and derivative securities
2. Understand that financial markets for debt securities and equity securities are classified as money or capital markets and primary or secondary markets
a. Short-term securities with maturities of one year or less are traded in money markets
b. Long-term securities have maturities of more than one year and are traded in capital markets
c. New securities are traded in the primary markets
d. Existing securities are traded in the secondary markets, such as the Toronto Stock Exchange, the New York Stock Exchange, the NASDAQ market, and the over-the-counter (OTC) market
e. Derivative securities are usually traded in their own specialized financial markets, such as the Montreal Exchange
3. Understand that many Canadian companies are regularly engaged in international financial transactions. They face political and exchange rate risks in addition to the risks encountered in domestic transactions. Financial assets, such as forward contracts, futures contracts, and options on currencies are types of derivative securities that help firms manage exchange rate risks
4. Understand that most financial decisions are affected by taxes. Thus, it is important to know the basic features of the Canadian taxation system
5. Understand that the achievement of the shareholder wealth maximization goal is often constrained by social responsibility concerns and problems arising out of agency relationships
