AFM121 Lecture Notes - Lecture 3: Mutual Fund, Agrium, Demutualization

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM121
• Professor: Garvin Blair

Document Summary

Chapter 2 - continued: also called debt or equity underwriting / financing. Investment dealers sell newly issued securities to investors: as principals. Investment dealer agrees to a price with the issuer and buys all of the shares/bonds (cid:894)aka (cid:862)(cid:271)ought deal(cid:863)(cid:895) Investment dealer then sells the purchased shares or bonds to investors: as agents, I(cid:374)(cid:448)est(cid:373)e(cid:374)t dealer (cid:373)arkets the shares or (cid:271)o(cid:374)ds to i(cid:374)(cid:448)estors o(cid:374) a (cid:862)(cid:271)est efforts(cid:863) (cid:271)asis; the investment dealer does not purchase. I(cid:374) (cid:271)oth (cid:272)ases, i(cid:374)(cid:448)est(cid:373)e(cid:374)t dealers (cid:373)a(cid:455) for(cid:373) (cid:862)s(cid:455)(cid:374)di(cid:272)ates(cid:863) to share the sales efforts (cid:894)a(cid:374)d risks, and profits) Investment dealers buy and sell securities on financial markets: as principals. Invest their own capital and earn a spread between purchase and sale prices (aka proprietary or liability trading: as agents. I(cid:374)(cid:448)est their (cid:272)lie(cid:374)ts" (cid:272)apital a(cid:374)d ear(cid:374) a (cid:272)o(cid:373)(cid:373)issio(cid:374) o(cid:374) e(cid:454)e(cid:272)uted trades (cid:894)aka (cid:271)rokerage(cid:895) The trade is (cid:862)settled(cid:863): cash fro(cid:373) the (cid:271)u(cid:455)er"s (cid:271)rokerage a(cid:272)(cid:272)ou(cid:374)t is tra(cid:374)sferred to the (cid:271)rokerage account of the seller.