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AFM 121 — Introduction to Global Financial Markets

The Canadian securities industry, the markets, and the Excel that prices them — 90 lessons

The whole of AFM 121 as the paper examines it: the Canadian securities industry, dealers and self-regulation under CIRO, the capital market and how issues reach it, the regulators and the rules on disclosure and insider trading, the economy and the Bank of Canada, then the calculation half — time value of money in Excel, bond pricing and yields, equity valuation by the dividend model and P/E, margin and short selling, derivatives and their payoffs, risk, return and diversification, market efficiency, and pooled investments. Every memorisation question is drilled as multiple choice in the register of the Canadian Securities Course; every calculation is graded on the number with the Excel function that produces it; the 12-versus-12 stock experiment is taught as the efficiency demonstration it is.

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How AFM 121 Is Examined, and the Excel Conventions It Assumes

32 cards
  1. How the paper is marked, and how to study for it 7 min ◈ 4
  2. Excel’s TVM functions and the sign convention 9 min ◈ 8
  3. Rate per period and periods in total 8 min ◈ 7
  4. NPV, IRR and the time-zero convention 9 min ◈ 8
  5. Fast track, and what you can skip 6 min ◈ 5

What a Financial Market Is For

22 cards
  1. Surplus units, deficit units and intermediation 8 min ◈ 5
  2. Securities as claims: debt, equity and priority 9 min ◈ 6
  3. Depository and non-depository institutions 8 min ◈ 4
  4. Risk, return, liquidity and time value 8 min ◈ 7

The Canadian Securities Industry

39 cards
  1. Investment dealers: principal versus agent 9 min ◈ 5
  2. Full-service, discount, and the two kinds of underwriting 9 min ◈ 5
  3. Chartered banks, the Bank Act, and the other institutions 8 min ◈ 4
  4. Self-regulation, CIRO and registration categories 9 min ◈ 6
  5. CIPF, CDIC, and what each does not cover 9 min ◈ 7
  6. CDS: clearing, settlement and T+1 8 min ◈ 6
  7. Canadian exchanges, marketplaces, and the project brief 9 min ◈ 6

The Capital Market

36 cards
  1. Primary versus secondary markets, IPOs and the prospectus 9 min ◈ 6
  2. Money market versus capital market, and their instruments 8 min ◈ 4
  3. T-bill price and yield 9 min ◈ 7
  4. Auction markets, dealer markets, listing and the ATS 8 min ◈ 6
  5. The bid–ask spread and the market maker 8 min ◈ 5
  6. Indices, interlisting, and why markets matter 9 min ◈ 8

Regulation, Disclosure and Ethics

34 cards
  1. Why regulate, and provincial jurisdiction 8 min ◈ 4
  2. The CSA, passport, National Instruments and the OSC 9 min ◈ 7
  3. The enforcement ladder, know-your-client and suitability 9 min ◈ 5
  4. The prospectus requirement and the exempt market 8 min ◈ 5
  5. Continuous disclosure, insiders and insider reporting 10 min ◈ 7
  6. Manipulation, protection layers and trading halts 9 min ◈ 6

Time Value of Money in Excel I: Lump Sums and Rates

47 cards
  1. Future value, and compound versus simple interest 9 min ◈ 8
  2. Present value and discounting 9 min ◈ 6
  3. Compounding frequency: monthly, quarterly, semi-annual 9 min ◈ 6
  4. Effective annual rate: EFFECT and NOMINAL 10 min ◈ 9
  5. Solving for n and r: NPER, RATE and the Rule of 72 10 min ◈ 9
  6. The five-variable method and eyeballing the answer 9 min ◈ 9

Time Value of Money in Excel II: Annuities, Perpetuities and Cash-Flow Streams

64 cards
  1. Timelines and the ordinary-annuity present value 10 min ◈ 9
  2. Annuity future value, and solving for the payment 10 min ◈ 8
  3. Annuity due and the type argument 9 min ◈ 7
  4. Perpetuities and growing perpetuities 9 min ◈ 8
  5. Uneven cash flows: NPV and IRR 10 min ◈ 9
  6. Deferred annuities 9 min ◈ 6
  7. Loan amortisation: IPMT, PPMT and the balance 10 min ◈ 8
  8. The Canadian mortgage convention 10 min ◈ 9

Economics, the Bank of Canada, Interest Rates and the Dollar

63 cards
  1. GDP, the business cycle and economic indicators 9 min ◈ 7
  2. Unemployment, inflation and the Fisher relation 10 min ◈ 11
  3. Money, the Bank of Canada and the 2 % target 9 min ◈ 5
  4. The policy rate, the operating band and how it is enforced 10 min ◈ 8
  5. How a rate change reaches you: the transmission channels 10 min ◈ 8
  6. Fiscal policy, deficits, debt and what sets interest rates 9 min ◈ 6
  7. The yield curve, term-structure theories and forward rates 11 min ◈ 8
  8. Exchange rates and the floating dollar 10 min ◈ 10

Fixed-Income Securities: Features and Types

46 cards
  1. Bond anatomy and the semi-annual convention 9 min ◈ 7
  2. Bonds, debentures and the government issuers 8 min ◈ 5
  3. Corporate bonds, covenants and the feature table 10 min ◈ 6
  4. Strips, real return bonds and mortgage-backed securities 9 min ◈ 7
  5. Preferred shares as fixed income 9 min ◈ 6
  6. Credit ratings and the eight bond risks 10 min ◈ 6
  7. Bond quotation, accrued interest and the invoice price 9 min ◈ 9

Bond Pricing and Trading

59 cards
  1. Holding-period return and the valuation premise 8 min ◈ 6
  2. Bond price as PV of coupons plus par 10 min ◈ 9
  3. Discount, par, premium and pull to par 9 min ◈ 8
  4. Yield to maturity and yield to call with RATE 10 min ◈ 9
  5. Current yield and where it sits 8 min ◈ 7
  6. Price–yield curvature, strips and duration intuition 10 min ◈ 10
  7. Credit spreads, bond trading and realised return 10 min ◈ 10

Equities: Shares, Dividends, Valuation, Rights, Margin and Short Selling

73 cards
  1. Common shares, rights, dividend dates and splits 10 min ◈ 8
  2. Preferred-share valuation and the feature table 9 min ◈ 8
  3. The Gordon growth model: D₀ versus D₁ 10 min ◈ 10
  4. DDM inputs: g from ROE, r from the premium, and the implied return 10 min ◈ 9
  5. Two-stage DDM: the “never seen” shape 10 min ◈ 8
  6. EPS, P/E, price-to-book and market cap 9 min ◈ 8
  7. Rights, warrants and order types 10 min ◈ 9
  8. Margin buying and short selling 12 min ◈ 13

Derivatives: Forwards, Futures, Options and Swaps

55 cards
  1. What a derivative is, who uses it, and why it is risky 8 min ◈ 7
  2. Forwards versus futures: the six-attribute table 9 min ◈ 7
  3. Futures payoffs and hedging 9 min ◈ 8
  4. Option vocabulary and call payoffs 10 min ◈ 10
  5. Put payoffs, intrinsic value and time value 10 min ◈ 11
  6. Covered calls, protective puts and swaps 10 min ◈ 12

Returns, Risk, Market Efficiency and Pooled Investments

70 cards
  1. Stock returns, arithmetic and geometric averages 9 min ◈ 8
  2. Portfolio return, expected return and standard deviation 10 min ◈ 10
  3. Diversification, correlation and the two-asset portfolio 10 min ◈ 9
  4. Beta and the CAPM 10 min ◈ 11
  5. Market efficiency, its three forms and anomalies 9 min ◈ 11
  6. Mutual funds: NAV, MER, loads and objectives 10 min ◈ 12
  7. ETFs versus mutual funds, and active versus passive 9 min ◈ 9

The 12-vs-12 Experiment, and the Final Rehearsal

38 cards
  1. The experiment: hypothesis and random selection 7 min ◈ 5
  2. The tracking spreadsheet and adjusted returns 9 min ◈ 8
  3. Benchmarking in CAD and risk-adjusting 9 min ◈ 8
  4. Reading the result as evidence, and presenting it 8 min ◈ 8
  5. Final rehearsal: the “never seen” set 12 min ◈ 9
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