Banking

Question 1

What are the functions of money?

Answer 1

Makes the economy run smoothly.

Medium of exchange, measure of value, method for retaining or accumulating wealth.

Question 2

What is the role of the Bank of Canada?

Answer 2

Promotes the economic and financial welfare of Canada by carrying out monetary policy.

Fosters confidence in the value of money, conducts monetary policy, promotes a safe and efficient financial system.

Question 3

What are the 4 main areas of responsibility of the Bank of Canada?

Answer 3

Monetary policy, financial system, currency, funds management.

Question 4

What is the monetary policy of the Bank of Canada?

Answer 4

Influences the supply of money circulating in the economy to keep inflation low and stable.

Question 5

How does the Bank of Canada manage inflation?

Answer 5

Uses interest rates to manage inflation within a policy range of ~2%.

Question 6

What is the overnight rate set by the Bank of Canada?

Answer 6

The interest rate that major financial institutions borrow from each other overnight, currently at 3.75%.

Question 7

What is the prime rate in Canada?

Answer 7

The interest rate that banks charge their most creditworthy customers, currently at 5.9%.

Question 8

What are the three main components of Canada’s money supply?

Answer 8

Currency, demand deposits, time (term) deposits.

Question 9

What are open market operations?

Answer 9

The purchase or sale of Canadian government securities by the Bank of Canada to stimulate or slow down the economy.

Question 10

What does the federal Bank Act regulate?

Answer 10

Sets out the rules for banks in Canada, which are for-profit and can be privately owned or publicly traded.

Question 11

What services do banks provide?

Answer 11

Secure storage of money, convenient access to money, access to loans, business and international services.

Question 12

What are credit unions?

Answer 12

Member-owned and cooperative organizations offering many of the same services as banks, regulated provincially.

Question 13

What is the role of the CDIC?

Answer 13

Protects the savings of Canadians and contributes to financial stability by safeguarding deposits at member institutions.

Question 14

What is the Office of the Superintendent of Financial Institutions?

Answer 14

The most important regulatory body of Canada’s banking system, regulating federally registered banks and other financial entities.

Question 15

What are stocks?

Answer 15

Equity shares representing ownership with voting rights on corporate decisions. Can be bought and sold.

Question 16

What are the two types of stocks?

Answer 16

Common stocks (with voting rights) and preferred stocks (dividends paid before common stocks, no voting rights).

Question 17

What is the primary market?

Answer 17

Where new securities are sold to the public with proceeds going to the issuer.

Question 18

What is the secondary market?

Answer 18

Where old securities are bought and sold among investors.

Question 19

What characterizes a bull market?

Answer 19

Prices rise and provide better returns.

Question 20

What characterizes a bear market?

Answer 20

Prices go down, resulting in low or negative returns.

Question 21

What is the overall purpose of financial markets?

Answer 21

Facilitate low-cost investment, bring together buyers and sellers, provide liquidity, set prices, and reduce information costs.

Question 22

How do stock prices change?

Answer 22

Stock prices change due to market forces of supply and demand.

Question 23

What are bonds?

Answer 23

Long-term debt obligations issued by corporations or governments, known as fixed-income securities.

Question 24

What are the two types of bonds?

Answer 24

Corporate bonds (secured or unsecured) and government bonds (federal or provincial).

Question 25

What is a stockbroker?

Answer 25

A person licensed to buy and sell securities on behalf of clients.