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Buisness > Banking, credit, savings & interest > Flashcards

Banking, credit, savings & interest Flashcards

1
Q

Canadian banking

A
  • sell services
  • profits earned from interest
  • 1867 unified banking system
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2
Q

What are bank acts

A

rules & regulations
charted banks license to operate=s charted
classes of bank

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3
Q

Canadian banking classes

A

Schedule Definition Example
1 Canadian BMO
2 foreign-owned ING Bank
3 foreign-bank branches Citibank

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4
Q

What is brank banking?

A

Head office & branches

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5
Q

What is bank of Canada (stable economy)

A
  • central bank
  • money supply
  • bank or prime lending rate
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6
Q

What does financial transactions mean

A

it is a company engaged in the business of dealing with financial and monetary transactions such as deposits, loans, investments, and currency exchange

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7
Q

What are 4 types of financial institutions

A
  1. banks (regular+virtual)
  2. Trust companies (investing)
  3. credit unions/caisee popularies
  4. insurance company
    - life & health + property & cars
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8
Q

What are some Accounts types

A
  • transaction (chequing)
  • combination (transaction- savings)
  • Current (business)
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9
Q

What are cheques

A

A written instruction to your bank (drawee) to take a specific amount of money out of your account (drawer) and pay it to a specified person (payee)

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10
Q

Cheques should be…

A
  • dated
  • signed
  • indicate the amount in words & numbers
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11
Q

What are some ways to bank?

A

1) Branch
2) ABMS (1970)
3) Debit cards (1993)
4) telephone
5) online banking

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12
Q

What are some financial services

A
  1. Loan- borrow money ex auto, education
  2. lines of credit -authorisation [ permission to withdraw more money from your banking account than you have]
  3. credit cards
    - using the banks money to make purchases, owe the bank not the business you by from
  4. direct deposits- using the banks money to make purchases, owe the bank not the business you buy
  5. money orders & drafts- like cheque with guarantee that payment will be made, fees are charges for each money order/draft.
  6. night depositories-businesses to deposit money after closing hours.
  7. overdraft protection- insurance where if anything happens, the line of credit is paid off
  8. pre-authorised bill payments- direct withdrawals, ex insurances, mortgage, auto loans
  9. Safety deposit boxes
  10. Combination service packages- combines bank accounts, ex checking & savings.
  11. online banking- convenient 24/7 access deposits, bill payments, direct transfers, e-transfers.
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13
Q

Shop around…

A
  • services offered
  • location- convenience & accessibility
  • fees- bank charges
  • reputation
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14
Q

What are 2 types of financial institutions

A

schedule 1: banks are domestic and are authorised under the bank act to accept deposits

Schedule 2: banks are forging banks subsidiaries authorized under the bank to keep deposits

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15
Q

How are banks worth determined

A

assets, deposits and capitalisation

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16
Q

Canadian banking

A

all deposit-taking institutions invest & lend their customers’ savings & charge fees for services

  • banks are business that sell financial services to earn profits
  • most bank revenue is from interest on loaned money & investments [by bank
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17
Q

The bank act

A

-Canadian constitution of 1867 created a common unified banking system controlled by the federal government
-outlines rules & regulations-all banks must follow
-banks are known as charter banks
the license to operates as a bak is called a charter

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18
Q

What is charter

A

the license to operate as a bank is called a charter

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19
Q

3 classes of bank

A

schedule 1
-owned by Canadian shareholders (domestiv)- BMO, CIBC, Scotiabank
schedule 2- foreign-owned & operate similar to schedule 1 banks- ING bank
Schedule 3
-foreign-owned & have restrictions set by the bank act- Citibank, capital one

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20
Q

Bankers bank

A
  • Stable economy by regulating the money supply

- controls bank rate-minimum interest banks can charge for loans

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21
Q

Other financial insitutions

A
  • trust companies-started as investors, now similar to banks
  • caisses poularies & credit unions- co-operative ownership, members have something in common & pool resources
  • insurance companies- insure rise (life, health, property, etc), works by sharing risk, everyone pays in, only few are paid out
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22
Q

Opening and accessing and account

A

Documents:
2 pieces of ID required
ex birth certificate or citizenship, driver’s licence, passport.
Fill put a signature card banks keep this record of your signature
will receive a debit card

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23
Q

Deposit or withdrawal

A

can be made at…

  • financial institution [bank] automated banking machine [ATM/ABM]
  • mobile cheques deposit using bank app on your phone
  • cash back at stores [withdrawal]
  • need personal identification (pin)
24
Q

Types of accounts

A 
Transaction accounts  (chequing account) used for everyday needs 
transaction register-own record of all transactions.
Saving account - collect some interests
combination- transactions+ savings  depending on plan may have service fee [per month]
25
Q

reconciliation

A

transaction register (your record ) &the monthly bank statment
(statment provided by bank) are compared to ensure they agree
- reconcile each month so you know current balance is correct i.e always check the deposits and withdrawals from your bank account o make sure thy are legitimate.

26
Q

cheques

A
  • written instruction to your bank to withdraw money from your account and pay it to specific person/buisness
  • most written from a cheque book, but can be written on anything (special fee to process)
27
Q

Cheque essentials

A

-date (indicates if cheque is stale or post-dated)
-payee (receives the cheque as payment for g/s)
-drawee (bank of person writing the cheque)
-drawer ( account holder- the person who writes the cheque)
amount [in number & words]
MICR number [ indicates institution, branch number, &account]

28
Q

If you deposit a check,

A

your bank or check-cashing service is the drawee

29
Q

Witting cheques

A 
security features
-inks that change colour when rubbed
-watermarks
-special fibres
Stop payment request 
can be made if 
-not to be cashed 
-lost/stolen
Cheque clearing
processing of cheques & the settling of account balances.
Magnetic ink character recognition (MICR)
coded characters across bottom that are read t electronic cheque sorting machines.
30
Q

Holds on cheques

A

deposited cheques can have a hold [delay] to give institution time to clear the cheque (check that fund are available)
-this means that you cannot withdraw the cheque amount until it has cleared i.e you don’t have access to the money.

31
Q

Why care about inflation

A
  • inflation erodes the value of money
  • with 10% year inflation
  • 100 today will only be worth 62 in 5 years and $39 in 10 years
  • high inflation penalizes peopel who sae
  • when inflation is high, it also tends to vary a lot from year to year
32
Q

How does BoC control inflation

A

we control the interest rates charges amongst banks on ‘overnight’ loans
changes to this interest rate affects mortgage rates, car loan rates.

33
Q

Saving

A

putting aside money to use in the future for example new computer, trip, car, education

34
Q

Investing

A

using savings to earn extra income

for example interest, dividends [stock market]

35
Q

Why save

A
  1. emergencies
    - 3-5 months of gross income
    - layoff, medical, loss of property
    - cross income
  2. goals (short vs long-term)
  3. security & future- retirement ( 10% of annual salary) pay yourself 1st
36
Q

selecting a savings plan -criteria

A

1.earnings & yield
-rate of return (interest/principle *100)
rule of 72
2. safety
CDIC protects up to $100000 per a/c.
3. liquidity - ability to convert investment into $ & cash

37
Q

What is the rate of return

A

Interest/ Principal x 100

38
Q

Savings plans

A

saving accounts: safe earns interest- low
Term deposits & GICS; fixed amount, fixed time
RRSPs: retirement (not taxed)
RESPs: education 20% of %2000-max 400

39
Q

Investments

A

1) Canada savings bonds (Govt. of Canada)
2) corporate bonds (company)
3. Stocks (shareholders)
4. mutual funds (pools of money-investment company)
5. real estate (land+ anything attached)
6. collectibles (items of personal intrest)

40
Q

Business investments?

A
  1. Invest extra Cash
  2. Generate income
  3. strategy
    - business (growth)
    - suppliers (cut costs)
41
Q

Where do i save/invest

A

3 criteria

probability of my investment- measure by return

42
Q

what is credit

A

Buy now pay later!

  • using someone else’s money
  • creditor (lends money)
  • debtor (borrows money)
43
Q

Advantages of credit

A
  • instant enjoyment
  • convenience
  • emergencies
  • saving money
  • credit rating
  • records
44
Q

Disadvantages of credit

A
  • costs (Interest)
  • overbuying
  • impulse buying
  • financial difficulties
45
Q

Who borrows money

A
  1. individuals
  2. businesses
  3. government
46
Q

Types of credit

A
  1. Credit cards
  2. instalment sales credit
  3. loans
47
Q

Credit cards

A

Banks (ex: visa/Mastercard)
retailers
(ex: Canadian tire)
travel & entertainment (ex: Diners club, amex)

48
Q

Instalment sales credit

A

-down payment+fixed regular payments
-finance charges+ purchase price
-contract [financing company & debt]
-buyer x own asset until fully paid off
lien against asset
asset serves as collateral

49
Q

Loans

A
  • terms (time)
  • demand (collateral)
  • student -education
  • mortgage (property)
50
Q

Cost of credit=s (interest)

A

-principal (amount borrowed)
-Term [time-ex year, months]
-interest rates [%p.a]
-interest cost
P x R x term
compounded

51
Q

Cost of credit=s(interest)

A 
Inflation & economic conditions
determines interest rate, set by bank of Canada.
-security or collateral 
asset-lien 
ex property, car, investments
-Risk & credit rating 
based on 3Cs of credit
history- credit bureaus ex eqifax, transunion
52
Q

Credit worthiness

A

The 3 Cs of credit

  • character
  • capacity
  • capital
53
Q

Character

A

Borrower’s willingness:
repay on time
reliability
trustworthiness

54
Q

Capacity

A

Borrower’s ability

  • make payments on time
  • pay when due
55
Q

Capital

A

Value of borrower’s assets

56
Q

How to know if your credit worthy

A

1.Credit bureaus
Gather credit info (7yrs) & sell it
Ex: equifax, transunion

57
Q

credit worthy?

A

-Credit rating
level of risk: consumer, business, or government
-credit history-build
-credit file-check

Buisness (7 decks)

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