Ch14 Flashcards
money
any object generally accepted by ppl as payment for goods and services
- anything that is portable, divisible, durable, and stable
barter economy
one in which goods are exchanged directly for one another
three functions of money
- it is a medium of exchange
- it is a store of value
- it is a unit of account
M-1
only the most liquid forms of money (currency and demand deposits (chequing accounts))
currency
paper money and coins issued by government
cheque
order instructing the bank to pay a given sum to a specified person or company
demand deposits
money in chequing accounts
M-2
everything in M-1 plus savings deposits, time deposits, and money market mutual funds
time deposit
deposit that requires prior notice to make a withdrawal; cannot be transferred to others by cheque
money market mutual funds
funds operated by investment companies that bring together pools of assets from many investors to buy short-term, low=risk financial securities
four legal pillars of financial community in Canada
- chartered banks
- alternate banks (trust companies, credit unions, etc)
- life insurance companies and other specialized lending/saving intermediaries (pensions, mutual funds, etc)
- investment dealers
changes in financial institutions
- banks can own securities dealers, establish subsidiaries to sell mutual funds, andsell commercial paper
chartered bank
privately owned, profit-seeking firm that serves individuals, non-business organizations, and businesses as a financial intermediary
- main source of short-term loans for businesses
schedule I banks
Canadian-owned and have no more than 10% of voting shares controlled by a single interest
schedule II banks
may be domestically owned, but do not meet the 10% limit or are foreign-controlled
trust services by bank
trust department will (in exchange for fees) perform tasks such as making ur monthly bill payments and managing your investment portfolio
- also manage estates of deceased persons
international services offered by banks
currency exchange, letters of credit, and banker’s acceptances
letter of credit
promise by a bank to pay money to a business firm if certain conditions are met
banker’s acceptance
a promise that a bank will pay a specified amount of money at a future date
electronic funds transfer (eft)
provides for payments and collections by transferring financial info electronically
automated banking machines (ABM)
electronic machines that enable bank customers to conduct account-related transactions any time
direct deposits and withdrawals
enable user to authorize, in advance, specific, regular deposits and withdrawals
point-of-sale transfers
permits consumers to pay for retail purchase with debit card
debit card
card which immediately reduces the balance in user’s bank account upon use and transfers it to store’s account
smart cards
credit-card-sized computer that can be programmed with electronic money (ex. phone card)
mobile (digital) wallet
credit card and debit card info are embedded in smartphones so that u can pay using smartphone
prime rate of interest
lowest rate charged to borrowers
reserve requirement
requirement (until 1991) that banks keep a portion of their chequable deposits in vault cash or as deposits with the Bank of Canada
changes in banking
no reserve requirement, deregulation (allows banks to provide more products and services), customer demands (finding new ways to find clients), and international banking (increased competiton from foreign banks)
bank of canada
canada’s central bank
increase money supply: buying government securities (ppl who sell the bonds deposit proceeds into banks, which makes banks more willing to make loans) – or lower bank rates
decrease money supply: sell government securities (ppl spend money to buy bonds, and the withdrawals from banks reduce banks’ willingness to make loans) – or increase bank rate
bank rate (rediscount rate)
rate at which chartered banks can borrow from Bank of Canada
trust company
safeguards funds and estates entrusted to it – may also serve as trustee, transfer agent, and registrar for corporations
credit unions (caisses populaires)
cooperative savings and lending association formed by a group with common interests
life insurance company
mutual or stock company that shares risk with its policyholders for payment of premiums
factoring company (or factor)
buys accounts receivable from a firm for less than their face value and then collects the face value of the receivables
sales finance company
specializes in financing installment purchases made by individuals or firms (ex. GMAC)
consumer finance company
makes personal loans to consumers
- smaller loans often made with no collateral
- these companies do not make loans to businesses (ex Household Finance Corporation)
venture capital firm
provides funds for new or expanding firms thought to have significant potential
- often ask for above average return on investment and may ask for other things (such as a seat on board of directors)
- venture capital firms get funding from initial capital subscriptions, loans from other financial intermediaries, and retained earnings
pension fund
accumulates money that will be paid out to plan subscribers in the future
investment dealers (stockbrokers or underwriters)
primary distributors of new stock and bond issues
Export Development Corporation (EDC)
finances and insures export sales for Canadian companies
- Canadian Mortgage and Housing Corporation is involved in providing and guaranteeing mortgages
law of one price
principle that identical products should sell for the same price in all countries
World Bank
United Nations agency that provides a limited scope of financial services, such as making loans to fund national improvements in undeveloped countries (building schools, roads, etc)
International Monetary Fund (IMF)
United Nations agency consisting of 188 nations that have combined resources to promote stable exchange rates, provide temporary short-term loans, and serve other purposes
