Chapter 10: Non-Deposit-Taking Financial Institutions Flashcards
four major types of finance and leasing companies
KNOW 2
- Acceptance (or sales finance) companies:
- that make loans to consumers via the retailers from whom the persons purchase the products
- Many are subsidiaries
- Not in direct competition with the banks
ex. Ford Motor credit company - Consumer loan companies:
- make cash loans to individuals, mainly for the purpose of debt consolidation
- higher-risk individuals to whom the banks may have declined to lend money
- Pay higher interest
ex. Low credit or new credit - Financial leasing corporations
- focus upon providing financing packages and leasing services to corporations rather than individual clients - Business financing corporations:
- serve as an alternative to the commercial lending functions of the mainstream banks
- start-up” businesses that tend to present too high a risk for the banks to take on as client
What do investment dealers do?
- primarily to provide underwriting services
- bringing new securities (such as stocks or bonds) to the investment markets
What do brokerage firms do? and its two types of dealers
agents for their clients and focus upon the buying and selling of exchange-listed securities
- Full-service:
- everything from providing research and investment advice, to trading and discretionary portfolio management for individual investors. - Discount brokerage
- they do not engage in the provision of any advice
- , focus upon the execution of client orders in the buying and selling of securities
4 Major Government Financial Institutions
KNOW 2
- Canada Mortgage and Housing Corporation (CMHC):
- provide financial assistance programs to enable low-income Canadians access to affordable housing
- assisting banks by providing mortgage insurance to their clients that are unable to afford 20% down-payment - Business Development Bank of Canada (BDC
- act as a lender of last resort to business unable to obtain conventional business financing from the banks. (New/small businesses & high risk that present high risk) - Farm Credit Corporation (FCC)
- provides various types of financing programs to assist the agricultural sector
- financing for equipment, machinery and land when their financial position causes the banks to decline financing - Export Development Canada (EDC)
- financial products and services to companies that are engaged in selling into foreign markets
-insurance of foreign receivables
provide long-term, fixed-rate financing to foreign buyers of Canadian goods and services
insurance industry is divided into three segments
- Life
- Property and casualty (also known as “general”), for vehicles and homes
- Accident and sickness (including disability)
Mergers and Acquisitions in the insurance industry and what is the restriction
Merging allowed a number of companies to grow quickly. At the same time the Bank Act allowed banks to buy existing insurance companies or start their own insurance enterprise.
Restriction: Banks are not allowed to sell insurance policies in their branches
what is investment funds?
- involves a large number of investors
- pooling their relatively small individual amounts of money
- team of professional fund managers
- buying investments and securities and receiving shares, or “units”, of ownership of the fund’s assets
two types of investment funds
- Closed-end:
- purchase a specific type or amount of investments and sell a set amount of units or shares to investors
- Fund is close when obtained target investment and sold fixed number of units to investors
- Investors who buy fund units needs a broker to sell units in secondary market - Open-end, or “mutual” funds
- purchase as many investments as investors demand
- will continue to create and sell as many new units as investors are willing to purchase
- no limit
- open-end fund can continue to grow without limit
- able to sell units without a middle man
Types of mutual funds charge fees
Front end fees - paid at purchase
Back end fees - paid when sold
No load fees - No fees
All unit holders of all funds will be charged a management fee on an annual or quarterly basis
0.5% - 5%
Fund managers will always earn their fees
Investors will always pay their fees
6 different Private Pension Plans - KNOW 3
- Contributory, where the employee and the employer both pay into the fund
- Non-contributory, where only the employer makes payments into the fund.
- Voluntary or compulsory, where the employee has the freedom to choose to join the fund, or if participation is mandatory for all employees to participate.
- Trusteed or insured, managed by a trust company, or by an insurance company.
- Defined-benefit, where the employee is guaranteed a known amount of pension, based upon a formula that includes a fixed-percentage for each year of employment with the company, based upon an average salary.
- Defined-contribution, where ultimate benefits are not known in advance and vary based upon contribution amounts and the return on the fund’s investments.
Who operates the public pension plan and which are the two commonly used
Public Pension Plans are operated by governments
the two most common of which being the Canada Pension Plan (CPP) and the Quebec Pension Plan (QPP).
How are public pension plans paid. Average starting year, earliest and delayed starting years
Contributions are a fixed percentage of the person’s earnings, and a matching amount by the governement
65 being the most common starting year
age 58 or delayed until age 70
Funds contributed from employment income to CPP/QPP are not taxed until received at retirement
What happens if a person has no retirement income
Eligible to receive Guaranteed Income Supplement (GIC)
