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Business Fundamentals > Chapter 14 > Flashcards

Chapter 14 Flashcards

1
Q

Define money

A

Object accepted as payment for g/s

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2
Q

What are the 4 characteristics of money

A
  1. Portable: lightweight, easy to handle
  2. Divisible: easily broken down to match value of goods
  3. Durable: cannot wear out
  4. Stable: stable enough to hold value over time with minor fluctuations
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3
Q

What are the 3 functions of money

A
  1. Exchange medium: used to trade g/s instead of bartering
  2. Value storage: useable for future purchases
  3. Account unit: measure relative value of g/s
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4
Q

Define the spendable money supply

A

Buyers/sellers agree on value of money, which then fluctuates based on value/circulation

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5
Q

Define the M-1 money supply

A

“Narrow” liquid money
1. Currency from Bank of Canada
2. Demand deposits (chequings)
3. Cheques

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6
Q

Define the M-2 money supply

A

All M-1 PLUS items convertible to spendable form
1. Time deposits (requires notice before withdrawal)
2. Mutual funds: pooled assets from investors
3. Savings account holdings

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7
Q

Is credit card money?

A

No, substitutes, works as temporary medium exchange

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8
Q

What are the 5 Canadian financial pillars

A

Chartered banks
Alternate banks
Life insurance companies
Specialized lending/saving intermediaries
Investment dealers

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9
Q

Do the 4 financial pillars still exist as distinct entities

A

No, lines now blurred due to changes in financial industry regulations

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10
Q

Define a chartered bank

A

Privately owned
Profit-oriented
Accept deposits from customer to lend to another
Offer: chequings, savings, loans, etc

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11
Q

What are the 2 types of chartered banks

A

Schedule 1: domestic, no more than 10% voting owned by one person
Schedule 2: not always domestic, does not respect 10% rule

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12
Q

What are services offered by banks

A

Pension
Trust
International
Financial
Electronic funds transfers
Bank loans

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13
Q

Define a bank loan + 3 types

A

Major source of short-term financing
1. Secured
2. Unsecured
3. Prime rate of interest

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14
Q

Do banks enjoy giving long term loans

A

No, would rather finance inventory/accounts receivable

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15
Q

How does the chartered banking system CREATE money

A

Not by minting bills and coins, but by taking cash from one customer’s chequings and lending it to others temporarily

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16
Q

What are changes happening in the financial system

A
  1. Deregulation: banks shifting from historical role as intermediaries between borrowers and depositors
  2. Changes in consumer demands (ie tangerine online bank instead of scotia physical)
  3. Changes in international banking
  4. Diversifying to other products (insurance, investment banking)
17
Q

Define the Central Bank of Canada

A
  • Governor board
  • Regulations operations of chartered banks
  • Manages money supply by
    1. Buying/selling securities
    2. Changing bank rate
  • Managing bank rate (rate at which chartereds can borrow from B o C)
18
Q

Define a trust company

A

Safeguards funds/estates entrusted to them

19
Q

Define credit unions (caisse populaire)

A

Coop savings/lending institution formed by group of indiv with common interests (ie Desjardins)

20
Q

What are 5 specialized lending/savings intermediaries

A
  1. Life insurance companies
  2. Factoring
  3. Financial corps
  4. Venture capital/dev firms
  5. Pension funds
21
Q

Define a life insurance company

A

Shares risk with policy holders for payment of premium; some money is lent out; substantial investment in real estate, mortgages, govt bonds

22
Q

Define a factoring company

A

Buys uncollected accounts receivables from firm for less than face value; allows firm to redeem at least some value; pays less and attempts to collect face value

23
Q

What are the 2 types of financial corporations

A

Sales finance company
Consumer finance company

24
Q

Define a sales finance company

A

Finances installement purchases made by indivs for a business; loans are SECURED by items being financed

25
Q

Define a consumer finance company

A

Makes personal loans to consumers; collateral may be required

26
Q

Define a venture capital firm

A

Funds new/expanding firms with great potential; obtains funds from investors, financial intermediates, retained earnings; seeks to earn higher than normal returns for high risk

27
Q

Define a pension fund

A

Accumulates cash that will be paid out in future as pension income; money invested till needed; stocks, bonds, mortgages, etc

28
Q

Define an investment dealer

A

Stockbroker, underwriter act as primary distributor of new stock/bond issues

29
Q

What are other sources of funds in Canada

A

Business Dev Bank of Canada (BDC)
Export Dev Corp (EDC)
Canada Mortgage and Housing Corp (CMHC)

30
Q

How do exchange rates influence international trade

A

Influence willingness to invest/import: ex if CAD is strong, exports become more expensive where as imports become less expensive

31
Q

Define the Law of One Price

A

Identical product should sell for same price in all countries

32
Q

Define the Big Mac Currency Index

A

Over vs undervalued currencies

33
Q

Define the international payments process

A
  1. Local bank converts payments to currency required by foreign trade associates
  2. Bank then sends foreign currency payment to foreign trade partner
  3. Partner deposits payment in his own foreign bank
34
Q

Define the international bank structure

A

International banking governed by network of loose agreements between countires

35
Q

What is the World Bank

A

UN agency funds infrastructure projects in developing countries

36
Q

What is the International Money Fund

A

Collects money from member nations and lends to others

37
Q
A

Business Fundamentals (15 decks)

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