Chapter 17

Question 1

bank rate

Answer 1

the interest rate that the bank of Canada charges on one-day loans to financial institutions.

Question 2

target for the overnight rate

Answer 2

the signal to the major participants in the money market as to what the Bank of Canada is aiming for when participants borrow and lend one-day funds to each other.

Question 3

four of the pillars of the Canadian financial system

Answer 3

refers to banks, trust companies, insurance companies, and investment dealers.

Question 4

trust companies

Answer 4

a financial institution that conducts the same activities as a bank but can also administer estates, trusts, pension plans and agency contracts.

Question 5

Interest

Answer 5

A fixed amount of money paid by the issuer of a bond to a bondholder on a regular schedule, typically every six months; stated as the coupon rate

Question 6

Principal

Answer 6

The amount borrowed by the issuer of a bond; also called par value

Question 7

Debentures

Answer 7

Unsecured bond that are backed only by the reputation of the issuer and it’s promise to pay the principal and interest when due.

Question 8

Convertible bonds

Answer 8

Corporate bonds that are issued with an option that allows the bondholder to convert them into common shares.

Question 9

Bond ratings

Answer 9

Letter grades assigned to bond issues to indicate their quality, or level of risk; assigned by rating agencies such as Moody’s, Standard and Poor.

Question 10

Mutual fund

Answer 10

A financial service company that pools it’s investors’ funds to buy a selection of securities that meet it’s stated investment goals. they are a convenient way of diversifying and are professionally managed.

Question 11

Canada Deposit Insurance Corporation (CDIC)

Answer 11

The Canada Deposit Insurance Corporation is a federal crown corporation created in 1967 to provide deposit insurance and contribute to the stability of Canada’s financial system.

Question 12

Securities

Answer 12

Investment certificates issued by corporations or governments that represent either equity or debt

Question 13

Bonds

Answer 13

Securities that represent a long-term debt obligation (liabilities) issued by corporations or governments. Interest is paid out periodically and principal paid back at maturity. Bonds provide a steady source of income and the potential for price appreciation if interest rates fall below the coupon rate. Rising interest rates can erode the bond price.

Question 14

Interest

Answer 14

A fixed amount of money paid by the issuer of a bond to a bondholder on a regular schedule, typically every six months; stated as the coupon rate

Question 15

Principal

Answer 15

The amount borrowed by the issuer of a bond; also called par value

Question 16

High-yield (junk) bonds

Answer 16

High-risk, high-return bonds

Question 17

Debentures

Answer 17

Unsecured bond that are backed only by the reputation of the issuer and it’s promise to pay the principal and interest when due.

Question 18

Convertible bonds

Answer 18

Corporate bonds that are issued with an option that allows the bondholder to convert them into common shares.

Question 19

Bond ratings

Answer 19

Letter grades assigned to bond issues to indicate their quality, or level of risk; assigned by rating agencies such as Moody’s, Standard and Poor’s.

Question 20

Mutual fund

Answer 20

A financial service company that pools it’s investors’ funds to buy a selection of securities that meet it’s stated investment goals

Question 21

Exchange traded fund (ETF)

Answer 21

A basket of marketable securities in a category, such as an industry sector, an investment objective, or a geographical area, or that track an index. ETF’s are similar to mutual funds but trade like shares.

Question 22

Futures contracts

Answer 22

Legally binding obligations to buy or sell specified quantities of commodities or financial instruments at an agreed-on price at a future date. They are very risky since price or financial instrument can change drastically.

Question 23

Options

Answer 23

Contracts that entitle holders to buy or sell specified quantities of common shares or other financial instruments at a set price during a specified time. a high-risk investment.

Question 24

Institutional investors

Answer 24

Investment professionals who are paid to manage other people’s money.

Question 25

Investment bankers

Answer 25

Companies that act as intermediaries, buying securities from corporations and governments and reselling them to the public.

Question 26

Underwriting

Answer 26

The process of buying securities from corporations and governments and reselling them to the public, with the aim of reselling at a higher price; the
Main activity of investment bankers.

Question 27

Primary market

Answer 27

The securities market where new securities are sold to the public, usually with the help of investment bankers.

Question 28

Secondary market

Answer 28

The securities market (already issued) securities are bought and sold, or traded among investors.

Question 29

Broker markets or organized stock exchanges

Answer 29

Organizations on whose premises securities are resold by using an auction-style trading system.

Question 30

National Association of Securities Dealers Automated Quotation (NASDAC) system

Answer 30

The first-electronic based stock market and the fastest growing part of the stock market. Dealers and brokers perform trades quickly and efficiently.

Question 31

Bull markets

Answer 31

Markets in which securities prices are rising.

Question 32

Bear markets

Answer 32

Markets in which securities prices are falling

Question 33

Functions of the Bank of Canada

Answer 33

The Bank of Canada promotes economic and financial welfare of Canada by: conducting monetary policy in a way that fosters confidence in the value of money; supplying quality bank notes; promoting the safety and efficiency of Canada’s financial system; providing efficient and effective funds management services; communicating their objectives openly and effectively, and standing accountable for their actions.

Question 34

Non-depository institutions are

Answer 34

insurance companies, pension funds, brokerage companies and finance companies. Financial institutions ease the transfer of funds between suppliers and demanders.

Question 35

Order of claims on income or assets

Answer 35

Bonds (creditors to issuer), preferred shareholders, common shareholders

Question 36

Securities markets allow

Answer 36

shares, bonds and other securities to be bought and sold quickly and at a fair price.

Question 37

securities are resold

Answer 37

on organized share exchanges, such as the Toronto Stock Exchange and regional share exchanges.