Chapter 17

Question 1

Define Money

Answer 1

Anything that is an acceptable form of payment.

Question 2

Define Currency

Answer 2

Bank notes and coins used as a medium of exchange

Question 3

Define Demand Deposits

Answer 3

Money kept in checking accounts that can be withdrawn by depositors on demand.

Question 4

Define Time Deposits

Answer 4

Money invested for a specific time

Question 5

Define Term Deposits

Answer 5

Deposits at a bank or other financial institution that pay interest but cannot be withdrawn on demand.

Question 6

Define Open Market Operations

Answer 6

The purchase or sale of Canadian government securities by the Bank of Canada to stimulate or slow down the economy.

Question 7

Define Bank Rate

Answer 7

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

Question 8

Define Target for the overnight rate

Answer 8

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 9

Denise Four Pillars of the Canadian Financial System

Answer 9

The country’s banks, trust companies, insurance companies, and investment dealers.

Question 10

Define Financial Intermediation

Answer 10

The process in which financial institutions act as intermediaries between the suppliers and demanders of funds.

Question 11

Define Chartered Banks

Answer 11

Profit oriented financial institutions that accept deposits make business and consumer loans invest in government and corporate securities and provide other financial services.

Question 12

Define Trust Company

Answer 12

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

Question 13

Define Credit unions and causes populaires

Answer 13

Not for profit, member owned financial cooperatives

Question 14

Define Pensions Funds

Answer 14

Large pools of money set aside y corporations, unions, and governments for later use in paying retirement benefits to their employees or members.

Question 15

Define Canada Deposit Insurance Corporation (CDIC)

Answer 15

A federal Crown corporation created in 1967 to provide deposit insurance and contribute to the stability of Canada’s financial system.

Question 16

Define Securities

Answer 16

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

Question 17

Define Common Shares

Answer 17

The most widely form of ownership with the right of owner (shareholder) to vote on important corporate decisions.

Question 18

Define Dividends

Answer 18

Profits of the company that are distributed to the shareholders

Question 19

Define Preferred Shares

Answer 19

Shares, that unlike common shares, have a specified fixed dividend but typically not a voice in management.

Question 20

Define Bonds

Answer 20

Securities that represent a long-term debt obligations (liabilities) issued by corporations or governments.

Question 21

Define Interest

Answer 21

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

Question 22

Define Principal

Answer 22

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

Question 23

Define High-Yield (junk) bonds

Answer 23

Hight risk; High return bonds

Question 24

Define secured bonds

Answer 24

Corporate bonds for which specific assets have been pledged as collateral.

Question 25

Define mortgage bonds

Answer 25

Corporate bonds that are secured by property, such as land, equipment or buildings.

Question 26

Define Debentures

Answer 26

Unsecured bonds that are backed only by the reputation of the issuer and its promise to pay the principal and interest when due.

Question 27

Define Convertible Bonds

Answer 27

Corporate bonds for which specific assets have been pledged as collateral.

Question 28

Define Bond Ratings

Answer 28

Letter grades assigned to bond issues to indicate their quality or level of risk; assigned by rating agencies such as Moody’s and Standard and Poor’s (S&P)

Question 29

Define Mutual Fund

Answer 29

A financial services company that pools its investors funds to buy a selection of securities that meet its stated investment goals.

Question 30

Define Exchange traded fund (ETF)

Answer 30

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; similar to mutual funds but trade like shares.

Question 31

Define Futures contracts

Answer 31

Legally binding obligations to buy or sell specified quantities of commodities or financial instruments at an agreed on price at a future date

Question 32

Define Options

Answer 32

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.

Question 33

Define Institutional Investors

Answer 33

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

Question 34

Define Investment Bankers

Answer 34

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

Question 35

Define Underwriting

Answer 35

The process of buying securities from corporations and governments and reselling them to the public to make a profit. Main activity of investment bankers.

Question 36

Define Stockbroker

Answer 36

A person who is licensed to buy and sell securities on behalf of clients.

Question 37

Define Primary Market

Answer 37

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

Question 38

Define secondary market

Answer 38

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

Question 39

Define Broker markets or organized stock exchanges

Answer 39

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

Question 40

Define Dealer Markets

Answer 40

Securities markets where buy and sell orders are executed through dealers or market makers linked by telecommunications networks.

Question 41

National Association of Securities Dealers Automated Quotation (NASDAQ) System

Answer 41

The first electronic based stock market and the fastest growing part of the stock market.

Question 42

Over the counter (OTC) market

Answer 42

A sophisticated telecommunications network that links dealers and enables them to trade securities.

Question 43

Bull markets

Answer 43

Markets which securities prices are rising

Question 44

Bear Markets

Answer 44

Markets which securities prices are falling.