Chapter 18 - Financial Services Industry in Canada Flashcards
Participants in the Financial Services Industry
Traditional banks
Credit unions
Caisses populaires (form of credit union predominately in Quebec)
Trust companies
Non-banks: pension and mutual funds, insurance companies, commercial finance companies, consumer finance companies, and brokerage houses
How the Financial Services Industry is Regulated
Although highly regulated, there is no single body overseeing the financial industry in Canada.
Responsibility is shared among different organizations and levels of government.
Federally: Department of Finance
Office of Superintendent of Financial Institutions
Canada Deposit Insurance Corporation
Financial Consumer Agency of Canada
Bank of Canada:
Monitors the money supply.
Regulates short-term interest rates.
Sets target overnight interest rates.
Tries to keep inflation within 1–3 percent.
Prime rate
the interest rate that banks charge their most creditworthy customers.
Some Services Provided by Banks
Demand deposits Time deposits Credit cards Lines of credit Loans Mortgages Overdraft protection Automated teller machines (ATMs)
Securities dealer
firm that trades securities for its clients and offers investment services.
Initial Public Offering (IPO )
the first public offering of a corporation’s stock.
Prospectus
a condensed version of economic and financial information that a company must make available to investors before they purchase a security.
Securities commission
government agency that administers provincial securities legislation.
Stock exchange
organization whose members can buy and sell (exchange) securities for companies and investors.
Investing in Bonds
Government bonds: guaranteed income and very little risk in Canada.
Corporate bonds: more risk than government bonds.
Interest earned from bonds is taxable.
If bonds are sold before the maturity date, some interest will be lost.
Generally if interest rates go up, bond prices go down.
Investing in Stocks
Stock holders are part owners of company.
Share prices fluctuate depending on how well the company is doing.
Capital gains: the positive difference between the purchase price of a stock and its sale price.
Stock indexes: measure the trend of different stock exchanges.
Buying on margin: purchasing securities by borrowing some of the cost from the broker.
Stock splits: an action by a company that gives shareholders two or more shares of stock for each one they own.
Mutual Fund
a fund that buys stocks and bonds and then sells shares in those securities to the public.
Mutual funds are managed by professional managers.
Diversification
buying several different investment alternatives to spread the risk of investing.
