Chapter 18: Understanding Money, Banking and Credit Flashcards
is a medium of exchange, a measure of value and a store of value
money
a system of exchange in which goods/services are traded directly for other goods/services
barter
without a medium of exchange, the economy falls into a
barter system
money stored in chequing accounts that depositors can withdraw on demand
demand deposits
money invested for a specific time
time deposits
a measure of money supply that consists of currency and chequing accounts
M1
a measure of money supply that consists of M1 plus savings accounts and other types of time-based deposit accounts
M2
a measure of money that includes M2 plus Canadian residents’ foreign currency deposits and non-personal deposists
M3
deposits at a bank that pay interest but cannot be withdrawn on demand
term deposit
3 main components of Canada’s money supply are
currency, demand deposits, and time deposits
used as a substitute for cash and are a form of borrowing
credit cards (plastic money)
a decrease of prices in an economy over time
deflation
an increase of prices in an economy over time
inflation
is responsible for regulating money supply
Bank of Canada
the purchase or sale of Canadian gov. securities by the Bank of Canada to stimulate or slow down the economy
open market operations
the interest rate that our major financial institutions borrow from each other “overnight”
overnight rate
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
target for the overnight rate
the most important function of the Bank of Canada is carrying out
monetary policy
2 tools used by the Bank of Canada in managing the money supply are
open market operations and the overnight rate
when the B.o.C buys/sells government securities in order to influence the money supply and the overall economy
open market operations
- the B.o.C will buy government securities from the public and the banking system
- it injects cash into the banking system
expansionary open market operations
- the B.o.C sells gov. securities to the public and banking system
- it removes cash from the banking system
contractionary open market operation
when financial institutions act as intermediaries between lenders and borrowers of funds
financial intermediation
an independent agency of the Gov. of Canada that regulates federally registered banks, insurers, trust and loan companies, credit unions, fraternal benefit societies, and private pension plans
Office of Superintendent of Financial Institutions (OSIF)
financial institutions fall into 1 of 2 groups
depository or non-depository
institutions accept deposits (banks, trust companies and credit unions)
depository institutions
do not accept deposits (mutual fund companies and pension companies)
non-depository institutions
a profit-making organization that accepts deposits, makes loans and related services to customers
chartered bank
- accepts deposits from and lends money to its members only
- are usually small and locally owned
credit unions and caisse populaire
- only financial institution allowed to administer trusts
- operate through a network of branches and may operate under provincial or federal legislation
trust company
federal Crown corporation created to provide deposit insurance and contribute to the stability of Canada’s financial system
- insures only deposit accounts
Canada Deposit Insurance Corporation (CDIC)
