Chapter 18: Understanding Money, Banking and Credit

Question 1

is a medium of exchange, a measure of value and a store of value

Answer 1

money

Question 2

a system of exchange in which goods/services are traded directly for other goods/services

Answer 2

barter

Question 3

without a medium of exchange, the economy falls into a

Answer 3

barter system

Question 4

money stored in chequing accounts that depositors can withdraw on demand

Answer 4

demand deposits

Question 5

money invested for a specific time

Answer 5

time deposits

Question 6

a measure of money supply that consists of currency and chequing accounts

Answer 6

M1

Question 7

a measure of money supply that consists of M1 plus savings accounts and other types of time-based deposit accounts

Answer 7

M2

Question 8

a measure of money that includes M2 plus Canadian residents’ foreign currency deposits and non-personal deposists

Answer 8

M3

Question 9

deposits at a bank that pay interest but cannot be withdrawn on demand

Answer 9

term deposit

Question 10

3 main components of Canada’s money supply are

Answer 10

currency, demand deposits, and time deposits

Question 11

used as a substitute for cash and are a form of borrowing

Answer 11

credit cards (plastic money)

Question 12

a decrease of prices in an economy over time

Answer 12

deflation

Question 13

an increase of prices in an economy over time

Answer 13

inflation

Question 14

is responsible for regulating money supply

Answer 14

Bank of Canada

Question 15

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

Answer 15

open market operations

Question 16

the interest rate that our major financial institutions borrow from each other “overnight”

Answer 16

overnight rate

Question 17

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

Answer 17

target for the overnight rate

Question 18

the most important function of the Bank of Canada is carrying out

Answer 18

monetary policy

Question 19

2 tools used by the Bank of Canada in managing the money supply are

Answer 19

open market operations and the overnight rate

Question 20

when the B.o.C buys/sells government securities in order to influence the money supply and the overall economy

Answer 20

open market operations

Question 21

• the B.o.C will buy government securities from the public and the banking system
• it injects cash into the banking system

Answer 21

expansionary open market operations

Question 22

• the B.o.C sells gov. securities to the public and banking system
• it removes cash from the banking system

Answer 22

contractionary open market operation

Question 23

when financial institutions act as intermediaries between lenders and borrowers of funds

Answer 23

financial intermediation

Question 24

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

Answer 24

Office of Superintendent of Financial Institutions (OSIF)

Question 25

financial institutions fall into 1 of 2 groups

Answer 25

depository or non-depository

Question 26

institutions accept deposits (banks, trust companies and credit unions)

Answer 26

depository institutions

Question 27

do not accept deposits (mutual fund companies and pension companies)

Answer 27

non-depository institutions

Question 28

a profit-making organization that accepts deposits, makes loans and related services to customers

Answer 28

chartered bank

Question 29

• accepts deposits from and lends money to its members only

- are usually small and locally owned

Answer 29

credit unions and caisse populaire

Question 30

• only financial institution allowed to administer trusts

- operate through a network of branches and may operate under provincial or federal legislation

Answer 30

trust company

Question 31

federal Crown corporation created to provide deposit insurance and contribute to the stability of Canada’s financial system
- insures only deposit accounts

Answer 31

Canada Deposit Insurance Corporation (CDIC)