Chapter 5: Banking Services and Managing You Money

Question 1

money management

Answer 1

A series of decisions made over a short-term period regarding income and expenses.

Question 2

Liquidity

Answer 2

liquidity refers to your access to ready cash, including savings and credit, to cover short-term and unexpected expenses.

Question 3

depository institutions

Answer 3

Financial institutions that accept deposits from and provide loans to individuals and businesses.
‘
(charted banks, trust and loan companies, and credit unions and caisses populaires

Question 4

non-depository institution

Answer 4

Financial institutions that do not offer federally insured deposit accounts but provide various other financial services.

(lease companies, mortgage companies, investment dealers, insurance companies, mutual fund companies, payday loan companies, cheque cashing outlets, and pawnshops))

Question 5

Chartered banks

Answer 5

are financial institutions that accept deposits in chequing and savings accounts and use the funds to provide business and personal loans. The chequing accounts may or may not pay interest. These banks are federally incorporated.
(Schedule I, Schedule II, schedule III???)

Question 6

financial conglomerates

Answer 6

Financial institutions that offer a diverse set of financial services to individuals or firms.

Question 7

trust and loan companies

Answer 7

Financial institutions that, in addition to providing services similar to a bank, can provide financial planning services, such as administering estates and acting as trustee in the administration of trust accounts.

Question 8

credit unions/caisses populaires

Answer 8

Provincially incorporated co-operative financial institutions that are owned and controlled by their members.

Question 9

finance and lease companies

Answer 9

Non-depository institutions that specialize in providing personal loans or leases to individuals

Question 10

mortgage companies

Answer 10

Non-depository institutions that specialize in providing mortgage loans to individuals.

Question 11

investment dealers

Answer 11

Non-depository institutions that facilitate the purchase or sale of various investments by firms or individuals by providing investment banking and brokerage services.

Question 12

insurance companies

Answer 12

Non-depository institutions that sell insurance to protect individuals or firms from risks that can incur financial loss.

Question 13

mutual fund companies

Answer 13

Non-depository institutions that sell units to individuals and use the proceeds to invest in securities to create mutual funds.

Question 14

debit card

Answer 14

A card that not only is used as identification at your bank, but also allows you to make purchases that are charged against an existing chequing account.

Question 15

cheque register

Answer 15

A booklet in your chequebook where you record the details of each transaction you make, including deposits, cheque writing, withdrawals, and bill payments.

Question 16

overdraft protection

Answer 16

An arrangement that protects customers who write cheques for amounts that exceed their chequing account balances; it is a short-term loan from the depository institution where the chequing account is maintained.

Question 17

stop payment

Answer 17

A financial institution’s notice that it will not honour a cheque if someone tries to cash it; usually occurs in response to a request by the writer of the cheque.

Question 18

online banking

Answer 18

A service offered by financial institutions that allows a customer to check the balance of bank, credit card, and investment accounts, transfer funds, pay bills electronically, and perform a number of administrative tasks.

Question 19

safety deposit box

Answer 19

A box at a financial institution in which a customer can store documents, jewellery, and other valuables. It is secure because it is stored in the bank’s vault.

Question 20

automated banking machine (ABM)

Answer 20

A machine that individuals can use to deposit and withdraw funds at any time of day.

Question 21

certified cheque

Answer 21

A cheque that can be cashed immediately by the payee without the payee having to wait for the bank to process and clear it.

Question 22

money orders and drafts

Answer 22

Products that direct your bank to pay a specified amount to the person named on them

Question 23

travellers cheque

Answer 23

A cheque written on behalf of an individual that will be charged against a large, well-known financial institution or credit card sponsor’s account.

Question 24

Selecting a Financial Institution

Answer 24

• Convenience
• deposit rates and insurance
• fees

Question 25

Term Deposits

Answer 25

Term deposits are offered as short-term or long-term investments. These investments offer slightly lower returns than GICs because they are cashable. They are designed for individuals who do not know when they will need access to their funds, but who would like an interest rate higher than that offered by savings account

Question 26

guaranteed investment certificate (GIC)

Answer 26

An instrument issued by a depository institution that specifies a minimum investment, an interest rate, and a maturity date.

• can be one month, three months, six months, one year, and five years
• cannot be withdrawn until the maturity date, or it will be subject to a penalty for early withdrawal.

Question 27

Canada Savings Bonds (CSBs)

Answer 27

Short-term to medium-term, high-quality debt securities issued by the Government of Canada.

Question 28

money market funds (MMFs)

Answer 28

Accounts that pool money from individuals and invest in securities that have short-term maturities, such as one year or less.

Question 29

Determining the Optimal Allocation of Short-Term Investments

Answer 29

In general, your money management should be guided by the following steps:

1. Anticipate your upcoming bills and ensure that you have sufficient funds in your chequing account to cover all of these expenses.
2. Estimate the additional funds you might need in the near future and consider investing them in an instrument that offers sufficient liquidity (such as an MMF). You may even keep a little extra in reserve for unanticipated expenses.
3. Use the remaining funds in a manner that will earn you a higher return, within your level of risk tolerance.