Chapter 5 - Banking Services and Managing Your Money Flashcards
1
Q
Money management
A
- describes the decisions you make over a short-term period regarding your income and expenses
2
Q
Main sources for savings and credit
A
- positive net cash flows from the personal cash flow statement
- credit cards and/or lines of credit from financial institutions
3
Q
Why is liquidity necessary
A
- there will be periods when your income is not adequate to cover your expenses
- you should have between 3 and 6 months worth of expenses in a savings account (emergency fund)
4
Q
Depository institutions
A
- accept deposits from and provide loans to individuals and businesses
- three types = chartered banks, trust and loan companies, credit unions and caisses populaires
5
Q
Non-depository institutions
A
- do not offer federally insured deposit accounts but provide other services
- 8 types = finance and lease companies, mortgage companies, investment dealers, insurance companies, mutual fund companies, payday loan companies, cheque cashing outlets, pawnshops
6
Q
Chartered banks
A
- accept deposits in chequing and savings accounts and use the funds to provide business and personal loans
- federally incorporated
7
Q
Eligible deposits
A
- chequing accounts, savings accounts, term deposits, GICs, money orders, bank drafts, certified cheques
- include those deposits that are payable in Canada and in Canadian currency
- insured up to $100 000 by CDIC (only for chartered banks)
8
Q
Schedule I banks
A
- domestic banks that are authorized to accept deposits
- 6 largest = RBC, TD, Scotiabank, BMO, CIBC, National Bank of Canada
9
Q
Schedule II banks
A
- foreign banks that have subsidiaries operating in Canada
- authorized to accept deposits
- restrictions on asset growth and lending activities depending on the local capital bases
- not really used for personal banking
10
Q
Schedule III banks
A
- subsidiaries of foreign banks that are restricted in their authority to accept deposits
11
Q
Financial conglomerates
A
- offer a diverse set of financial services to individuals or firms
- eg. wealth management, insurance, personal/commercial banking, investor & treasury services, capital markets
12
Q
Trust and loan companies
A
- in addition to providing services similar to a bank, can provide financial planning services
- trust = legal agreement that provides for the management and control of assets by one party for the benefit of another
- banks own a large number of trust companies
13
Q
Credits unions
A
- also known as caisses populaires
- provincially incorporated co-operative financial institutions that are owned and controlled by their members
- eligible for deposit insurance protection (DICO in Ontario)
- do not operate outside provincial boundaries
- don’t pay income tax and can therefore offer more competitive rates
14
Q
Finance and lease companies
A
- non-depository
- specialize in providing personal loans or leases to individuals
- eg. cars, airplanes
15
Q
Mortgage companies
A
- non-depository
- specialize in providing mortgage loans to individuals
- fill the gap for customers who are not served by banks (eg. self employed)
16
Q
Investment dealers
A
- non-depository
- facilitate the purchase or sale of various investments by firms or individuals
- asset management
- provide investment banking and brokerage services
17
Q
Insurance companies
A
- non-depository
- sell insurance to protect individuals or firms from risks that can incur financial loss
- eg. life, health, property, casualty
18
Q
Mutual fund companies
A
- non-depository
- sell units to individuals and use the proceeds to invest in securities to create mutual funds
- individuals become part owners of the portfolio
19
Q
Payday loan companies
A
- provide single payment, short-term loans
- based on personal cheques held for future deposit or electronic access to personal chequing accounts
20
Q
Cheque cashing outlets
A
- cash third-party cheques immediately
- eg. Money Mart
21
Q
Pawnshops
A
- provide small, secured loans for a fee
- usually require a resaleable item worth more than the loan as a deposit (security)
22
Q
Chequing services
A
- draw on funds by writing cheques against your account
- allows you to not carry much cash when making purchases
- very little interest accrues on these funds
23
Q
Debit cards
A
- a card that is used for identification at your bank
- allows you to make purchases that are charged against an existing chequing account
- has the same result as writing a cheque
24
Q
Cheque register
A
- a booklet in your cheque book where you record the details of each transaction you make (deposits, cheque writing, withdrawals, bill payments)
25
Q
Overdraft protection
A
- protects customers who write cheques for amounts that exceed their chequing account balances
- short-term loan from the depository institution where the chequing account is maintained
- can lead to high interest rates, one-time fees, and monthly fees
26
Q
Stop payment
A
- a financial institution’s notice that it will not honour a regular monthly automatic withdrawal
- usually occurs in response to a request by the account owner
27
Q
Online banking
A
- allows a customer to check the balance of bank, credit card, and investment accounts
- transfer funds, pay bills electronically, and perform a number of tasks
28
Q
Interac e-Transfer
A
- money comes out of your account and is transferred immediately to the recipient once they answer a security question
29
Q
Credit card financing
A
- individuals use credit cards to purchase products and services on credit
- at the end of each billing cycle, you receive a bill for the credit your used over that period
30
Q
Safety deposit box
A
- a box at a financial institution
- customers can store documents, jewellery, and other valuables
- it is secure because it is stored in the bank’s vault
31
Q
Automated banking machine (ABM)
A
- also known as ATMs
- a machine that individuals can use to deposit and withdraw funds at any time of day
32
Q
Certified cheque
A
- a cheque that can be cashed immediately by the payee without the payee having to wait for the bank to process and clear it
33
Q
Money orders and drafts
A
- products that direct your bank to pay a specified amount to the person named on them
- tend to be used for smaller amounts of money
34
Q
Traveller’s cheque
A
- 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
- no payee is designated on the cheque
35
Q
Selecting a financial institution
A
- depends on convenience, deposit rates and insurance, and fees
- web-based financial institutions tend to pay a higher interest rate on deposits
- avoid financial institutions that charge high fees on services you will use frequently
36
Q
Term deposit
A
- short-term or long-term investments
- cashable
- for individuals who do not know when they will need access to their funds, but want an interest higher than savings accounts
37
Q
GICs
A
- issued by a depository institution that specifies a minimum investment, an interest rate, and a maturity date
- less liquid than funds in a savings account or term deposit
- GICs with longer terms offer higher annualized interest rates
38
Q
Canada Savings Bonds
A
- short-term to medium-term
- high-quality debt securities issued by the Government of Canada
39
Q
Money market funds
A
- accounts that pool money from individuals and invest in securities that have short-term maturities, such as one year or less
- not insured, but most have a very low risk of default
