Class Notes (806,513)
Canada (492,267)
MGTA02H3 (136)
H Laurence (21)

Chapter 8-Understanding Money and Banking

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University of Toronto Scarborough
Management (MGT)
H Laurence

Chapter 8: Understanding Money and Banking What Is Money The Characteristics of Money Money - Any object generally accepted by people as payment for goods and services - Portability - lightweight and easy to handle - Divisibility - can be easily broken down to smaller units - Durability - does not spoil, die or wear out; can be replaced with new coins and paper money - Stability - stability of the value of the currency Functions of Money - Barter economy - goods are exchanged directly for one another - Medium of Exchange - Store of Value - can be stored for future purchases - Unit of Account - measure the relative value of goods ($1,000 dollars worth of clothes) Credit Cards: Plastic Money? - Do not qualify as money; they are a money substitute - serve as temporary medium of exchange - Profitable: - interest on unpaid balances (11% to 20%) - Merchants who accept credit cards pay fees to card issuers (2% to 5%) The Canadian Financial System - The main function of a financial institution is to ease the flow of money from sectors with surpluses to those with deficits. - by issuing claims against themselves and using the proceeds to buy the assets of - and invest in - other organizations - divided into 4 distinct legal areas called the four financial pillars - Chartered Banks - Alternate banks (Trust companies, caisses populaires, or credit unions) - Life insurance companies and other specialized lending and saving intermediaries - Investment dealers Financial Pillar #1: Chartered Banks Chartered Bank - A privately owned, profit-seeking firm that serves individuals, non-business organizations, and businesses as a financial intermediary - Offer chequing and saving accou
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