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MGTA02H3 (136)
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MGTA04 Chapter 10.docx

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University of Toronto Scarborough
Management (MGT)
H Laurence

What is money  Money: any object generally accepted by people as payment for goods and services has portability, divisibility, durability, and stability  Money is used as a medium of exchange, store of value (stores value), and is a unit of account (allows thing to be valued)  Credit cards are plastic money they don’t qualify as money and are money substitute as a temporary medium of exchange (not a store of value) they are convenient and profitable for issuing companies via annual fees, interest, usage fees, merchant fees, etc The Canadian Financial System  Financial institutions: main function is to ease the flow of money from sectors with surpluses to those with deficits  Banks can issue financial claims against itself by making available funds for chequing and savings accounts  Four financial pillars in Canada: chartered banks, investment dealers, life insurance companies and alternate banks. Financial Pillar number 1: Chartered Banks  Chartered bank: privately owned profit seeking firm that serves individuals, non-business organizations, and businesses as a financial intermediary  Offer chequing, savings accounts, loans, and other services  main source for short term business loans  Largest and most important financial institutions  Canada has branched banking system and there are a few banks with hundreds of branches largest=RBC, BON, TD, BMO, ETC  No more than 10% of bank shares can be owned by more than 1 person  Services offered by banks: pension services, trust services(management of funds left in the bank’s trust”, international services(currency exchange, letters of credit (promise by bank to pay money to a business firm if certain conditions are met) and bankers acceptance(promise that bank will pay a specified amount of money at a future date), financial advice, automated teller machines, etc Bank Deposits  Chequable deposit: type of deposit a customer can make into a chequing account with coins, paper currency, or other cheques can write cheques against the balance of their accounts, which must be honored by the bank aka demand deposits  Term Deposits: money that remains with the bank for a period of time with interest paid to the depositor for use of their funds in the form of a passbook savings account or a guaranteed investment certificate (GIC) cannot be cashed in before maturity date and are less flexible but have higher interest rates Bank Loans  Banks are the major source for short term loans for businesses  Secured load: backed by collateral i.e. accounts receivable, life insurance policy, etc  Borrowers pay interest on the loans and large firms offer prime rate of interest (lowest rate charged to borrowers) Bank as creditors of money  Banks create money expand the money supply  Banks have a reserve requirement: the requirement that banks keep a portion of their chequable deposits in vault cash or as deposits with the bank of Canada(dropped in 1991) Other changes in banking  Deregulation: caused banks to shift away from their role as intermediaries between depositors and borrowers and now provide a broader array of financial products to clients  Changing consumer demands make banks offer a wider array of products for consumers  Electronic Fund transfer: a financial service that combines computer and communication technology to transfer funds or information into, from, and among financial institutions o Debit cards: a plastic card that immediately on use, reduces the balance in users bank account and transfers it to the stores account Use point of sales terminals, which are electronic devices allowing customers to pay for retail services with debit cards o Smart card: a credit card sized plastic card embedded with a computer chip that can be programmed with electronic money o Ecash: money that moves among consumers and businesses via digital electronic transmissions o Pay by phone: system lets you telephone your financial institution and i
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