BU111 Lecture Notes - Lecture 6: Toronto Stock Exchange, Unsecured Debt, Secured Loan
Monday, September 29, 2014
1
CH.6 Economic Factors Canadian Financial System
PEST - Economic Factors
- Elements:
inflation/deflation
interest rate
employment rates
exchange rates
balance of trade
productivity
- outcome: economic growth (measures: aggregate output, GDP, GNP), economic stability,
comployment
- when theres economic growth there is money in the hands of consumers = better sales
- affect costs, sales, and financial uncertainty of companies
• Canadian financial system
• investment instruments
• time value of money
Canadian Financial System
- financial institutions facilitate flow of money
- helping businesses acquire more money through investors
- helping consumers get money
- four distinct legal areas/pillars:
- chartered banks
- alternate banks
- life insurance companies
- investment dealers
- lines between pillars have been blurred due to deregulation
- govt allowed banks to expand services that they offer (deregulation)
CHARTERED BANKS
- publicly traded, profit seeking companies
- to be a bank, you must be chartered by the govt
- largest and most important institution
- concentrated (big companies that control a big market share) and highly regulated industry
- five largest account 90% of total bank assets
- bank act limits foreign controlled banks to <8% of total domestic bank assets
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Monday, September 29, 2014
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- you cant control what a foreign bank does, govt can regulate Canadian banks better
- serve individuals, business, and others (institutions like insurance companies)
- major source of short term loans in a business
- secured loan: promise some asset to the bank if you do not pay back the loan
- unsecured loan: doesn't have a specific piece of collateral attachment (much tougher for the
bank to get their money back), debentures
- expand money supply through deposit expansion
- bank has the right to lend out your deposits to companies and people
- they charge interest and make the money back
- cannot lend out all 100% of your deposit, but they can lend out up to 90%
- changing in banking:
- deregulation - govt loosening up the rules for banks and allowing them to
buy other banks, mutual funds, entering other industries etc
- however, banks arent allowed to merge with each other b/c govt wants to
encourage competition since there are few banks
- changes in consumer demands - online banking, can perform other
functions (ex: they can plan a funeral)
- competition from foreign banks - a lot of pressure on govt to let them in,
but govt wants to safeguard money
- bank of Canada is Canadas central bank (we dont put money in the bank of Canada)
- manages economy and regulates aspects of chartered bank operations
- directly managing and impacting money supply
ALTERNATE BANKS
- interest rates, and transaction fees tend to be lower (better)
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Monday, September 29, 2014
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- trust companies
- credit unions (member of the banks)
- members are given a much better rate and at the end of a term, profit is distributed to them
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SPECIALIZED LENDING/SAVING INTERMEDIARIES
- insurance companies invest premiums and make money off them
- venture capital firms play an important role in helping private/growing businesses with private
equity
- pension funds takes the money you make while working and invests it, makes money, so by
the time they give out the pension it will be less than what they made
INVESTMENT DEALERS
- facilitate trade of stocks, bonds and other products in securities markets
- usually for larger companies who want to be publicly traded
- investment dealers will buy company, discuss number and value of shares
- primary markets: investment bankers/dealers advise on timing and terms of issue, underwrite
or take spread and risk OR best effort on commission, sell through distribution networks
- investors buy stocks for the first time from investment bankers
- secondary markets: Toronto Stock Exchange and other exchanges
- stocks are being exchanged between investors
International Banking & Finance
- govt and corporations frequently borrow in foreign markets
- international bank structure aims for stability
- world bank provides limited services, funds national improvements
- international monetary fund: promotes stability of exchange rates
provides short term loans to members
encourages member cooperation
promotes system for international payments
Stocks and Bonds
- part of pillar four
- securities markets (where stocks, bonds, and other securities are sold)
BONDS
- represents debt for issuing corporation or govt
- when you purchase a bond, you are lending money to the Canadian govt
- legal, binding agreement, fixed rate of return (often payed semi-annually), fixed term
(principal repaid at maturity), priority over stockholders (if something goes wrong, bond
holders will get their money back first)
- risk for borrowers b/c if interest rates go up, it costs more to repay
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BU111 Full Course Notes
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Document Summary
Outcome: economic growth (measures: aggregate output, gdp, gnp), economic stability, inflation/deflation interest rate employment rates exchange rates balance of trade productivity comployment. When theres economic growth there is money in the hands of consumers = better sales. Affect costs, sales, and financial uncertainty of companies: canadian financial system, investment instruments, time value of money. Helping businesses acquire more money through investors. Lines between pillars have been blurred due to deregulation. Gov(cid:1685)t allowed banks to expand services that they offer (deregulation) To be a bank, you must be chartered by the gov(cid:1685)t. Concentrated (big companies that control a big market share) and highly regulated industry. Five largest account 90% of total bank assets. Bank act limits foreign controlled banks to <8% of total domestic bank assets. You can(cid:1685)t control what a foreign bank does, gov(cid:1685)t can regulate canadian banks better. Serve individuals, business, and others (institutions like insurance companies) Major source of short term loans in a business.
