ADMS 1010 Lecture : Financial Institutions, Laws and Policies in Canada [p1]

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purplewoodchuck173

19 Jan 2012

School

York University

Department

Administrative Studies

Course

ADMS 1010

Professor

Yong Troy

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Document Summary

Week #7 the bank of canada: financial institutions, Banks have been around for thousands of years. Such activities such as providing loans, taking deposits and changing money have been done at banks since ancient greece. The modern system of banking can be traced to italy in the middle ages. International trade could not have occurred without the banks. Knights orders like the templars and the hospitallers acted as bankers to finance the crusades. Money could be deposited at one of their castles and a note was given to be redeemed to another, eliminating the need to carry money with you. Further developed in the netherlands when goldsmiths would take in gold coins and issue notes based on the value of the coins. People could also issue notes to other allowing them to be paid from their reserves. Any deposit you make at a bank is in a sense a loan to that bank that is repayable on demand.

Related Questions

An early goldsmith banker earned a profit (sometimes a large profit) simply by writing notes to certify that a person had deposited a certain amount of gold in his vault. By writing more notes than the amount of gold held, the goldsmith could lend the notes and charge interest on them. Did the goldsmith bankers make money out of thin air in a form of legal theft? Should the goldsmith bankers have been regulated to ensure that the amount of gold in their vaults equaled the value of the notes they created? What were the main benefits from the activities of the goldsmith bankers?

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1.The desired reserve ratio is 3 percent. Robert deposits $3,000 in Bank America. Bank America keeps its minimum desired reserves and lends the excess to Fredrica. How much does Bank America lend to Fredrica?

A. $2,910
B. $300
C. $2700
D. $3,000
E. $900

2. Suppose a price ceiling has no effect; this means that

A. people are finding a way to circumvent the law.
B. it has no legal enforcement mechanism.
C. the equilibrium price is below the price ceiling.
D. the equilibrium price is above the price ceiling.

3. An example of household production excluded from GDP is

A. plumbing work completed by Joe Fix-it.
B. household cleaning services provided by Merry Maids Incorporated.
C. child care provided by a certified nanny.
D. lawn care provided by a local lawn care company.
E. tree trimming you provide at your parents' home.

4.In the United States, between 1961 and 2011, there has been

i. a consistent , non-changing growth rate of potential GDP per person.
ii. an increase in the standard of living based on real GDP per person.
iii. fluctuations in real GDP per person around potential GDP per person.

A. ii only
B. ii and iii
C. i only
D. i and ii only
E. i, ii and iii

5. When goldsmiths issued receipts to gold owners, and those gold receipts circulated while gold stayed in the goldsmiths' safes,

A. the gold receipts were considered money because they were used as a means of payment.
B. an infant banking system developed in sixteenth century Europe.
C. money was invented.
D. fiat money was created.
E. Both A and B are correct.

6.The "double coincidence of wants" is B??

A. what is needed to use money.
B. eliminated when we barter instead of using money.
C. money's role as a unit of account.
D. how value is stored when we transact with money.
E. eliminated with the use of money.

7. The process of money creation by the banking system is limited, in part, by the

A. laws passed each year by the U.S. Congress.
B. number of banks.
C. number of depositors.
D. Comptroller of the Currency.
E. desired reserve ratio.

8. Which of the following is a policy tool of the Fed?

i. setting the required reserve ratios
ii. conducting open market operations
iii. quantitative easing

A. i, ii, and iii
B. Both i and ii
C. i only
D. ii only
E. iii only

Position A: Financial Institutions' role as specialists in risk measurement and management is reduced.

Position B: Financial Institutions' role as specialists in risk measurement and management is increased.

Required:

Read the âbackgroundâ below. After reading, select the position you agree with and write a position paragraph supporting either Position A or Position B.

Background: A major event that changed and reshaped the financial services industry was the financial crisis of the late 2000s. As Financial Institutions adjusted to regulatory changes brought about in the 1980s and 1990s, one result was a dramatic increase in systemic risk of the financial system, caused in large part by a shift in the banking model from that of âoriginate and holdâ to âoriginate to distribute.â In the traditional model, banks take short-term deposits and other sources of funds and use them to fund longer term loans to businesses and consumers. Banks typically hold these loans to maturity, and thus have an incentive to screen and monitor borrower activities even after a loan is made. However, the traditional banking model exposes the institution to potential liquidity, interest rate, and credit risk. In attempts to avoid these risk exposures and generate improved return-risk trade-offs, banks shifted to an underwriting model in which they originated or warehoused loans, and then quickly sold them. Indeed, most large banks organized as financial services holding companies to facilitate these new activities. More recently activities of shadow banks, nonfinancial service firms that perform banking services, have facilitated the change from the originate-and-hold model of commercial banking to the originate-and-distribute banking model. In the shadow banking system, savers place their funds with money market mutuals and similar funds, which invest these funds in the liabilities of other shadow banks. Like the traditional banking system, the shadow banking system intermediates the flow of funds between net savers and borrowers. However, instead of the bank serving as the middleman, it is the non-bank financial service firm, or shadow bank, that intermediates. Further, unlike the traditional banking system where the complete credit intermediation is performed by a single bank, in the shadow banking system, it is performed through a series of steps involving many non-bank financial service firms. These innovations remove risk from the balance sheet of financial institutions and shift risk off the balance sheet and to other parts of the financial system. Thus, the financial institutions, acting as underwriters, are not exposed to the credit, liquidity, and interest rate risks of traditional banking.

In your own words, explain what is meant by business and financial risk. Suppose Firm A has greater business risk than Firm B. Is it true that Firm A also has a higher cost of equity capital? Why or Why not? Explain.

ADMS 1010 Lecture : Financial Institutions, Laws and Policies in Canada [p1]

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