Class Notes (839,146)
Canada (511,218)
York University (35,583)
Economics (1,721)
ECON 1010 (200)
Lecture

Chapter 24.doc

6 Pages
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Department
Economics
Course Code
ECON 1010
Professor
Steven Edwards

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Description
Chapter 24 What is Money • Medium of Exchange • Unit of accounts • Store of Value Medium of Exchange • generally accepted in exchange for goods and services • without it would be a barter system • people with something to sell will accept money in exchange Unit of Account • is an agreed measure for stating the prices of goods and services to get the most out of your budget you have to figure out whether seeing one more movie its opportunity cost Store of value • held and exchanged later for goods and services • completley stable value • inflation lowers the value of money and he values of other commoditites and tokens that are used as money Money in Canada Today • Currency • Deposits at banks and other depository instutions Currency • notes and coins held by individuals/ bussinesses know as currency • bills = legal tender • Convient for settling small debts and buying low prices items Deposits • are money becayse the owners of deposits can use them to make ayments Official Measures of money • M1 and M2 • M1- consist of currency held individuals and bussiness plus chequable deposits owned by individuals and bussinesses, does not includes notes and coins held by the bank and chequable deposits owned by gov • M2 - consists of M1 plus all other deposits non chequable deposits and fixed term deposits • M1 is money • M2 are just as much a means of payment as the chequable deposits in M1 The Banking System • Consist of private and public insutuions • manage nations monetary and payments systems • Two parts 1. Depository institutions 2.The Bank of Canada Depository Instutions • takes deposits from households and firms and makes loans to other households and firms • Three types: • Chartered Banks/ Credit Unions and Caisses populaires/ Trust and mortgage loan companies Chartered Banks • conduct all types of banking and financial bussiness • 14 owned coandaian banks • bulk of deposits in M1 and M2 Credit Unions an Caisses popularies • is a cooperative organization that operates undert the cooperative cred associations recieves deposits from and makes loans to its members Trust and Mortgage loan companies • privatley owned depository institution that operates under the trust and loan companies act of 1992 What Depository intuitions do 1. Reserves - reserves notes and coins account a BOC, funds used to meet depositors currency withdrawls tomake payments to other banks keeps half of 1 percent of deposits as reserves 2. Liquid Assets - are gov t bills and commerical bills, first line of defece if they need reserves. an be sold instantly low risk and low intrest rate 3. Securites - government of canada bonds and other bonds such as mortgage backed securites converted intro reserves but at prices that fluctuats riskier then liqiud assets have higher intrest rate 4. Loans - commitmemts of funds for an agreed upon period of time. Fiance the purchase of capital loans are riskiest assets of bank and highest inrest rate Economic benefits provided by depository institutions • Provide four benefits: • 1. Create Liquidity • 2.Pool Risk • 3. Lower the cost of borrowing • 4. Lower the Cost of Monitoring borrowers Cerate Liquidity • create liquidity by borrwing short and lening long • tak deposits and standing ready to repay them on short notice or on demand and making loan commitments, that run for terms of many years Pool Risk • a laon might not be repaid a defualy • one person who defaults you lost entire amoint loaned if you lend 1000 ppl through bank on person defauly you loose almost nothing Lower The cost of borrowing • lower cost through spread cost of activity over many borrowers Lower the cost of Monitoring Borrowers • monitor borrowers lender can encourage god descisions prvents defualts Bank OF cananda • Centreal bank • supervises pother banks • special in three ways: • Banker to banks and governmetn • Lender of last resort • Sole issuer of bank notes Bankers to banks and government • bank of canada has a restricted list of customers. they are the chartered banks, credit unions and caisses popularies and so on. bank of canada accepts deposits from the customers Lender of Last Resort • makes loans to banks, it is the lender of last resort , stands ready to make loans when banking sysstem short of reserves Sole Issuer of Bank Notes • permeiited to issue bank nortes The Banks Of Canadas Balance Sheet • ifluences economy be changing intrest rates
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