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BU111 Study Guide - Final Guide: Trust Company, Money Supply, Complementary Good

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Roopa Reddy
Study Guide

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Business Study Notes Final exam
Economic Factors
Four Pillars of Canadian Financial system
Pillar #1 - Chartered Banks
- Privately owned, publicly traded, profit seeking
- Largest and most important institution
- Concentrated and highly regulated industry
- Five largest account for 90% of total bank assets
- Bank act limits foreign controlled banks to 8% of total domestic bank assets
- Serve individuals, business, and others
- Major source of short-term loans for business
- Secured vs. unsecured loans
Expand money supply through deposit expansion
- Deregulation
- Changes in consumer demands
- Competition from foreign banks
Pillar #2 Alternate banks
- Trust companies and Credit Unions
Pillar #3 - Specialized lending/saving intermediaries
- Insurance companies, venture capital firms, pension funds.
Pillar#4 Investment Dealers
- Facilitate trade of stocks, bonds and other products in securities markets
Primary markets
- Investment bankers/dealers
- Advise, underwrite, distribute
Secondary markets
- Toronto stock exchange and other exchanges

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Bank of Canada
- Canada’s central bank
- Manages economy and regulates aspects of chartered bank operations
- Manages money supply
Types of Investments
Represents debt for issuing corporation or government
- Legal, binding agreement
- Fixed rate f return (often paid semi-annually)
- Fixed term principal repaid at maturity
- Priority over stockholders
- Secured vs. Unsecured (dependetures)
- - Registered vs. Bearer
- Callable
- Serial
- Convertible
Determinants of Bond Value
1) What the coupon rate at bond issue
- Prevailing interest rates
- Credit rating of issuer
- Features
2) What impacts bond prices when traded?
- Coupon rate & prevailing rates of interest (relationship)
- Changes in credit rating
- Economic/Marketing Risk

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- Inflation
Concept of Yield
- Percentage return on any investment
- Helps us to compare investments
For a Bond:
Interest = coupon rate x face value
Capital Gain = face value purchase price
- In BU111, always use face value of $1000 for bonds.
Approximate Yield to Maturity
- Assumes you will hold the bond until maturity
- Need to calculate “what you made” on an annual basis
Represents equity/capital for issuing company
- Voting rights
- No fixed term
- Variable return
- Discretionary payment (dividends)
paidyou What
Gain Capital +Interest
paidyou What
madeyou What
Yield x
paid price
maturity totime
paid price - valueface
valueface ratecoupon
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