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Canada (162,360)
Commerce (1,696)
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Chapter 15

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Department
Commerce
Course
COMMERCE 1E03
Professor
Rita Cossa
Semester
Winter

Description
The Financial Services Industry in Canada chapter 18 in text The Financial Services Industry in Canada  The product offered by the actual institutions: money, banking, investing, insurance, financing, and financial planning  Environment in the financial services industry is supported by a number of new features provided by the Financial Consumer Agency of Canada: o Model credit card application form o Cost of banking guide o Ten tips you need to know before signing any contract  Financial services sector plays an important role in the Canadian economy: o Employees more than 600000 Canadians o Provides a yearly payroll of more than $35 bill o Represents 6% of Canada’s GDP, exceeded only by the manufacturing sector o Yields more than $13 bill in tax revenue to all levels of gov’t o Is widely recognized as one the safest and healthiest in the world  Until 1980s,  termed as a “four-pillar system” o Banks, trust companies, insurance companies & securities dealers  Changes in regulations have eliminated many of the old barriers that prohibited financial institutions from competing in each others’ business  Difficult to distinguish forms by type of function  competitive Participants in the Financial Services Industry  Traditional banks (commercial banks), credit unions, caisses populaires, and trust companies  Credit unions o Non-profit, member-owned financial co-operatives that offer a full variety of banking services to their members  Caisses populaires o Form of credit unions; located predominantly in Quebec  Trust company o A financial institution that can administer estates, pension plans, and agency contract, in addition to other activities conducted by banks  Non-banks o Financial organizations that accept no deposits but offer many services provided by regular banks  Ex. pension funds, insurance companies, commercial finance companies, consumer finance companies, and brokerage houses  Pension funds o Amounts of money put aside by corporations, non-profit organizations, or unions to cover part of the financial needs of their member when they retire  Life insurance companies  financial protection for policyholders, who periodically pay premiums  Commercial & consumer finance companies offer short-term loans to businesses or individuals who either cannot met the credit requirements of regular banks of have exceeded their credit limit and need more funds  Bank in the day called non-banks because they did not accept deposits  now dividing line between banks and non-banks are less apparent How the Financial Services Industry is Regulated  Ensure the integrity, safety and soundness of financial institutions and markets  Legislative, self-regulatory  help minimize crises and company failures o Protect investors, depositors, and policy holders  Regulation is a responsibility shared among different organizations and levels of gov’t  Financial institutions may be regulates either by fed or provincial level, or jointly o Banks  fed o Credit unions  provincially o Insurance, trust & loan companies  fed and/or provincially  Under federal responsibility o Department of Finance is charged with overseeing their overall powers  Relies on three federal agencies  The Office of the Superintendent of Financial Institutions (day-to-day operations)  Canada Deposit insurance Corporation (protects deposits)  The Financial Consumer Agency of Canada (monitors financial institutions to ensure they comply)  Under provincial jurisdictions o The provinces in which a company is incorporated or registered is responsible for regulating the company’s overall powers o Supported by agencies and organizations that supervise the operations The Canada Deposit Insurance Corporation  Federal crown corporation created in 1967 to provide deposit insurance and contribute to the stability of Canada’s financial system  Insures eligible deposits at member institutions (banks) against these institutions’ failure or collapse  Guarantees deposits up to $100000 in each member institution  Funded primarily by premiums paid by banks and trust companies that belong in this program  Does not cover all types of deposits Why money is Important  Economy depends on money: its availability and its value relative to other countries  Economic growth and the creation of jobs depends on money What is Money?  Money o Anything that people generally accept as payment for g/s  Barter o The trading of g/s for other g/s directly  People need objects that are portable, divisible, durable, and stable to trade g/s without carrying the actual goods with them o Coins o Now coins and paper money become units of value  simply exchanges  Some countries money not always equally stable (Russia)  Electronic cash (e-cash) o Can make payments online o Can e-mail e-cash to anyone  auto deposit to their account, e-dollars, cheque in mail What is the Money Supply?  Money supply o The amount of money the BofC makes available for people to buy g/s  Can be measured in many ways, called money aggregates  M1  represents money that can be accessed quickly and easily  M2, M2+ & M2++ are broader measures of money supply Why Does the Money Supply Need to Be Controlled?  Twice as much money available to gov’t o the same amount of g/s o Price would go up because more people would try to buy g/s with their money and would bid up the price to get what they wanted  inflation  If BofC took some money out of the economy o Prices would go down because there would be an oversupply of g/s compared to the money available to buy them  deflation o It too much money taken out  recession (people would lose jobs and the economy would stop growing)  Money supply needs to be controlled because doing so allows us to manage the prices of g&s somewhat o Controlled affects employment and economic growth/decline The Global Exchange of Money  Falling dollar  the amount of g/s you can buy with a dollar decreases (weak  Rising dollar  the amount of g/s you can buy with a dollar increases (strong  Determined by the positions of the Canadian economy relative to other economies  When economy is strong  demand for dollars is high, value of dollar rises  When economy is weak  demand for dollar declines, value of dollar falls Control of the Money Supply  With proper monetary policy you can keep the economy growing without causing inflation  Organization in charge of monetary policy  Bank of Canada o Monitors the money supply o Indicators (M1) provide useful info about changes that are occurring in the economy o Availability of money and credit expand overtime  ensures that the rate at which more money is introduced into the economy is consistent with long-term stable growth  Growth of M1 provides useful into on the future level of production in the economy  Growth of the broader monetary aggregates is a good leading indicator of the rate of inflation  Objective  to support level of spending by Canadians that’s consistent with the banks goal of price stability  BofC manages the rate of money growth indirectly through the influence it exercises over short-term interest rates o when interest rates rise, consumers and businesses are apt to hold less money, to borrow less, and to pay back existing loans o result: slowing growth of M1  influence on very short-term rates through changes in its target overnight rate o the target for the overnight rate is the main tool used by BofC to conduct monetary policy o tells financial institutions the avg interest rate the BofC wants to see in the marketplace where they each other money for one day o when there are changes to the overnight rate  affects other interest rates charged by commercial banks o prime rate  the interest rate that banks charge their most creditworthy customers  serves as a benchmark for many of their loans The Banking Industry  today banks have subsidiaries in insurance, trust and securities  major banks offer a full range of banking, investment and financial services  they have extensive nationwide distribution networks and active around the world  banks revenues are increasingly being generates from international activities & banks distribute a good portion of their net income to their shareholders  most Canadians own bank shares  form a large part of many mutual funds and pension funds  major banks want to merge  would be able to take advantage of economies of scale and be more efficient Commercial Banks  commercial bank o a profit-seeking organization that receives deposits from individuals and corporations in the form of chequing and savings accounts and then uses some of these funds to make loans  two types of customers: o depositors o borrowers (take out loans)  try to make profit by efficiently using the funds that depositors give them Some Services Provided by Banks  money in chequing account - can write personal cheques to pay for almost any purchase or transactions  might impose a service charge  offer a variety of savings accounts options  term deposit (guaranteed investment certificate/certificate of deposit) o a savings account that earns interest to be delivered at the end of the specifies period  offer credit cards, credit lines, loans, mortgages, overdraft protection
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