Textbook Notes (369,036)
Canada (162,360)
Commerce (1,696)
Rita Cossa (56)
Chapter 15

chapter 15.docx

9 Pages
Unlock Document

Rita Cossa

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
More Less

Related notes for COMMERCE 1E03

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.