AFF 704 Chapter Notes - Chapter 1: Deposit Insurance, Farm Credit Canada, Overnight Rate

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Financial institutions divided into four pillars: chartered banks, trust companies, insurance companies, investment dealers. Universal bank: fi that is permitted by regulators to offer a full range of financial services. Fis perform essential function of channelling surplus funds (suppliers of funds) to shortage funds (users of funds) Fis exposed to liability withdrawal, liquidity risk, underwriting risk, and operating cost risk. Liquidity and price risk: provides financial claims to households with superior liquidity attributes and with lower price risk. Transaction cost services: fis size can result in economies of scale in transaction costs. Maturity intermediation: bare risk of mismatching maturities of assets and liabilities. Transmission of monetary supply: monetary policy actions by country"s central bank affect financial system and economy. Credit allocation: source of financing for a particular sector of the economy. Intergenerational wealth transfers: transfer wealth from one generation to the next. Payment services: payment services such as cheque clearing directly benefits the economy.

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