Textbook Notes (362,768)
Canada (158,052)
Economics (923)
ECN 204 (281)
Chapter 8

Chapter 8.docx

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Ryerson University
ECN 204
Christos Shiamptanis

Chapter 8 Saving Investment and the Financial SystemFinancial system those institutions in the economy that help to match one persons saving with another persons investment Financial Institutions in the Canadian EconomyBroadest level financial system moves money from savers spend less than they earn to borrowers people who spend more than they earnOffice of the Superintendent of Financial Institutions OSFI primary regulator of federally regulated banks insurance companies and pension plans in Canada Financial MarketFinancial Markets institutions through which a person who wants to save can directly supply funds to a person who wants to borrow The Bond MarketBond a certificate of indebtedness that specifies the obligations of the borrower to the holder of the bond IOU o Date of Maturity time at which the loan will be repaid o Rate of interest that will be paid periodically until the loan matures o Principle the amount borrowed o Term length of time until the bond maturesPerpetuity bond that never matures pays interest forever but bond is never repaidLong term bonds are risker than short term bonds because holders of long term bonds have to wait longer for repayment of principle o Long term bonds usually pay higher interest rates than short term bondsCredit risk the probability that the borrower will fail to pay some of the interest or principal o Failure to pay is default o When perceived probability of default is high demand higher interest rate to compensate Provincial bonds considered greater credit risk than the federal govt bc prov economics tend to be less diverse than the national economytax revs are more volatileCorporate bonds tend to pay higher rates of interest than provincial bonds because corporate revenues are likely to be more volatile than provincial tax revJunk bonds higher interest rates than bonds issued by more secure corporations and by govt Issued by financially shaking companies The Stock MarketStock represents ownership in a firm a claim to the profits that the firm makesEquity finance sale of stock to raise money
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