Textbook Notes (368,611)
Canada (162,009)
MGTA02H3 (363)
Chapter 10

Chapter 10

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Management (MGT)
Chris Bovaird

Chapter 10 Understanding Money and Banking WHAT IS MONEY? The value of everything you own is your personal wealth. Not all of it is money. The Characteristics of Money Modern money usually takes form of stamped metal or printed paper that is issued by governments. Just about any object can serve as money if it is portable, divisible, durable, and stable. Money is any object generally accepted by people as payment for goods and services. The Functions of Money Money serves three functions: o Medium of exchange: we use money as a way of buying and selling things. Without money, we would be bogged down in a system of barter. o Store of value: in the form of currency, money can be used for future purchases and therefore stores value. o Unit of account: money lets us measure the relative values of goods and services. It acts as a unit of account because all products can be valued and accounted for in terms of money. Credit Cards Plastic Money? Credit has become a major factor in the purchase of consumer goods in Canada. Credit cards do not qualify as money. They are a money substitute; they serve as a temporary medium of exchange but are not a store of value. www.notesolution.com Credit cards are big business for two reasons: o They are quite convenient. o Credit cards are extremely profitable for issuing companies. Profits derive from two sources: o Some cards change annual fees to holders. All charge interest on unpaid balances. Depending on the issuer, cardholders pay interest rates ranging from 11 to 20 percent. o Merchants who accept credit cards pay fees to card issuers. Depending on the merchants agreement with the issuer, 2 to 5 percent of total credit-sales dollars goes to card issuers. THE CANADIAN FINANCIAL SYSTEM Many forms of money depend on the existence of financial institutions to provide a broad spectrum of services to both individuals and businesses. Businesses need stable financial institutions to underwrite modernization and expansion, and individuals need them to handle currency. Financial Institutions The main function of financial institutions is to ease the flow of money from sectors with surpluses to those with deficits. o They do this by issuing claims against themselves and using the proceeds to buy the assets ofand invest inother organizations. o A bank can issue financial claims against itself by making available funds for chequing and savings accounts. o In turn, its assets will be mostly loans invested in individuals and businesses and perhaps in government securities. There are a variety of financial intermediaries in Canada. They vary in size, in importance, in the types of sources they appeal to, in the form of the claim they give www.notesolution.com
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