200 CH14 MONEY AND BANKING.docx - 200 CH14 MONEY AND...

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200 CH14 MONEY AND BANKING Money Characteristics of money - Any object generally accepted by people as payment for goods and services a. Portability b. Divisibility c. Durability d. Stability Functions of money - Barter economy: goods are exchanged directly for one another (inefficient) a. Medium of exchange: buy and sell things b. Stores value: money can be used for future purchases c. A unit of account: a measure of worth because all products can be values and accounted for in terms of money Money supply M1 - only the most liquid forms of money a. Currency: paper money and coins issued by the government b. Demand deposits: money in chequing accounts, which can be transferred to others by cheque c. Cheque: an order instructing the bank to pay a given sum to a specified person or firm M2 - i ncludes everything in M-1 and items that cannot be spend directly , easily converted to spendable form a. Time deposits: deposit that requires prior notice to make a withdrawal, can’t be transferred to others by cheque b. Savings deposits: savings account holdings c. Money market mutual funds: pooled assets from many investors invested in short- term, low risk financial securities Credit cards and debit cards - ‘plastic money’ - Credit cards: not included in M-1/M-2, money substitute, serve as temporary medium of exchange, but are not store of value (related to credit card fraud) - Debit cards : included in M-1 , transfer money immediately from consumer bank’s account, affect the money supply the same way as cheque/ cash The Canadian financial system- financial institutions
1 Chartered banks - A privately owned, profit -seeking, financial intermediary firm Types 1. Schedule I banks are those that are Canadian-owned and have no more than 10% of voting shares controlled by a single interest 2. Schedule II banks are those that may be domestically owned, but don’t meet the 10% limit, or may be foreign-controlled - The Bank Act limits foreign-controlled banks to deposits that don’t exceed 8% of the total domestic assets of all banks in Canada Services offered by banks Pension services - Helps customers establish saving plans for retirement - Serve as financial intermediaries by receiving funds and investing them as directed by customers - Provide information on investment possibilities Trust services - In return for a fee, the bank will make your monthly bill payments and manage your investment portfolio - They will also manage the estates of decreased persons International services - Currency exchange - Letters of credit: a promise by the bank to pay companies a certain amount if specified conditions are met - Banker’s acceptances: promises that the bank will pay some specified amount at a future date Financial advice - Eg investment certificates, mutual funds, stocks, bonds Electronic funds transfer (EFT) a. Automated banking/teller machines (ABMs/ATMs) - Personal Assistant Teller (PAT) : new version, provides a video link with a teller who can talk to the consumer about loans or listen to complaints in addition to offering the

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