RSM230_Week 2_BofC_W2011

RSM230_Week 2_BofC_W2011 - RSM 230 Financial M ar ket s...

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RSM 230: Financial Markets Week 2 – The Bank of Canada January 17 & 20 Maureen Stapleton, CFA RSM 230 -2011 Week 2- Bank of Canada 1
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For this week: Readings: Cleary Chapter 5 Bank of Canada Fact Sheets; Bank of Canada & the CPA (Posted on Blackboard) Supplementary: Mishkin Chapters 7-8 Reminders: Your first article & summary will be due January 30 at midnight Must refer to material covered in NEXT week’s class (money market) Group work Please check your course outline for detailed requirements RSM 230 -2011 Week 2- Bank of Canada 2
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You can read financial news online! http://www.financialpost.com/news Business - The Globe and Mail Yahoo! Finance - Business Finance, Stock Market, Quotes, News Yahoo! Canada Finance Bloomberg - Business & Financial News, Breaking News Headlines US Business News - Latest Headlines, Top Stories, Breaking News - W RSM 230 -2011 Week 2- Bank of Canada 3
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RSM 230 -2011 Week 2- Bank of Canada 4
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What are Central Banks? Government authorities in charge of monetary policy. Actions affect interest rates, credit, the money supply, inflation etc The Bankers’ Bank - Manages Central Payments System - Serves as “Lender of last resort” Central banks around the world include: - Bank of Canada 1934 - Federal Reserve System in the US (12 member banks - districts) - Bank of England 1694 - Bank of Japan 1882 - - European Central Bank 1999 5 RSM 230 -2011 Week 2- Bank of Canada
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Bank of Canada Canada’s central bank Founded in 1934 as a private company in 1938 it became a Crown Corporation. 12 directors appointed by the government for three-year terms, and they appoint a governor (Mark Carney 2008) and senior deputy governor for seven-year terms. The Deputy Minister of Finance sits on the committee but does not vote The governing council of the bank determines policy I n 1967, ultimate monetary authority was given to the government. However, in the case of disagreement with the Bank the Minister of Finance has to issue a public letter of direction which has never been done. 6 RSM 230 -2011 Week 2- Bank of Canada
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Bank of Canada Functions Source 2007 Annual report http://www.bankofcanada.ca/en/annual/2007/ar2007. html 7 RSM 230 -2011 Week 2- Bank of Canada
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8 RSM 230 -2011 Week 2- Bank of Canada
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Bank of Canada Income Statement 9 RSM 230 -2011 Week 2- Bank of Canada
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Major Activities: 1: Note issue & Seignorage Buys government securities by issuing bank notes Pays the Royal Canadian Mint $0.12 for a $1 coin, which lasts almost forever, Prints $20 notes at a cost of $0.06, each one lasts on average two years. If the $20 is invested at 5% then over two years the notes generates $2 in revenue at a cost of 6 cents for $1.9 profit. Money is anything widely accepted as a means of payment Canadian currency is “legal tender” in Canada, which means it has to be accepted ( fiat ) prior to 1970 notes said “I promise to pay the bearer $ on demand” Government monopoly on printing currency prior to 1935, 50% of notes in circulation were issued by chartered banks.
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