RSM_230_Week5_BofC - RSM 230 Week 5 The Bank of Canada...

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RSM 230 – Week 5 The Bank of Canada Readings: Cleary Chapter 5 Bank of Canada Fact Sheets & other readings (Posted on Blackboard) Supplementary: Mishkin Chapters 7-8 Assignment 1 – Due Wednesday, Feb. 3 by 4 pm Drop off at the Rotman Commerce Office 1 RSM 230 - Week 5- Bank of Canada
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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. .. - 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 2 RSM 230 - Week 5- 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 In 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. 3 RSM 230 - Week 5- Bank of Canada
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Bank of Canada Functions Source 2007 Annual report http://www.bankofcanada.ca/en/annual/2007/ar2007. html 4 RSM 230 - Week 5- Bank of Canada
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5 RSM 230 - Week 5- Bank of Canada
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Bank of Canada Income Statement 6 RSM 230 - Week 5- 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 (counterfeit) prior to 1935, 50% of notes in circulation were issued by chartered banks. 7 RSM 230 - Week 5- Bank of Canada
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$5, 10, 20, 50 $100 notes 8 RSM 230 - Week 5- Bank of Canada
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Major Activity 2: Payments System The Canadian Payments Association (CPA) is privately run by the banks, Cheques are cleared when banks exchange cheques between each other Cheques are settled when banks pay for what they owe by writing a cheque on their Bank of Canada deposit account, Large Value Transfer System (LVTS) wire transfer of large items that occurs throughout the day; ($150 billion a day) major payments of securities for example go through LVTS
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This note was uploaded on 07/16/2011 for the course COMMERCE 230 taught by Professor Stapleton during the Fall '10 term at University of Toronto- Toronto.

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RSM_230_Week5_BofC - RSM 230 Week 5 The Bank of Canada...

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