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122 Cards in this Set
- Front
- Back
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The main deposit-taking institutions in Canada
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charteredbanks, trust companies, caisses populaires, and credit unions.
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all the main taking institutions (do what?) |
invest and lend their customers’ savings and charge fees forservices
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Banks sell services to
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earn profit |
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Most bank revenue occurs when
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interest is charged on loaned money
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The Canadian Constitution of 1867 created ____________ controlled by the _______________. All banks inCanada operate under the __________.
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-a common, unifiedbanking system
-federal government -same rules. |
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Bank act |
therules and regulations that banks must follow
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The governmentprovides banks with a ____________________________________________________________. these types of banks are known as
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-charter or licence that gives them the authorityto operate
-chartered banks |
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the bank act established three classes of banks____________________________________ to ______________________ |
-Schedule I,Schedule II, and Schedule III
-encourage more competition |
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the banks ownership determines its |
class |
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branch banking is a __________________________________ providing ______________________________________ |
-system in which there is a head office and interconnected branches or outlets -financial services to different parts of the country |
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bank of canada helps to keep __________________ by __________________________ |
-the Canadian economy as stable a possible
- regulating the money supply |
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bank rate/ prime lending rate |
indicates the rate charged borrowers by chartered banks
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Canada Deposit Insurance Corporation protects
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consumer accounts |
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caisses populaires and credit unions are ________________________________. Services are only provided to ______________________________________________
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-organized and owned by people who pool and share their resources
- members and their families who own at least one share in these institutions. |
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insurance companies are |
financial institutions that insure risks
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The two general areas that are covered by insurance companies are
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life and healthinsurance and property and car insurance.
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Insurance works by
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sharing risks |
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People open accounts at financial institutions to
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save money and,potentially, to make money or interest
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to open an account at a financialinstitution you must give personal information such as
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such as a birth certificate, a driver’s licence, or a home address
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account statement |
passbook that serves as a record of account transactions. |
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Each accounthas a _________ that appears on thesedocuments.
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unique number |
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Deposits can be made at ______________________ or ____________________
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-financial institution - automated bankingmachine (ABM) |
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pin stands for |
personal identification numbers |
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pin are a ________________________ that are necessary ____________________ at ABMs |
- confidential electronic signatures
-to access accounts |
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Withdrawals for cash can be made in
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thefinancial institution or at an ABM
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Competition in the financial industry has lead
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to a greater variety ofservices and transaction accounts offered to customers
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Transaction accounts allow people to pay for goods and services with
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cash, cheques ordebit |
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Account details, such as writingcheques, making deposits or withdrawals, using debit cards, andpaying bills electronically, should be recorded in a
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transaction register |
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straight transaction accounts usually |
do not pay interest and are used to pay personal and household bills |
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combination accounts provide ways to |
save money and to payexpenses
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Financial institutions levy _____________ oncombination and transaction accounts
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-service charges |
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current accounts are for__________________________________. these accounts must be recorded |
- businesses that are registered with theprovincial or federal government
-in the business' name |
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Reconciliation occurs when
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transaction register and the monthlybank statement are compared and matched to ensure they agree
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Monthly reconciliation is important so that
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the necessary funds areavailable to cover current and future transactions
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steps in reconnciliation |
Step 1. Check off transactions that appear on the account statementand the transaction register.
Step 2. List any outstanding cheques and withdrawals. Step 3. List any deposits in the transaction register and not on theaccount statement.Step 4. Subtract Step 2 from Step 3. Step 5. Enter into the transaction register any transactions on thestatement not already entered. Balances of Steps 4 and 5 must match. |
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Most cheques are written from a _____________. However, cheques canbe written on _______________________________________________________________________. Banks will accept these special “cheques,”but ______________________
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-chequebook -anything including blank paper, roofing tiles, or envelopes to name a few - will charge a special fee to process them |
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Cheque essentials |
date, payee, drawee,drawer, amount, and account number
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Cheques like currency can be forged. To prevent this, some securityfeatures have been added to cheques, such as
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special inks thatchange colour when rubbed, watermarks, and special fibres.
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A stop payment request can be made if
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you do not want a cheque tobe cashed, or if it is lost or stolen
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Cheque clearing
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processing of cheques and the settling ofaccount balances among financial institutions
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Cashing a chequeinvolves about
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20 different processes |
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Magnetic Ink Character Recognition (MICR)
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special codedcharacters printed across the bottom of cheques that are read byelectronic cheque sorting machines
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hold |
Thisgives the institution time to clear the cheque and make sure that itdoes not present a risk to the institution it was written on
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ABM allow |
customers to access their accounts quickly, conveniently, andaccurately
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The electronic funds transfer system (EFTS) is a _________________________________. it also rpovides _______________________
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-computerized system that facilitates deposits and withdrawals
-customers with a faster and less costly service |
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In 1993, Canadians began to use their ABM cards as debit cards tomake Interac Direct Payment (IDP). This service allowed customers
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topay for goods and services at businesses
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Telephone banking allows
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customers the flexibilty to bank at any timeand anywhere using a telephone
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Customers usually call a toll-freenumber and use their bank card and PIN code to access
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a variety ofservices through computerized voice instructions
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Online banks, also known as __________, do not have _______________. Customers access and communicate with the institutiononline, on the telephone, by ABM, or through independentprofessionals.
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-virtual banks -physical branches |
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online banking is offered |
24/7 |
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Financial institutions offer different services that vary in
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cost to meetthe needs of individuals and businesses
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Loans generate
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themajor source of income for institutions
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line of credit
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is a form of borrowing that allows a consumer to gain access to instant credit at a prearranged amount from an institution
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credit cards |
allowconsumers to buy goods and services worldwide and even obtaincash from ABMs.
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direct deposit |
the transfer of funds from sources such as anemployer directly into a specified account
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money order |
form of payment like a cheque in which the issuinginstitution guarantees payment to the payee
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draft is issued |
only by a financial institution for a large amount ofmoney
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drafts guarantee |
the payee instant access to his or her money
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night depository |
make deposits or drop off documents 24/7 that arethen processed during branch hours.
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overdraft protection
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when a cheque is written for more than the funds in the account.
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preauthorized debit |
allows individuals to paybusinesses using regular, automatic withdrawalsfrom their account.
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Safety Deposit Boxes
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Customers can rent fireproof, metal boxes tostore documents and valuables at a financialinstitution.
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Combination Service Packages
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Financial institutions offer a range of servicepackages to clients for a flat monthly fee
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Shopping for a Financial Institution
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When selecting a financial institution(s),consider and research the services, location,fees, reputation, and so on that are offered
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credit |
the privilege of using someone else’s money to purchase anitem or service now and then pay for it later |
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Using credit means
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atransaction has occurred between a creditor and debtor
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the creditor |
is the person or business that sells on credit or grants a loan
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the debator |
is the person or business that buys on credit or obtains a loan
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A consumer uses credit for
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expensive items, such as a home or car,and for inexpensive things like theatre tickets or DVDs.
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Vacations,investments, and paying off other debts can also be arranged on credit.
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true |
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Advantages of Consumer Credit
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instant enjoyment• convenience• emergency needs• saving money• credit rating• monthly statement
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Disadvantages of Consumer Credit
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credit costs• impulse buying• overbuying• financial difficulties
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All three levels of government borrow money to provide
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goods andservices to citizens
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s. Canada Savings Bonds and Government ofCanada Treasury Bills are two examples of
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the government usingcredit
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Businesses use_________________to purchase land, buildings, andequipment, and short-term credit to buy goods, raw materials, andsupplies. Entrepreneurs start new businesses by _________________
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-long-term credit -using loans and credit |
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Advantages of Business Credit
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• finance major purchases• consolidate payments• use of corporate credit cards• overcome cash-flow shortages
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Disadvantages of Business Credit
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• increased costs • defaulting on a loan
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__________________________________________grant credit to consumers
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Financial institutions and retail businesses
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Retailers offer credit in order to
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increase sales, attract customers, and to potentially collect interest charges
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The type of credit that people use depends on their
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needs, wants, goals,and purposes
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The four common types of credit are
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credit cards,installment sales credit, loans, and mortgages
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The average Canadian has at least ____different credit cards
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3 |
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The threebasic types of cards issued to consumers come from
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banks (the mostpopular), retailers, and travel and entertainment businesses.
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With a good credit rating, consumers can acquire
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bank-issued creditcards, such as a Visa and/or MasterCard
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The credit limit on the carddepends on the
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consumer’s credit rating
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Businesses that allowconsumers to pay with credit cards include the cost of
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equipment,transaction fees, monthly statement charges, charge-back fees andcustomer disputes
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Travel and entertainment cards are used to pay for
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r luxury services andproducts, such as hotels, airline tickets, and so on
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Retailers establish their own credit cards, or single-purpose cards, toavoid
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d the charges and fees associated with universal card companies
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Businesses that have their _______effectively __________costs and makemoney on the _____________________
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- "own” card -lower -interest payments received |
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Installment sales credit is
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a credit plan that requires a downpayment and fixed regular payments with finance charges added tothe purchase price
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Installment sales credit involves
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a contract thatincludes the terms of the purchase and payment, including financecharges
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Installment credit is slightly more complicated than _________________________. the consumer must ________________________. The buyer takes possession of the __________________, but the __________ stays with the seller until _________________________________.
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-handing over acredit card to pay for something
- fill out anapplication, be approved for credit risk, and then sign a detailed salescontract for the purchase -product or service -ownership -the buyer makes full payment according to the contract |
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loans can be used to |
make a wide variety of purchases exceptreal estate
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term loan |
n is a form of borrowing in which the borroweragrees to make fixed payments over a set period of time orterm
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lease |
an agreement to rent something for a set time and atan agreed price. It is an alternative to a term loan.
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deamand loan |
short-term with flexible terms ofrepayment. Repayment of the entire sum owing can bedemanded by the lender at any time
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collateral |
—something of value that the lender can takeand sell if the loan is not repaid—serves as security for theloan
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student loans |
Guaranteed by the federal and provincial governments,student loans are available through most financialinstitutions. Student loans are usually interest-free until sixmonths after graduation
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mortgage loan is a _________________. The property is pledged as_______________. A bankand buyer ________________________ many times during the mortgage’s time frame due to varying ____________________ |
-10 to 25 year credit plan to purchaseproperty
- collateral for the loan -renegotiate the terms of the loan and the interest rates -interest rates |
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Factors that affect the cost of credit include
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• principal borrowed• the term for repaying the loan• current interest rates• inflation and economic conditions• security or collateral• risk and credit rating
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Short-term loans usually have _________________ than long-termloans. Borrowing can cost __________ when it is over a __________ period oftime, especially when extra payments are made.
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-lower interest rates -less -shorter |
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the formula for calculating simple interest is as follows |
I (interest) = P (principal) x R (interest rate) x T (time)
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However, financial institutions do not calculate using this simpleformula. Instead, they take into account amounts repaid during theloan, and charge interest only on the amount outstanding. From afinancial institution’s perspective, the total cost of a loan is asfollows:
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P (principal) + I (interest)
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Often collateral is necessary to ______________. It reduces the risk _______________________________
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-secure a loan -to the lender as the asset can be sold if the borrower fails to repay the loan |
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Prior to granting credit, a lender looks at the
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potential borrower’scredit worthiness
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credit worthiness
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s, a person’s ability to take on and repay deb
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The three Cs of credit are
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character, capacity, and capita
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The three C are qualities that a potential borrower
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must possess for a lender toconsider when making a decision
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character |
o the borrower’s willingness, reliability, andtrustworthiness to make a loan repayment
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A lender needs toassess the character of the borrower to determine
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if the individualor business will repay the deb
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Capacity refers to the borrower’s ability to
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o make payments on timeand to pay the debt when it is due
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Assessment of capacity by thelender determines if
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f the individual or business can repay the deb
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Capital is the value of the borrower’s
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assets that could be used torepay debts
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The lender makes an assessment of capital to know
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what the borrower has of value that could be sold if the individual orthe business does not repay the debt.
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credit bureau is
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a business that gathers credit information onborrowers and then sells it to credit grantors and lenders. Information iscollected on both individuals and businesses for a period of sevenyears. After that, it is removed from their files
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The three major credit bureaus in Canada are
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Equifax Canada,TransUnion of Canada, and Northern Credit Bureaus
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A credit rating
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an indication of the level of risk that a consumer,business, or government will pose if credit is granted.
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getting a credit history |
Students usually do not have any credit history, which makes it difficultfor them to receive a loan for education, for transportation, or to start abusiness
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Ways for students to achieve worthiness in lender’s eyesinclude
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• obtaining good marks and attending school• getting and keeping a job• buying something on credit and paying it off before interest ischarged• taking out a small loan• having someone, such as a family member or close friend with agood credit rating, co-sign a loan
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Once a credit rating is established, it is a good idea to
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check itperiodically by contacting one of the credit bureau(s).
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It is important to re-examine spending habits and get out of debtwhen in crisis. Signs of credit crisis include
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• consistently unable to pay off your credit cards• using cash advances for everyday living expenses• not knowing how much debt you have• seeming to always be in debt
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The steps towards getting out of debt include
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• contact and explain difficulties to creditors• be honest and realistic when working with creditors on a plan• pay a portion of overdue payments• put away credit cards• seek help from credit counselling services
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