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25 Cards in this Set
- Front
- Back
- 3rd side (hint)
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Financial system |
The mechanism by which money flows from savers to users. Made up of households, businesses, government, financial institutions, and financial markets. |
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Savings function in financial system |
Funds can be transferred between users and savers directly and indirectly. |
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Securities |
Financial instruments that represent the obligations if the issuers to provide the purchasers with the expected stated returns on the funds invested or loaned. |
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Three categories of securities |
Money market instruments Bonds Shares (stock) |
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Who issues short-term debt securities? |
Governments Financial institutions, and corporations. |
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Money market instruments |
Short term debt securities Investors are paid interest for the use of their funds Generally low-rise Canadian Treasury bills, commercial paper, and bank certificates if deposit. |
SIGC |
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What types of bonds are there |
Government bonds - bonds sold by the Canadian government no risk Municipal bonds - bonds issued by minicipal/local governments low risk Corporate bonds - a diverse group; often vary based on the collateral depends on health of coproation AAA/BBB |
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Financial institutions |
Bonds are low risk |
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Which firms rate bonds? |
Dominion bond rating service (DBRS) in Canada Standard and poor's (S&P) Moody's |
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Bond ratings |
Price determined by risk and interest rate. Investment grade Speculative / junk |
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Highest amd lowrst S&P's bond ratings |
AAA/Aaa, D |
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Debenture |
An unsercured bond backed by the financial reputation if the issuing corporation. |
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Convertible securities |
Bondholder has the right to exchange the bond or preferred shares for a fixed number of common shares. |
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Primary market |
Financial markets where firms and governments issue securities and sell then initially to the general public. |
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What are the four types of Financial Markets |
Primary and secondary Stock market (exchanges) ECNS |
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Secondary market |
A collection of financial markets where previously issued securities are traded among investors. |
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ECNs |
The forth market Buyers and sellers meet in a virtual market and exchange with one another. |
Electronic communications networks |
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Brokerage firm |
Handles the trade on behalf of the investor, charging a fee for the order. (Market/limit) Establish an account Enter orders Trade shares |
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What are financial institutions |
Intermediaries between savers and borrowers that collect finds from savers and then lend the funds to individuals businesses and governments Depository institutions Non depository institutions |
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CDIC |
The federal agency that insures deposits at commercial and savings banks. Formed in 1967 to build public confidence in the banking system. Shifts the risk of the bank failures from individuals to the CDIC. |
Canada Deposit Insurance Corporation |
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What was the attitude of the public towards the bank in the past. |
Runs were common as people rushed to withdraw their money from the bank because of rumored instability. |
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What are the four basic responsibilities of the Bank of Canada |
Regulate monetary policy Design and issue bank notes Regulate the financial system Manage funds for the federal government. |
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M1 |
Currency in circulation and the balances in bank checking accounts. |
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M2 |
M1 plus balances in some savings accounts and money markets mutual funds. |
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Regulation if the financial system |
Under the Bank Act the federal government is responsible for regulating the banking sector. Several regulatory bodies are involved in regulating Canadian banks, including the Department of Finance, the Bank of Canada, the Office of the Superintendent of Financial Institutions (OSFI) and the (CDIC) |
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