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Chapter 15 1 Understanding Money, Financial Institutions, and the Securities Markets Understanding Money, Financial Institutions, and the Securities Markets.

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Presentation on theme: "Chapter 15 1 Understanding Money, Financial Institutions, and the Securities Markets Understanding Money, Financial Institutions, and the Securities Markets."— Presentation transcript:

1 Chapter 15 1 Understanding Money, Financial Institutions, and the Securities Markets Understanding Money, Financial Institutions, and the Securities Markets Prepared by Norm Althouse University of Calgary Prepared by Norm Althouse University of Calgary Copyright © 2011 by Nelson Education Ltd.

2 Chapter 15 1 Understand the characteristics of money and its functions. 2 Describe the basic functions of the Bank of Canada, and how it manages the Canadian money supply. 3 Identify the key financial institutions, and the role they play in the process of financial intermediation. 4 Outline how the Canada Deposit Insurance Corporation protects depositors’ funds. 5 Summarize the role of Canadian banks in the international marketplace. 6 Distinguish between common shares and preferred shares. 7 Understand the investment advantages and disadvantages of bonds. 8 List other types of securities available to investors. 9 Describe the function of the securities markets. 10 List some of the trends that are reshaping the financial industry. Learning Outcomes 2 Copyright © 2011 by Nelson Education Ltd.

3 Chapter 15 Money, Financial Institutions, and the Securities Markets Copyright © 2011 by Nelson Education Ltd. 3 Advanced technology, globalization of markets, and the relations of regulatory restrictions are accelerating the pace of change in the financial services industry. Advanced technology, globalization of markets, and the relations of regulatory restrictions are accelerating the pace of change in the financial services industry.

4 Chapter 15 4 Characteristics of Money Divisibility Portability Durability Scarcity Copyright © 2011 by Nelson Education Ltd.

5 Chapter 15 5 Functions of Money Store of Value Standard of Value Medium of Exchange Functions of Money Copyright © 2011 by Nelson Education Ltd.

6 Chapter 15 6 The Canadian Money Supply Time Deposits Demand Deposits Currency Pay interest cannot be withdrawn on demand Money in chequing accounts can be withdrawn on demand Money in chequing accounts can be withdrawn on demand Coins and Paper Money Copyright © 2011 by Nelson Education Ltd.

7 Chapter 15 7 The Bank of Canada Activities Price Stability Full Employment Economic Growth funds-management services supplies quality bank notes conducts monetary policy promotes safety and efficiency of Canada’s financial system Copyright © 2011 by Nelson Education Ltd.

8 Chapter 15 Monetary Tools and Their Effects 8 Copyright © 2011 by Nelson Education Ltd.

9 Chapter 15 9 Financial Intermediation Copyright © 2011 by Nelson Education Ltd.

10 Chapter Financial Institutions Non-depository Institutions Depository Institutions Insurance Companies Pension Funds Brokerage Firms Finance Companies Chartered Banks Trust Companies Credit Unions or Caisses Populaires Credit Unions or Caisses Populaires Copyright © 2011 by Nelson Education Ltd.

11 Chapter Insuring Deposits Insures eligible deposits to the value of $100,000 Accountable to Canada’s Parliament > Minister of Finance Federal Crown Corporation Canada Deposit Insurance Corporation (CDIC) Copyright © 2011 by Nelson Education Ltd.

12 Chapter Offer Trade- Related Services Provide Loans Provide global cash management services Help firms manage cash flows Improve their payment efficiency Reduce exposure to operational risks International Banking The Role of Canadian Banks Copyright © 2011 by Nelson Education Ltd.

13 Chapter Stocks and Bonds Copyright © 2011 by Nelson Education Ltd. BondsBonds SharesShares Securities Investment certificates that represent either equity or debt Ownership that allows voting rights Can be bought and sold (liquidity) May pay dividends Ownership that allows voting rights Can be bought and sold (liquidity) May pay dividends Dividends set at issuance, and are paid before common stock dividends Ownership does not allow voting rights Dividends set at issuance, and are paid before common stock dividends Ownership does not allow voting rights

14 Chapter Shares Preferred Shares Common Shares Dividends set at issuance, and are paid before common stock dividends Ownership does not allow voting rights Dividends set at issuance, and are paid before common stock dividends Ownership does not allow voting rights Ownership that allows voting rights Can be bought and sold (liquidity) May pay dividends Ownership that allows voting rights Can be bought and sold (liquidity) May pay dividends Copyright © 2011 by Nelson Education Ltd.

15 Chapter Bonds BondsBonds Long-term debt obligations Principal – par value Interest – coupon rate Copyright © 2011 by Nelson Education Ltd.

16 Chapter Types of Bonds Government High-yield (junk) bonds Convertible bonds Corporate Mortgage bonds Debentures Copyright © 2011 by Nelson Education Ltd.

17 Chapter Other Types of Securities Mutual Fund Futures Contracts Options Financial-services company that pools investors’ funds to buy a selection of securities Legally binding obligations to buy or sell commodities or financial instruments at later date Contracts to buy or sell quantities of common stocks or financial instruments at later date Copyright © 2011 by Nelson Education Ltd.

18 Chapter Appeal of Mutual Funds Good way to hold a diversified, less risky, portfolio Professional management May offer higher returns Copyright © 2011 by Nelson Education Ltd.

19 Chapter Securities Market Help companies raise long-term financing, a process called underwriting Help companies raise long-term financing, a process called underwriting Investment Bankers A person licensed to buy and sell securities on behalf of clients A person licensed to buy and sell securities on behalf of clients Stockbroker Online Investing Improvement in Internet technology Improvement in Internet technology Copyright © 2011 by Nelson Education Ltd.

20 Chapter Types of Markets Secondary Market Secondary Market Old (already issued) securities are bought and sold, or traded, among investors Primary Market New securities are sold to the public Copyright © 2011 by Nelson Education Ltd.

21 Chapter Types of Securities Markets Over-the-Counter Market Organized Stock Exchanges Buying and Selling at Securities Exchanges Copyright © 2011 by Nelson Education Ltd.

22 Chapter A telecommunications network that links dealers and enables them to trade securities. A telecommunications network that links dealers and enables them to trade securities. Over-the-Counter (OTC) Market The first electronic-based stock market and the fastest growing part of the stock market. The first electronic-based stock market and the fastest growing part of the stock market. NASDAQ The Over-the-Counter Market Copyright © 2011 by Nelson Education Ltd.

23 Chapter Bull Market Bear Market Prices rise. Better returns. Prices rise. Better returns. Prices go down. Low, or negative, returns. Prices go down. Low, or negative, returns. Bull or Bear Market? Copyright © 2011 by Nelson Education Ltd.

24 Chapter 15 Copyright © 2008 by Nelson, a division of Thomson Canada Limited24 TSX Index Bull market Bear market

25 Chapter Changing the Way We Bank Trends in Financial Institutions regulationsservices offered Copyright © 2011 by Nelson Education Ltd. Integration of Banking, Brokerage, and Insurance Delivery of Services with “Clicks and Bricks” Growth of Mega-Financial Institutions


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