NETA PowerPoint Presentations to accompany The Future of Business Fourth Edition Adapted by Norm Althouse, University of Calgary Copyright © 2014 by Nelson Education Ltd.

Understanding Money and the Canadian Financial System Chapter 17 Copyright © 2014 by Nelson Education Ltd.

Making the Connection

Learning Outcomes 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. Copyright © 2014 by Nelson Education Ltd.4

Learning Outcomes (cont’d) 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. Copyright © 2014 by Nelson Education Ltd.5

Understand the characteristics of money and its functions. Copyright © 2014 by Nelson Education Ltd.6

Characteristics of Money Copyright © 2014 by Nelson Education Ltd.7 Scarcity Durability Portability Divisibility Money

Functions of Money Copyright © 2014 by Nelson Education Ltd.8 Medium of Exchange Standard of Value Store of Value Money

Basic Terms Copyright © 2014 by Nelson Education Ltd.9 Currency – Bank notes and coins. Demand deposits – Money kept in an account that can be withdrawn on demand. Time deposits – Money invested for a specific period. Term deposits – Are paid interest but cannot be withdrawn on demand.

Exhibit 17.1: Three Measures of Money Stock for the Canadian Economy Copyright © 2014 by Nelson Education Ltd.10

Describe the basic functions of the Bank of Canada and how it manages the Canadian money supply. Copyright © 2014 by Nelson Education Ltd.11

The Bank of Canada Activities Copyright © 2014 by Nelson Education Ltd.12 Conducts monetary policy. Supplies quality bank notes. Promotes the safety and efficiency of our financial system. Provides funds-management services. Communicates its objectives openly and effectively.

Security of Bank Notes The New $100 Bank Note (Late 2011)) Copyright © 2014 by Nelson Education Ltd.13

Monetary Policy Copyright © 2014 by Nelson Education Ltd.14 Tools Open Market Operations Target for the Overnight Rate

The Bank of Canada’s Monetary Tools and Their Effects Copyright © 2014 by Nelson Education Ltd.15

Identify the key financial institutions and the role they play in the process of financial intermediation. Copyright © 2014 by Nelson Education Ltd.16

Exhibit 17.4: The Financial Intermediation Process Copyright © 2014 by Nelson Education Ltd.17

Financial Institutions Copyright © 2014 by Nelson Education Ltd.18 Depository: chartered banks trust companies credit unions/caisses populaires Non-Depository: insurance companies pension funds brokerage companies finance companies

Outline how the Canada Deposit Insurance Corporation protects depositors’ funds. Copyright © 2014 by Nelson Education Ltd.19

Insuring Deposits Copyright © 2014 by Nelson Education Ltd.20 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)

Summarize the role of Canadian banks in the international marketplace. Copyright © 2014 by Nelson Education Ltd.21

International Banking Copyright © 2014 by Nelson Education Ltd.22  Provides global cash management services.  Helps companies manage cash flows.  Improves payment efficiency.  Reduces exposure to operational risks. Provides Loans Offer Trade-Related Services

Distinguish between common shares and preferred shares. Copyright © 2014 by Nelson Education Ltd.23

Shares and Bonds Copyright © 2014 by Nelson Education Ltd.24 Common and preferred Corporate and government Securities Investment certificates that represent either equity or debt. Shares Bonds

Shares Copyright © 2014 by Nelson Education Ltd.25 Common Voting rights May pay dividends Preferred Dividends set at issuance No voting rights

Understand the investment advantages and disadvantages of bonds. Copyright © 2014 by Nelson Education Ltd.26

Bonds Copyright © 2014 by Nelson Education Ltd.27 Bonds Long-term debt obligations Principal – Par value Interest – Coupon rate

Corporate Bonds Copyright © 2014 by Nelson Education Ltd.28  High-yield (junk) bonds – High risk/high return.  Mortgage bonds – Secured by property.  Debentures – Unsecured bonds.  Convertible – Option to convert to shares.

Moody’s and Standard & Poor’s Bond Ratings Copyright © 2014 by Nelson Education Ltd.29

List other types of securities available to investors. Copyright © 2014 by Nelson Education Ltd.30

Other Types of Securities Copyright © 2014 by Nelson Education Ltd.31  Mutual funds – Financial services company that pools investors’ funds to buy a selection of securities.  Futures contracts – Legally binding obligations to buy or sell commodities or financial instruments at a later date.  Options – Entitles holders to buy or sell specified quantities of financial instruments at a set price during a specified time.

Describe the function of the securities markets. Copyright © 2014 by Nelson Education Ltd.32

Securities Markets Copyright © 2014 by Nelson Education Ltd.33  Investment bankers – Help companies raise long-term financing (a process called underwriting).  Stockbroker – A person licensed to buy and sell securities on behalf of clients.  Online investing – Improvement in Internet technology.

Markets Copyright © 2014 by Nelson Education Ltd.34 Primary Secondary New securities are sold to the public. Old (already issued) securities are traded among investors.

Types of Markets Copyright © 2014 by Nelson Education Ltd.35  Organized (broker markets)  TSX, NTSE  Dealer  NASDAQ, over-the-counter RICHARD DREW/AP PHOTO

List some of the trends that are reshaping the financial industry. Copyright © 2014 by Nelson Education Ltd.36

The Future of the Financial Industry Copyright © 2014 by Nelson Education Ltd.37  Changing the way we bank.  Increased financial responsibilities.