1.  Money’s 3 Functions In Any Economy:  Means of exchange  A store of purchasing power  A measure of value 12.1 - Money and Its Uses

2.  Without money, people must exchange products: barter  Essentially a trade Money – Means of Exchange

3.  Safe and accessible store of wealth  Money’s major advantage is liquidity – the ease with which it can be turned into a means of payment  Opportunity Costs still occur  OC of someone holding income is sacrificing the wealth they could have earned if it were converted to a stock or bond Money – Store of Purchasing Power

4.  Provides buyers with a unit of account – a pricing standard that allows all products to be valued consistently  EX. If Apples are $2 / kilogram and Oranges are $4 / kilogram, you can say that Oranges are twice as expensive as Apples  If your system involves barter, it’s more complicated  A clock might be exchanged for 100 apples, 50 oranges, 20 loaves of bread, 2 haircuts or something else  A barter economy is difficult to measure Money – Measure of Value

5.  Deposit-Takers: Institutions/Businesses that accept funds provided by savers and lend these funds to borrowers  Chartered Banks and Near Banks (more on next slide)  Not all funds flowing into the institution flow out  Deposit-takers also keep on hand a cash reserve, so depositors can withdraw funds when they request them The Canadian Financial System

6.  Backbone of Canada’s financial system  Federal government allows them to sell a wide range of services  Top 6: Royal Bank of Canada (RBC), Toronto-Dominion (TD) Canada Trust Bank, Scotiabank, Bank of Montreal (BMO), Canadian Imperial Bank of Commerce (CIBC) and National Bank of Canada  The bank system is an oligopoly Chartered Banks

7.  Have more specialized services  Most important: Trust Companies, Mortgage Loan Companies and Credit Unions  Trust Companies administer various types of accounts, e.g. estates and trust funds  Mortgage Loan Companies specialize in granting mortgages  Credit Unions are non-profit institutions that take deposits and grant loans to their members Near Banks

8.  The supply of money is made up of: currency and some deposits  Currency: paper notes (e.g. $20 bill); coins produced by Royal Canadian Mint  Provides users with anonymity when making purchases  Deposits: classified according to their use  Demand Deposits: accounts of funds to which depositors have immediate access  Notice Deposits: accounts of funds for which deposit-takers may require notice before withdrawals can be made  Term Deposits: accounts of funds to which depositors have no access for a fixed period of time  Foreign Currency Deposits: accounts of funds held by Canadian residents that are valued in foreign currency The Supply of Money

9.  Economists and government decision-makers use five common definitions for money: M1, M1+, M2, M3 and M2+  M1: the narrowest definition of money, consisting of currency outside chartered banks and publicly-held demand deposits at chartered banks  M1+: an alternate narrow definition of money, consisting of M1 plus chequable notice deposits at chartered banks and near banks  M2: a broader definition of money, consisting of M1 plus notice deposits and personal term deposits at chartered banks Money Defined

10.  M3: the def’n of money consisting of M2 plus non-personal term deposits and foreign currency deposits at chartered banks  M2+: def’n of money consisting of M2 plus corresponding deposits at near banks and some liquid assets  Economists view M1+ as the most accurate measure of the money supply  Some economists prefer the other measures however Money Defined Cont’d

11.  Credit Card provides user with opportunity to buy goods and services with instantly borrowed funds  These are essentially short-term loans  If loans are paid on-time and in-full, there will be no interest Role of Credit Cards

12.  Debit Card allows payment through instant transfer of funds  Buyer’s account is instantly reduced by amount of purchase  Retailers must pay for a computer system to track debit transactions  Thus, they pass this on to consumer as a higher price on products Role of Debit Cards