Bài giảng Economics - Chapter 15 Money and the Financial System

Chapter FifteenMoney andthe Financial System15-1The Three Functionsof MoneyMedium of Accepted as payment forExchange products and resourcesUnit of Single standard for assigning measurement and comparing values of products and resourcesStore of Means of retaining and value accumulating wealthThe Six Characteristicsof MoneyAcceptabilityDivisibilityPortabilityStabilityDurabilityDifficulty to counterfeit15-2Penny Pinchers15-3Source: news/nsnap062.htm65-over18-2930-4445-6446%40%56%71%A penny saved isThose who alwaystake penniesin changeWhile 67% of adults say the government should continue makingpennies, 51% sometimes leave theirs at the store.Near MoneySavings accountMoney market accountGuaranteed investment certificatesCredit cardDebit cardTraveler’s chequeMoney orderCashier’s cheque15-5Credit Card Bill PayingPay all each month 44% 40%Never pay off 36% 45%Pay some monthly 21% 15%15-6Source: “A New Financial Health Barometer,”Business Week, November 30, 1998, p. 8.AllHouseholdsWith Income of$50,000-$100,000Credit Cards Marketed on the InternetMore than 15 million people searched the Internet for a new credit card within the last three years.Nearly 6 million people completed online card applications within the last two years.NextCard markets its credit card solely on the Web and receives between 80,000 and 100,000 applications per month15-7Source: Tom Maguire, “Click Here and Charge,”American Demographics, January 1999.The Bank of Canada15-8 Founded in 1934 to regulate “ credit policy and currency in the best interests of the economic life of the nation. Became a crown corporation in 1938 with all shares now held by the Minister of Finance.The Responsibilities of thethe Bank of CanadaTo control the money supply using monetary policyTo provide central banking servicesTo be the sole issuer of currencyTo administer the public debtTo oversee the administration of the clearing and settlement systems15-9The Tools of Monetary Policy1. Open market operations2. Influence on the overnight rate3. Cash management activities15-10Central Banking ServicesOne-day sale and repurchase transactionsActing as the federal government’s bankerIntervention in the foreign exchange market as agent of the Minister of FinanceManagement of the governments foreign exchange reservesMaintenance of deposit and safekeeping accounts for Canadian financial institutions and other central banks15-11aThe Issuance of CurrencyThe Bank of Canada is:The sole issuer of Canadian bank notesIs responsible for ensuring the authenticity of all bank notesOperates to ensure a sufficient supply of currency in the economy15-11bAdministration of the Public DebtThe Bank of Canada:Advises the federal government on borrowingManages new debt offeringsServices outstanding debtAdministers some 7 million Canada Savings Bond holder accounts15-11cThe Canadian Payment Association15-12aThe CPA operates two major systems:The Automated Clearing Settlement System (ACSS)The Large Value Transfer System (LVTS)How the System WorksStep 1: Payment by one of the many means available – cheque, debit card, direct deposit, and so on.Step 2: Clearing, the daily process by which CPA members exchange deposited payment items, and then determine net amounts owed each otherStep 3: Settlement, the procedure by which CPA members use the funds on deposit at the Bank of Canada to fulfill their net obligations to all other members.Source: www.cdnpay.ca/eng/pud/Intro .to.CPA.ENG.htm15-12bBanking and Nonbanking InstitutionsBankingInstitutions:Chartered banksTrust companiesCredit unionsCaisses populaires15-13aBanking and Nonbanking InstitutionsNonbankingInstitutions:Insurance companiesPension fundsMutual fundsMoney market fundsBrokerage firmsNonfinancial firmsFinance companies15-13bPer Capita Spendingon Insurance15-14Source: Swiss Reinsurance Co., snapshot/money/msnap004.htm.JapanSwitzerlandU.S.A.$4,395$2,197$3,097ABM Use in Canada There are bout 21,000 ABMs across CanadaCanadians are relatively heavier users of ABMs than AmericansCanadian carried out over 1.25 billion ABM transactions in 200015-1515-16Source: 9902_ad/ad990205d.htm, March 15, 1999.PC BankingEstimates indicate that the number of North American households doing PC banking jumped from 4.8 million to more than 10 million by the end of 2001.Two “musts” for successful online banking: 1. The service must be accessible via the Internet (as opposed to direct dial-up) 2. No online security issuesSolve the Dilemmaa. List the various types of Canadian financial institutions and the primary functions of each.b. What services of each financial institution is Hill’s new company likely to need?c. Which single financial institution is likely to best meet Hill’s small company’s needs now?15-17Explore Your Career OptionsIn what areas of industries are economists likely to be asked to provide economic projections.?15-18Additional Discussion Questions and Exercises1. What is meant by a demand deposit?Why have credit cards become a popular substitute for money?3. What are the advantages of automated bank machines (ABMs) for customers? For banks?15-19Chapter 15 Quiz15-20a1. Most paper currency is lightweight; the weight of money applies to which characteristic of money? a. durability b. stability c. divisibility d. portabilityThe currency in circulation plus deposits in personal chequing accounts and current accounts is called: a. money supply. b. reserve requirement. c. M1. d. M2.Chapter 15 Quiz15-20b3. The Canada deposit Insurance Corporation insures deposits up to $60,000 at: a. chartered banks, trust companies and loan companies. b. only chartered banks. c. credit unions. d. credit unions and caisses populaires.The bank of Canada seeks to protect the value of Canadian money by keeping inflation low and stable. It does this by controlling the supply of money through: a. high government taxes on banking institutions. b. issuance of currency. c. oversight of the payments and clearing system. d. monetary policy.