ECON 248 8.1 Financial Institutions In The Canadian Economy

A system in the economy which consists of institutions which help match a person’s saving with another person’s investment.

Financial System

When a country saves a significant portion of its GDP, more resources are available for (), and higher capital raises a country’s () and ().

Capital Investment, Productivity, Living Standards

The financial system moves scarce resources from () to ().

Savers, Borrowers

People who spend less than they earn are called ().

Savers

Spenders mainly spend with the expectation that they will get it back with some ().

Interest

A borrower is a person who spends () than they earn.

More

Borrowers demand money with the responsibility to () their creditors with interest.

Pay Back

Financial institutions are either () or ().

Financial Markets, Financial Intermediaries

A financial institution where a saver can directly supply funds to a borrower.

Financial Markets

The 2 main financial markets in the Canadian Economy.

Bond Market, Stock Market

A certificate of indebtedness which specifies the obligations of the borrower to the bond holder.

Bond(IOU)

The date at which a bond loan will be repaid is called the (), with periods of () being paid periodically until that date.

Date Of Maturity, Interest

The initial amount of money a bond holder lends, which they expect interest on top of when the bond matures.

Principle

The bond holder can hold onto the bond until (), or sell it at an () to someone else.

Maturity, Earlier Date

The length of time until a bond matures.

Term

A term which never matures.

Perpetuity

Long-term bonds usually are () and not () for the bondholder, but carry higher amounts of ().

Riskier, Taxed, Interest

The probability that the borrower will fail to pay the full interest or principle of a bond.

Credit Risk(Default)

Bonds issued by financially unstable companies which have higher interest than corporations and governments.

Junk Bonds

The government usually charges less interest on bonds than ().

Corporations

() represents the ownership of a firm which gives them access to the firms profits.

Stock

The sale of stock to raise money is called (), while selling bonds is called ().

Equity Finance, Debt Finance

The corporation receives () when a stock changes ownership on a stock exchange, unless the stock is bought () from the corporation.

No Money, Directly

The 3 most important U.S stock exchanges are the following.

New York Stock Exchange(NYSE), NASDAQ, Toronto Stock Exchange(TSX)

The () of a stock is how much it costs to buy directly from a company or person.

Price

The () shares is how much are sold, with the daily amount of them being sold called ().

Volume, Daily Volume

The amount of profits corporations pay their shareholders is called (), with the percentage of it compared to the stock’s price is called the ().

Dividends, Dividend Yield

The ratio of a company’s earnings (Revenue - Expenses and costs of production) divided by the number of shares outstanding.

Earnings Per Share(Price/Earning Ratio)

The typical price/earnings ratio is about (), with something higher meaning that the stock is () compared to earnings.

15, Expensive

An average group of stock prices.

Stock Index

Financial institutions which allow savers to indirectly provide funds to borrowers.

Financial Intermediaries

A financial intermediary with the primary job of taking in deposits from savers and using those deposits to make loans with borrowers.

Bank

Banks charge (1) for (), while a lower (1) paid to ().

Interest, Borrowers, Savers

A secondary purpose of banks is allowing people to write () against their deposits which serves as a ().

Cheques, Medium Of Exchange

Stocks and bonds serve as () that savers have accumulated.

Storers Of Value

A financial intermediary that sells shares to the public and uses that money to buy a variety of stock and/or bonds which the shareholder of the intermediary must accept.

Mutual Fund

The main advantage of mutual funds is that they allow people with small money to () the stocks and bonds they get access to.

Diversify

An advantage of mutual funds is that they give ordinary people access to the skills of ().

Professional Money Managers

Mutual funds which buy all the stock in stock index, but buy and sell rarely and don’t pay for professional money managers.

Index Funds

The tools and assets used to produce goods and/or services.

Physical Capital

The funds used to purchase physical capital.

Financial Capital