Chapter 14: Money and Banking

What is Money?

Any object generally accepted as payment for goods and services.

Characteristics of Money - Portable

Lightweight and easy to handle.

Characteristics of Money - Divisible

Easily broken down to match the value of goods.

Characteristics of Money - Durable

Must not spoil or easily wear out.

Characteristics of Money - Stable

Must hold its value over time, apart from minor fluctuations.

Functions of Money - Medium of Exchange

Used to trade goods and services without barter, facilitating transactions.

Functions of Money - Unit of Account

Provides a standard measure of value to compare different goods and services.

Functions of Money - Store of Value

Can be used for future purchases.

M-1 Money Supply

The most liquid forms of money including currency and demand deposits.

Currency

Paper money and coins issued by the Canadian government.

Demand Deposits

Money in chequing accounts, which can be transferred by cheque.

Cheque

An order instructing the bank to pay a specified sum to a person or firm.

M-2 Money Supply

Everything in M-1 plus time deposits, money market mutual funds, and savings deposits.

Credit Cards - Plastic Money?

Not included in M-1 or M-2; a temporary medium of exchange, but not money.

Chartered Banks

Privately owned, profit-oriented financial intermediaries; the most important financial institutions in Canada.

Services Offered By Banks

Pension services, trust services, international services, financial advice, electronic funds transfer, bank loans.

Bank Loans

Major source of short-term financing, preferred for financing inventories or accounts receivable.

Secured Loan

A loan backed by collateral.

Unsecured Loan

A loan not backed by collateral.

The Bank of Canada

The Central Bank of Canada that regulates chartered banks and manages the money supply.

Trust Companies

Safeguard funds and estates entrusted to them.

Credit Unions

Cooperative savings and lending institutions formed by individuals with common interests.

Factoring Companies

Buy collected accounts receivables from a firm for less than face value.

Venture Capital Firms

Fund new or expanding firms with great potential while accepting increased risk.

Pension Funds

Accumulate cash to be paid out as pension income in the future.

Investment Dealers

Stockbrokers or underwriters that distribute new stock and bond issues.