finance

role of the financial system

manage flow of money within economy linking savers and borrowers, helps economy grow (savers earn money on deposits), financial institutions give out loans

evolution of banks

goldsmiths were paid fees by depositors, then lend deposits as loans to earn interest

4 historical pillars of the financial system

banks, trust companies, insurance companies, brokerage firms/ investment dealers

banks

institution that deals in money and its substitues and provides financial services

trust companies

businesses that manage people's money and property for them

insurance companies

provide financial protection to life and physical property

brokerage firms/ investment dealers

brought lenders and borrowers together through equity transactions

bank of canada

owned by govt

types of financial institutions

bank and credit union

types of banking financial institutions

currency exchange, line of credit, mortgage, insurance, bank account, credit card, personal/business loan. investment/registered products

CDIC

Canada Deposit Insurance Corporation

debt

when you owe someone money

debtor

A person who owes money

credit

sum of money made available for borrower

creditor

the lender

good debt

education or appreciating value

bad debt

rapidly depreciating assets purchased through loans

types of debt/ creit

credit cards, consumer loans, line of credit, mortgage, business loan, installment buying

principal

amount borrowed

interest

cost of using someone elses money

APR

Annual Percentage Rate

term

how long you have to repay a loan

fees

charges to use credit

prime rate

best interest rate offered, starting point for negotiations (currently 6.7%)

sources of credit

family and friends, financial institutions, mortgage and loan companies, retailers, yourself

instalment credit

borrow a set amount, fixed payments and time period, fixed or variable interest, ex car loan or mortgage

revolving credit

can borrow any amount up to a credit limit, req. min monthly payment, no fixed repayment period, ex credit card

variable interest rate

reflects interest rate changes in the economy as time progresses and loan is repaid

fixed interest rate

interest rate set for length of term

what affects interest rates

length of term, payment history, secured vs unsecured, source of credit, downpayment

secured debt

debt guaranteed by collateral

unsecured debt

a loan that is not backed by pledged assets (collateral)

considerations before securing loan

capital (collateral), character questions, capacity (ability to carry debt), credit rating

credit score

lower the score the worse the credit

credit report

A detailed report of an individual's credit history

frequent vs infrequent compound periods

frequent compounding periods allows investment to grow faster

traditional bank

customers can bank in person or remotely, offers a variety of financial services

virtual bank

all banking transactions take place remotely

chequing account

used for daily spending

savings account

used to achieve short or long term saving goals by setting money aside and earning interest

cash flow

money going in and out

networth

assets- liabilities

balance sheet

statement of assets, liabilities and capital of a business

Smart goals

s-specific

m-measurable

a-attainable

r-realistic

t-timely

liquid asset

asset that can easily be converted into liquid cash in a short period of time

OSAP

Ontario Secondary Assistance Program