Transcript Chapter 18 - Old

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CHAPTER 18
THE FINANCIAL SERVICES INDUSTRY IN
CANADA
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LEARNING OBJECTIVES
1.
2.
3.
4.
5.
6.
The importance of the financial services industry
in Canada.
Money – what it is and how its value is
determined.
The role that banks play in providing services.
The nature and impact of insurance.
Five key criteria when selecting investment
options.
The opportunities in mutual funds as investments
and the benefits of diversifying.
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THE FINANCIAL SERVICES INDUSTRY IN CANADA
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Financial services provide:
 Money
 Banking
 Investing
 Insurance
 Financing
 Financial
planning
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FACTS ABOUT THE INDUSTRY
In Canada, the financial services sector:
 Employs
600,000 +
 Provides a yearly payroll of over $35 billion
 Represents 6% of Canada’s GDP
 Yields more than $13 billion in tax revenue
 Is widely recognized as one of the safest and
healthiest sectors in the world.
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PARTICIPANTS IN THE FINANCIAL SERVICES
INDUSTRY
Banks
 Credit Unions
 Trust company
 Non-banks
 Pension funds
 Investment Agents
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BANKS AND CREDIT UNIONS
 Commercial
Banks
Profit-seeking organization that receive deposits from
individuals and corporations in the form of chequing
and savings accounts and then uses some of these
funds to make loans.
 Credit
unions
Non-profit, member-owned financial co-operatives
that offer a full variety of banking services to their
members.
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CANADA’S SIX LARGEST BANKS
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SERVICES OFFERED BY BANKS AND CU’S
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Some services provided are:
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Chequing and savings accounts
Loans, mortgages
Credit cards
Overdraft protection, lines of credit
Automated teller machines (ATMs)
Life insurance brokerage services
Financial counseling
Telephone and Internet payment options
Safety deposit boxes
Registered retirement accounts
Travelers' cheques
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OTHER PARTICIPANTS IN FINANCIAL SERVICES
Trust company: A financial institution that can
administer estates, pension plans, and agency
contracts, in addition to other activities conducted
by banks.
 Non-banks: Financial organizations that accept no
deposits but offer many services provided by
regular banks.
 Pension funds: Amounts of money put aside by
corporations, non-profit organizations, or unions to
cover part of the financial needs of their members
when they retire.
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INVESTMENT AGENTS
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Underwriters
Distribute new stock and bond issues
Brokers
Facilitate secondary trading of stocks
and bonds, both on stock exchanges and on
over the counter sock and bond
markets.
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HOW THE FINANCIAL SERVICES INDUSTRY IS
REGULATED
No single body that regulates FSI in Canada.
 May be regulated federally or provincially.
 Federally there are 3 agencies:
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1.
2.
3.
The Office of the Superintendent of Financial
Institutions
The Canada Deposit Insurance Corporation
The Financial Consumer Agency of Canada
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MONEY
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Economic growth and the creation of jobs
depend on money.
 Money:
Anything that people generally accept as
payment for goods and services.
 Barter: The trading of goods and services for other
goods and services directly.
Coins and paper money
 Electronic cash
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WHAT IS THE MONEY SUPPLY?
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Money supply: The amount of money the Bank
of Canada makes available for people to buy
goods and services.
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WHY DOES THE MONEY SUPPLY NEED TO BE
CONTROLLED?
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If there was twice as much money, and the same
amount of goods and services, prices would go up
because:
more people would try to buy goods and services with
their money.
 They would bid the price up to get what they wanted.
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The money supply needs to be controlled so we
can somewhat manage the prices of goods and
services.
 Also affects employment and economic
growth/decline
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THE GLOBAL EXCHANGE OF MONEY
A falling dollar value means the amount of
goods and services you can buy with a dollar
decreases.
 What makes the dollar weak or strong is the
position of the Canadian economy relative to
other economies.
 The value of the dollar depends on a strong
economy, so control over the money supply is
very important.
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CONTROL OF THE MONEY SUPPLY
The Bank of Canada monitors the money
supply.
 The objective of the Bank of Canada’s
monetary policy is to support a level of
spending by Canadians that is consistent with
the Bank’s goal of price stability.
 Prime rate: The interest rate that banks charge
their most creditworthy customers.
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WORLDWIDE BANK RATINGS, 2008
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THE INSURANCE INDUSTRY
Provides insurance protection for most
buildings, vehicles, and commercial enterprises
through-out Canada.
 Insurance shares risk with others through the
payment of insurance premiums.
 These premiums are used by insurance
companies to pay for client damages in the
event of a major catastrophe.
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THE CANADIAN SECURITIES INDUSTRY
Securities dealer: A firm that trades securities for
its clients and offers investment services.
 Prospectus: A condensed version of economic and
financial information that a company must make
available to investors before they purchase a
security.
 Securities commission: A government agency that
administers provincial securities legislation.
 Stock exchange: An organization whose members
can buy and sell (exchange) securities for
companies and investors.
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HOW TO INVEST IN SECURITIES
Stockbroker: A registered representative who
works as a market intermediary to buy and sell
securities for clients.
 A broker can be a valuable source of
information about what stocks or bonds would
best meet your financial objectives.
 Investors can also use online trading to buy
and sell stocks.
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INVESTING IN BONDS
Government bonds are a secure investment for
people who desire low risk and guaranteed
income.
 These bonds have full financial backing and credit
of the government.
 Corporate bonds are more risky and challenging,
however they may produce
 You may be able to sell your bond at either a
discount or a premium, if you decide to sell your
bond before its maturity date.
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INVESTING IN STOCKS
Buying stock makes the investor an owner of the
firm.
 Capital gains: The positive difference between the
purchase price of a stock and its sale price.
 Stock indexes: Measure the trend of different
stock exchanges.
 Buying on margin: Purchasing securities by
borrowing some of the cost from the broker.
 Stock split: An action by a company that gives
shareholders two or more shares of stock for each
one they own.
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INVESTING IN MUTUAL FUNDS
Mutual fund: A fund that buys stocks and
bonds and then sells units of ownership in the
fund to the public.
 Diversification: Buying several different
investment alternatives to spread the risk of
investing.
 Investors can buy shares of the mutual funds
and share ownership of many different
companies they may not have been able to
afford individually.
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COMPARING INVESTMENTS