industry in Canada
Money: what it is
and how its value
The role of banks
The nature and
The Canadian Financial Services Industry
600,000 direct jobs
Payroll of $35 billion
Export of $50 billion
6% of GDP
$13 billion in taxes
Canada’s financial services industry consists of:
Credit unions are non-profit, member-owned financial co-
operatives that offer a full variety of banking services to their
Caisses populaires, a form
of credit union, are
located predominantly in
Image sources: http://www.tctcu.com/; http://www.flickr.com/photos/usdagov/
A trust company is a financial institution that conducts activities
like a bank.
However, because of its fiduciary role, a trust company can
administer estates, pension plans, and agency contracts, which
banks cannot do.
Image sources: http://www.nbc.ca/; http://www.flickr.com/photos/bootbearwdc/
Non-banks are financial organizations that accept no deposits but
offer many services provided by regular banks.
Examples include pension funds, insurance
companies, commercial finance companies,
consumer finance companies, and brokerage
At OMERS we have one clear and overriding
commitment: paying the pensions of our
current and our future retirees. Everything we
do is to enable us to keep this commitment.‖
Pension funds are 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.
―OMERS is one of Canada's
largest pension plans, providing
pension services to more than 400,000 active
and retired members and 928 employers.
Life insurance companies provide financial protection for
policyholders, who periodically pay premiums.
In addition, insurers
invest the funds
they receive from
policyholders in a variety
of vehicles, including
Grocery Store? Mastercard? PC points? Banking?
Image source: http://www.pcfinancial.ca/
The Canadian Financial Services Industry – Figure 10.1
The financial industry is one of the most regulated sectors in the
Banks are federally
Securities dealers, credit
unions, and caisses populaires
Insurance, trust, and loan
companies and co-operative
credit associations may be
depending on the jurisdiction
under which the company is
incorporated or registered.
The Canada Deposit Insurance Corporation (CDIC) is a federal
Crown corporation that was created to provide deposit insurance
and contribute to the stability of Canada’s financial system.
CDIC insures eligible
deposits at member
banks and trust
failure or collapse.
deposits up to
interest) in each
Image source: http://www.cdic.ca
Regulation of the Canadian Financial Services Industry – there is no
Office of Superintendent of Financial Institutions
Canada Deposit Insurance Corporation
Financial Consumer Agency of Canada
What Is Money? Anything that is generally accepted as payment.
In the past, has included:
salt; feathers; stones; and rare
Barter is trading goods and
services for other goods and
Money – makes the world go around?
Five Characteristics of a Good Money System
and easy to
• Coins last
• Hard to
Any object generally accepted as payment for goods & services
The money supply is the amount of money the Bank of Canada
makes available for people to buy goods and services.
The Bank of Canada manages the
rate of money growth indirectly
through the influence it exercises over
short-term interest rates.
The Bank of Canada has an influence on
very short-term interest rates through
changes in its target for the overnight
M1 Money Supply: The most liquid forms of money (currency,
personal chequing accounts and current accounts at banks)
currency: bank notes and coins issued by the
current accounts: money in chequing accounts,
which can be transferred to others by cheque
M2 Money Supply: Everything in M1 plus (see Figure 10.2)
Personal Savings deposits
• savings accounts and other
Term and Non-Personal
• deposit requiring prior notice
before withdrawal of funds
M-2 measures the store of monetary value that is
available for making financial transactions
Why Does the Money Supply Need to Be Controlled?
allows us to manage
the prices of goods
growth or decline
Image source: http://www.flickr.com/photos/fight-launch/
Monetary Policy Actions of the Bank of Canada
Managing Your Personal Finances
A major reason for studying business is that it prepares you
for finding and keeping a good job.
Money management, however, is not easy.
You have to earn money in the first place.
Then you have to learn how to save and spend money wisely.
Safe Online Banking
Verify that bank uses encryption technology
and has a liability guarantee
Pick random PIN code—letters and numbers
Regularly scan for unauthorized transactions
Use anti-virus software and firewall
Source: http://www.scotiabank.com; Parade Magazine, May 18, 2003
The general insurance industry in Canada provides insurance
protection for most homes, motor vehicles, and commercial
enterprises throughout Canada.
skyrocketing claims costs have greatly increased the premiums for auto
insurance, and in some instances even the availability of insurance
costs for all forms of insurance have also increased significantly due to
The Canadian Securities Industry A securities dealer (also
known as an investment
dealer or brokerage
house) is a firm that
trades securities for its
clients and offers
More Canadians are
turning to the securities
industry to ensure their
Roughly half of all
working Canadians are
directly and indirectly
invested (meaning they
have bought stocks) in
the equities market.
Securities Regulations: Companies seeking public financing must
issue a prospectus.
A prospectus is a
condensed version of
economic and financial
information that a
company must make
available to investors
before they purchase the
The prospectus must be
approved by the
securities commission in
the province where the
public funding is being
Image source: http://en.wikipedia.org/
The Canadian Securities Industry
• a government agency that
administers provincial securities
The securities commission
• An organization whose members
can buy and sell (exchange)
securities for companies and
• a transferable certificate of
ownership of an investment
product such as a stock or bond
Canadian Stock Exchanges
Toronto Stock Exchange
(TSX): largest exchange in
Canada (100 members)
• firms must pay a fee to list
their stocks on the exchange.
Exchange: handles all
Money Never Sleeps
Investing in bonds, stocks, or other securities is not very difficult.
It is necessary to use a
authorized to trade stocks and
bonds who can call a member of
the stock exchange to execute
A stockbroker is a registered
representative who works as a
market intermediary to buy and
sell securities for clients.
Image source: http://news.bbc.co.uk
Investors can use online trading services to buy and sell stocks and
bonds in place of using traditional brokerage services (primarily
investors willing to do their own research and make their own
investment decisions without the assistance of a broker).
Image source: http://beta.images.theglobeandmail.com
risk/return trade-off - important for investors to consider five
key criteria when selecting investment options.
Investment risk: the chance that an investment will be worth
less at some future time than it is worth now.
Yield: the expected rate of return on an
investment, such as interest or
dividends, usually over a period of one
Duration: the length of time your
money is committed to an investment.
Liquidity: how quickly you can get
back your invested funds if you
want or need them.
Tax consequences: how the
investment will affect your tax
Investing in Bonds
For investors who desire low risk
and guaranteed income,
government bonds are a secure
investment because these bonds
have the financial backing and full
faith and credit of the government.
Image source: http://www.mi6.co.uk
Investing in Bonds
One question often bothers
first-time corporate bond
―If I purchase a corporate
bond, do I have to hold it until
the maturity date?‖
The answer is no, you do not
have to hold a bond until
Bonds are bought and sold
daily on major securities
Buying stock makes the investor an owner of the firm.
Stocks provide investors with an opportunity to participate in the
success of emerging or expanding companies if the share price
Image source: http://www.flickr.com/photos/preppybyday/
Buying on Margin – purchasing securities by borrowing some of the
cost from the broker.
A mutual fund is a fund that buys a variety of securities and then
sells units of ownership in the fund to the public.
With mutual funds, investors
benefit from diversification.
involves buying several
alternatives to spread the risk
industry in Canada
Money: what it is
and how its value is
The role of banks
The nature and
impact of insurance