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Bus106 wk11 ch10 the financial services industry in canada


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BUS106 The Financial Services Industry in Canada - from UNDERSTANDING CANADIAN BUSINESS, 7th Canadian Edition (custom publication for Seneca); published by McGraw-Hill

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Bus106 wk11 ch10 the financial services industry in canada

  1. 1. Week 11, Chapter 10 The Financial Services Industry in Canada
  2. 2. Agenda discussions Chapter 10 review
  3. 3. Learning Objectives Importance of financial services industry in Canada Money: what it is and how its value is determined The role of banks The nature and impact of insurance Criteria when selecting investment options Mutual funds
  4. 4. The Canadian Financial Services Industry 600,000 direct jobs Payroll of $35 billion Export of $50 billion 6% of GDP $13 billion in taxes
  5. 5. Canada’s financial services industry consists of: traditional banks (also called commercial banks) credit unions caisses populaires trust companies
  6. 6. Credit unions are non-profit, member-owned financial co- operatives that offer a full variety of banking services to their members. Caisses populaires, a form of credit union, are located predominantly in Quebec. Image sources:;
  7. 7. 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:;
  8. 8. 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 houses.
  9. 9. 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. Source: ―OMERS is one of Canada's largest pension plans, providing pension services to more than 400,000 active and retired members and 928 employers.
  10. 10. 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 corporate and government bonds.
  11. 11. Grocery Store? Mastercard? PC points? Banking? Image source:
  12. 12. The Canadian Financial Services Industry – Figure 10.1
  13. 13. The financial industry is one of the most regulated sectors in the country. Banks are federally regulated. Securities dealers, credit unions, and caisses populaires are provincially regulated. Insurance, trust, and loan companies and co-operative credit associations may be federally and/or provincially regulated, depending on the jurisdiction under which the company is incorporated or registered.
  14. 14. 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 institutions (e.g., banks and trust companies) against these institutions’ failure or collapse. CDIC guarantees deposits up to $100,000 (principal and interest) in each member institution. Image source:
  15. 15. Regulation of the Canadian Financial Services Industry – there is no single body Office of Superintendent of Financial Institutions Canada Deposit Insurance Corporation Financial Consumer Agency of Canada
  16. 16. What Is Money? Anything that is generally accepted as payment. In the past, has included: salt; feathers; stones; and rare shells Barter is trading goods and services for other goods and services.
  17. 17. Money – makes the world go around? Source:
  18. 18. Five Characteristics of a Good Money System Portability • lightweight and easy to handle unlike pigs or other heavy products Divisibility • Different- sized coins can be made to represent different values Stability • When everyone agrees on the value, it’s relatively stable Durability • Coins last for thousands of years Uniqueness • Hard to counterfeit or copy Any object generally accepted as payment for goods & services
  19. 19. 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 rate.
  20. 20. 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 Canadian government current accounts: money in chequing accounts, which can be transferred to others by cheque
  21. 21. M2 Money Supply: Everything in M1 plus (see Figure 10.2) Personal Savings deposits • savings accounts and other chequing accounts Term and Non-Personal deposits • deposit requiring prior notice before withdrawal of funds M-2 measures the store of monetary value that is available for making financial transactions
  22. 22. Why Does the Money Supply Need to Be Controlled? allows us to manage the prices of goods and services somewhat affects employment and economic growth or decline Image source:
  23. 23. Monetary Policy Actions of the Bank of Canada Source:
  24. 24. 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.
  25. 25. 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:; Parade Magazine, May 18, 2003
  26. 26. 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 insurance crime. Source:
  27. 27. 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 investment services. More Canadians are turning to the securities industry to ensure their financial security. Roughly half of all working Canadians are directly and indirectly invested (meaning they have bought stocks) in the equities market.
  28. 28. 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 security. The prospectus must be approved by the securities commission in the province where the public funding is being sought. Image source:
  29. 29. The Canadian Securities Industry • a government agency that administers provincial securities legislation The securities commission • An organization whose members can buy and sell (exchange) securities for companies and investors stock exchange • a transferable certificate of ownership of an investment product such as a stock or bond security
  30. 30. 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. Montreal Stock Exchange: handles all derivative trading. Source:
  31. 31. Money Never Sleeps Source:
  32. 32. Investing in bonds, stocks, or other securities is not very difficult. It is necessary to use a registered representative authorized to trade stocks and bonds who can call a member of the stock exchange to execute your order. A stockbroker is a registered representative who works as a market intermediary to buy and sell securities for clients. Image source:
  33. 33. Source:
  34. 34. Investing Online 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:
  35. 35. 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 year. 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 situation.
  36. 36. 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:
  37. 37. Investing in Bonds One question often bothers first-time corporate bond investors: ―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 maturity. Bonds are bought and sold daily on major securities exchanges.
  38. 38. 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 rises. Image source:
  39. 39. Buying on Margin – purchasing securities by borrowing some of the cost from the broker.
  40. 40. 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 different investment alternatives to spread the risk of investing. Apple
  41. 41. Chapter Summary Importance of financial services industry in Canada Money: what it is and how its value is determined The role of banks The nature and impact of insurance Criteria when selecting investment options Mutual funds
  42. 42. 43 Homework