chp 16

market surveillance

"All securities markets use a variety of methods to spot possible violations of trading rules or secur- ities laws. In Canada, the Toronto Stock Exchange (TSX) wants to promote integrity and fairness in all trading across equity marketplaces. he TSX outsources market surveillance to an independ- ent third party—the Investment Industry Regulatory Organization of Canada (IIROC). IIROC's surveillance functions include real-time monitoring of trading activity: a team of experts watch all equity trades as they occur to ensure compliance with the securities trading rules. IIROC is equipped with an experienced team and a dedicated surveillance facility with advanced technol- ogy. It monitors company news, stock charts, and chat room activity to detect volume and price anomalies. IIROC also monitors timely disclosure of material information by publicly traded busi- nesses to ensure they comply with Universal Market Integrity Rules (UMIR). State-of-the-art tech- nology and monitoring systems allow IIROC to track trading behaviour in real time and collect evidence needed to pursue cases relating to violations, such as insider trading and manipulative activity.22 Self-regulation by the inancial industry has been an important part of securities market regulation. But some argue that the industry can never truly regulate itself efectively in today's market environment. he "Solving an Ethical Controversy" feature debates the pros and cons of industry self-regulation." (Boone 464) Boone, Louis E. Contemporary Business, Canadian Edition. John Wiley & Sons (Canada). VitalBook file.

saver & users

-In Canada, households are generally net savers. -Businesses and governments are net users. -How much an individual saves depends on many factors. One of the most important factors is the person's age.

securities, also financial instrument

-When businesses and governments borrow funds from savers, they provide different types of guarantees for repayment. -Securities, represent the obligations of the issuers to provide the purchasers with the expected or stated returns on the funds invested or loaned. -can be grouped into three categories: 1) money market instruments, 2)bonds, 3)shares (also known as stock). -Money market instruments and bonds are debt securities. -Shares are units of ownership in public corporations, such as Sun Life Financial, HBC, and BCE.

classify financial institutions

-depository institution: accept deposits that customers can withdraw on demand. i.e. commercial banks -non-depository institution: 1_life insurance companies, i.e. Manulife Financial; 2_pension funds, i.e. the Ontario Teachers' Pension Plan; 3_ mutual funds.

Money market instruments

-short-term debt securities issued by governments, financial institutions, and corporations. -All money market instruments mature within one year from the date of issue. -The issuer pays interest to the investors for the use of their funds. -generally low-risk securities and are purchased by investors when they have surplus cash. Examples of money market instruments include: Canadian Treasury bills, commercial paper, and bank certificates of deposit.

Securities are sold to the investing public in two ways

1) in open auctions 2) through investment bankers. Almost all securities sold through open auctions are Government of Canada securities. Sales of most corporate and municipal securities are made through financial institutions such as TD Securities. Corporations and governments are willing to pay for the services provided by inancial insti- tutions because they are inancial market experts. he underwriter typically locates buyers for the issue and advises the issuer on several details: the general characteristics of the issue, its pricing, and the timing of the ofering. Several inancial institutions commonly perform the underwriting process. he issuer selects a lead, or primary, inancial institution, which forms a syndicate con- sisting of other inancial institutions. Each member of the syndicate purchases a portion of the security issue, and then resells it to investors."

2 major policy tools for controlling the growth in the supply of money and credit.

1)the discount rate The discount rate is the interest rate at which chartered banks make short-term loans to member banks. The discount rate is often referred to as the bank rate. A bank might need a short-term loan if transactions leave it short of reserves. If the Bank wants to slow the growth rate in the money supply, it increases the bank rate. This increase makes it more expensive for banks to borrow funds. Banks, in turn, raise the interest rates they charge on loans to consumers and businesses. The end result is a slowdown in economic activity. Lowering the bank rate has the opposite effect. 2)open market operations. the technique of controlling the money supply growth rate by buying or selling Canadian government securities. If the Bank buys government securities, the money it pays enters circulation, where it increases the money supply and lowers interest rates. When the Bank sells government securities, money is taken out of circulation and interest rates rise. When the Bank uses open market operations it uses as its benchmark, or guideline, the so-called overnight rate—the rate at which banks lend money to each other overnight.

Types of bonds

1. Government bonds 2. municipal bonds include Corporations and Financial institutions- mortgage-backed securities (MBSs).

finance companies- commercial finance company

A commercial finance company supplies short-term funds to businesses that use their tangible assets as collateral for the loan. these tangible assets can include inventory, accounts receivable, machinery, or property.

finance companies- consumer finance compnay

A consumer finance company plays a similar role for consumers. Finance companies raise funds by selling securities or by borrowing funds from commercial banks. Many finance companies, such as GMAC, are actually subsidiaries of a manufacturer.

the difference between a market order and limit order

A market order instructs the investor's broker to obtain the best possible price when buying or selling securities. A limit order sets a maximum price (if the investor wants to buy)or a minimum price (if the investor wants to sell).

tombstone

Announcements of new bond and share offerings appear daily in business publications such as he Globe and Mail and he Financial Post. These announcements are often in the form of a simple black-and-white ad called a tombstone.

market interest rate --> bond price

Another important influence on bond prices is the market interest rate. Bonds pay fixed rates of interest. that means that as market interest rates rise, bond prices fall.

government regulation of the financial markets

At the provincial level, regulation of Canadian financial markets is primarily administered by organizations such as the Manitoba Securities Commission or the Ontario Securities Commission. These provincial organizations are in turn coordinated by the Canadian Securities Administrators (CSA) to reduce duplication of efforts and provide consistency. But, in the end, responsibility is in the hands of the various provincial bodies. One area that provincial regulators pay particular attention to is insider trading. Insider trading is defined as the use of material nonpublic information about a company to make investment profits. Examples of material nonpublic information include a pending merger or a major oil discovery. Releasing information on these activities before they occur could affect the firm's share price. he definition of insider trading goes beyond corporate insiders—people such as the company's officers and directors. It includes lawyers, accountants, investment bankers, and even reporters—anyone who uses nonpublic information to profit in the stock market at the expense of ordinary investors. Although some actions or communications are clearly insider trading, other activities are more diicult to pin down. As a result, all employees of public companies must keep in mind what is and is not permitted."

why do investor purchase common shares?

investors purchase common shares for 2 reasons: 1. receive dividends, which are cash payments made to shareholders by the firm. 2. potential price increase of the shares.

Bank regulation

Banks are among the nation's most heavily regulated businesses. The main purpose of bank regulation is to ensure public confidence in the safety and security of the banking system. Banks are critical to the overall functioning of the economy. Several regulatory bodies are involved in regulating Canadian banks, including the Department of Finance, the Bank of Canada, the Office of the Superintendent of Financial Institutions (OSFI), and the CDIC. Some regulation is also at the provincial level because of the many lines of business that a commercial bank or credit union may be involved in.

how banks operate

Banks raise funds by offering customers a variety of checking and savings deposits. The banks then pool, or combine, these deposits and lend most of them out in the form of consumer and business loans. Banks lend a great deal of money to households and businesses for a variety of purposes. Commercial banks are an especially important source of funds for small businesses. When banks evaluate loan applications, they look at the borrower's ability and willingness to repay the loan. Banks make money mostly because the interest rate they charge borrowers is higher than the rate of interest they pay depositors. Banks also make money from other sources, such as fees they charge customers for using checking accounts and ATMs. After the recent credit crisis, many

Bonds

Bondholders are creditors of a corporation or government body. A firm may sell bonds to obtain long-term debt capital. Federal, provincial, and municipal governments also acquire funds through bonds. Bonds are issued in various denominations, or face values, usually between $1,000 and $25,000. Each issue indicates the rate of interest and the maturity date. the rate of interest to be paid to the bondholder is stated as a percentage of the bond's face value. The maturity date is the date when the bondholder will be paid the bond's full face value. Bondholders are creditors. that means their claim on the firm's assets must be satisfied before any claims of shareholders if the firm enters into bankruptcy, reorganization, or liquidation.

bonds risk --> bond price

Bonds with the lowest level of risk are rated AAA. Bonds with ratings of BBB and above are classified as investment-grade bonds. Bonds with ratings of BB and below are classified as speculative bonds, or junk bonds. Junk bonds attract investors because they offer high interest rates in exchange for greater risk. Today, junk bonds pay about 50 percent more in interest than investment-grade corporate bonds.

online banking

Canadians can choose from two types of online banks: 1) Internet-only banks, such as PC Financial 2) traditional bricks-and-mortar banks that also have websites, such as RBC and CIBC. The main reason people use online banking is for convenience.

commercial banks

Commercial banks are the largest and probably the most important financial institutions in Canada and in most other countries. total 23 domestic banks Commercial banks offer checking and savings deposit accounts, consumer loans, credit cards, home mortgage loans, business loans, and trust services. Commercial banks also sell other financial products, including securities and insurance. Despite the strength of the "big banks," many consumers opt to do their banking with smaller financial institutions that offer more personal service

primary difference between commercial banks and credit unions

Commercial banks lend money to businesses and to individuals. Credit unions banks lend money mostly to individuals, usually in the form of home mortgage loans.

convertible securities

Companies may issue bonds or preferred shares that include a conversion feature. Such bonds or shares are called convertible securities. this feature gives the bondholder or holder of preferred shares the right to exchange the bond or preferred shares for a fixed number of common shares. Convertible bonds pay lower interest rates than bonds without conversion features, which helps to reduce the issuing firm's interest expenses. Investors are willing to accept lower interest rates because they value the possibility of additional gains if the price of the firm's shares increase.

2.1 corporate bonds

Corporate bonds include a diverse group of bonds. They often vary depending on the collateral—the property pledged by the borrower—that backs the bond. like a home is collateral for a house mortgage. many businesses also issue unsecured bonds, called debentures. these bonds are backed only by the financial reputation of the issuing corporation.

underwrite

Financial institutions purchase the issue from the firm or government and then resell the issue to investors. This process is known as underwriting. Financial institutions underwrite shares and bond issues at a discount. that means they pay the issuing firm or government less than the price that financial institutions charge investors. this discount is compensation for the financial institution's services, including the risk financial institutions take on when they underwrite a new security issue. The discount is often negotiable, but usually averages around 5 percent for all types of securities. The size of the underwriting discount is generally higher for share issues than for bond issues.

insurance companies

Households and businesses buy insurance to transfer risk from themselves to the insurance company. The insurance company accepts the risk in return for a series of payments, called premiums. During a typical year, insurance companies collect more in premiums than they pay in claims. After they pay their operating expenses, they invest the difference. Insurance companies are a major source of short- and long-term financing for businesses. they invest their funds in everything from bonds and stocks to real estate.

reserve requirement

In History, the Bank also influenced the money supply by controlling the reserve requirement. The reserve requirement was the percentage of cash that banks were required to maintain for immediate withdrawal by customers.T he lower the reserve requirement, the more the money supply could increase. In 1992, the Bank of Canada removed the reserve requirement. Banks now decide themselves the proportion of deposits to keep on hand.

Preferred shares

In addition to common shares, a few companies also issue preferred shares. Holders of preferred shares receive preference in the payment of dividends. if a company is dissolved, holders of preferred shares have claims on the firm's assets that are ahead of the claims of holders of common shares. On the other hand, holders of preferred shares rarely have voting rights. Also, they are paid fixed dividends, regardless of how profitable the firm becomes. Preferred shares are legally classified as equity, but many investors consider preferred shares to be more like a bond than common shares.

2 most common ways that funds are transferred between borrowers and savers

In two ways: directly and indirectly. A direct transfer means that the user raises the needed funds directly from savers. Direct transfers do occur, but most funds low through either financial markets or financial institutions. indirectly transferred is through financial institutions.

What makes the London stock exchange unique?

It's the most international of the world's stock markets. A large percentage of the shares traded there are not from British firms.

2 common measures of the money supply: M1 and M2

M1 consists of currency in circulation and the balances in bank checking accounts. M2 equals M1 plus balances in some savings accounts and money market mutual funds.

secondary market

Media reports of share and bond trading are most likely to refer to trading in the secondary market, a collection of financial markets where previously issued securities are traded among investors. the corporations or governments that originally issued the securities being traded are not directly involved in the secondary market. the issuers do not make payments when securities are sold, and they do not receive any proceeds when securities are purchased. For example, the Toronto Stock Exchange (TSX) is a secondary market. the secondary market handles four to five times the dollar value of securities as are handled in the primary market.

deposit insurance

Most commercial bank deposits are insured by the Canada Deposit Insurance Corporation (CDIC), a federal agency.

callable bonds

Most corporate and municipal bonds are callable, as are some government bonds. A call provision allows the issuer to redeem, or cash, the bond before its maturity at a specified price. Not surprisingly, issuers tend to call bonds when market interest rates are declining. The savings in annual interest expense should be greater than the cost of retiring the old bonds and issuing new bonds.

investor participation in the stock markets

Most investors aren't members of the TSX or any other stock market; they need to use the services of a brokerage firm to buy or sell shares. i.e. Edward Jones and TD Waterhouse. Investors establish an account with the brokerage firm and then enter orders to trade shares. The brokerage firm handles the trade for the investor and charges the investor a fee for the service. The requirements for setting up an account vary from broker to broker. Selecting the right brokerage firm is one of the most important decisions investors make.

mutual funds

Mutual funds are financial intermediaries that raise money from investors by selling shares. they then use the money to invest in securities that meet the mutual fund's objectives. Mutual funds have become extremely popular over the last few decades. One reason for this growth is the increased popularity of registered retirement savings plans (RRSPs) and similar types of retirement plans. Mutual fund investors are indirect owners of a portfolio of securities. As the value of the securities owned by the mutual fund changes, the value of the mutual fund's shares will also change. Investment income, such as bond interest and stock dividends, is passed through to mutual fund shareholders. Money market mutual funds are also popular. These funds invest in money market instruments such as commercial paper.

The Nasdaq Stock Market

Nasdaq stands for National Association of Securities Dealers Automated Quotation System. is the world's second largest stock market. a computerized communications network that links member investment firms. It is the world's largest intranet. All trading on Nasdaq takes place through its intranet, not on a trading floor.

what are the 2 largest stock markets in the world?

New York Stock Exchange and the Nasdaq Stock Market

non-depository financial institutions

Non-depository financial institutions accept funds from businesses and households, and then invest most of these funds. Generally, these institutions do not offer checking accounts (demand deposits). Three examples of non-depository financial institutions are 1) insurance companies, 2)pension funds, 3)finance companies.

global financial system

Not surprisingly, the global financial system is becoming more and more integrated each year. As we've noted, financial markets exist throughout the world. Shares of Canadian firms trade in other countries, and shares of international companies trade in Canada. Financial institutions have also become a global industry. Major Canadian banks—such as CIBC, RBC and Scotiabank—have extensive international operations. They have offices, lend money, and accept deposits from customers throughout the world. Of the 50 largest banks in the world (measured by total assets), only three are Canadian—RBC, TD Bank, and the Bank of Nova Scotia. he largest of the three, RBC, ranks 34th. Besides the three Canadian banks on the list, the other 47 are based in Belgium, China, France, Germany, Italy, Japan, the Netherlands, Switzerland, the United Kingdom, and other parts of the world. he world's largest bank, BNP Paribas SA is based in Paris. It has almost $2.7 trillion in assets. hese international banks also operate worldwide, including in the United States.23 he efects of inancial globalization are evident in Canada. Canada's growing cultural diversity has led to an increase in other banking models. Many other inancial models exist around the world, including the interest- free Islamic system of banking. Special banks are needed to address the inancial needs of devout Muslims who cannot be involved in interest-based transactions, including home mortgages. Islamic inance companies such as Guidance Financial, Hakeem Wealth Management, and Ijara Canada provide inancial products to the previously underserved niche market of Islamic inance. Globally, inancial institutions, including HBSC, Citigroup, and Lloyds TSB, have seen their assets grow at an annual rate of more than 20 percent in this emerging market. Currently their assets total more than $1 trillion worldwide."

London Stock Exchange

One of the largest stock exchanges outside the United States is the London Stock Exchange. The London Stock Exchange is the most inter- national of all stock markets. It handles about two-thirds of all cross-border trading in the world. Institutional investors in Canada may trade TSX-listed shares or Nasdaq-listed shares in London.

use selective credit controls

The Bank has the authority to use selective credit controls when the economy is growing too rapidly or too slowly. These credit controls include the power to set margin requirements—the percentage of the purchase price of a security that an investor must pay in cash when making credit purchases of shares or bonds. The Bank can also inject capital into the financial system in response to a financial crisis.

what is the bank of canada

The Bank of Canada is Canada's central bank. It is responsible for regulating the financial system providing banking-related services for the federal government, acting as the banker's bank, designing and issuing bank notes, and setting monetary policy.

Monetary policy

The Bank's most important function is regulating monetary policy, which means controlling the supply of money and credit. The Bank's job is to make sure that the money supply grows at a suitable rate, allowing the economy to expand and inflation to remain in check. If the money supply grows too slowly, economic growth will slow, unemployment will increase, and the risk of a recession will increase. If the money supply grows too rapidly, inflationary pressures will build. The Bank uses its policy tools to push interest rates up or down. If the Bank pushes interest rates up, the growth rate in the money supply will slow, economic growth will slow, and inflationary pressures will ease. If the Bank pushes interest rates down, the growth rate in the money supply will increase, economic growth will pick up, and unemployment will fall.

function of CDIC

The CDIC was formed to build public confidence in the banking system. Before deposit insurance, banks often experienced so-called runs, where people rushed to withdraw their money, often because of a rumor about the bank's unstable financial condition. As banks experienced more and more withdrawals in a short period, they would reach a point where they were unable to meet all the demands for cash and closed their doors. The remaining depositors who could not get to the bank on time often lost most of their money. Deposit insurance shits the risk of bank failures from individual depositors to the CDIC. Banks can still fail today, but no insured depositor has ever lost any money within the insurable limit.

common shares

The basic form of corporate ownership is common shares. Purchasers of common shares are the true owners of a corporation. Holders of common shares vote on major company decisions, such as purchasing another company or electing a board of directors. holders of common shares expected i.e. cash dividend payments, expected increases in the value of the shares, or both. Dividends vary widely from firm to firm. As a general rule, faster-growing companies pay less in dividends because they need more funds to finance their growth. As a result, investors expect shares that pay little or no cash dividends to show a greater increase in value compared with shares paying larger cash dividends. The market value of a share is the price that shares are currently selling for. Many factors can cause share prices to move up or down. In the long run share prices tend to follow a company's profits.

market order

The most common type of order. This order instructs the broker to obtain the best possible price—the highest price when selling and the lowest price when buying. If the stock market is open, market orders are filled within seconds

bond interest rate--> bond price

The second factor affecting the price of a bond is its interest rate. All other things being equal, the higher the interest rate, the higher the price of a bond.

2.2 Financial institutions- mortgage-backed securities (MBSs).

These bonds are backed by a pool, or group, of mortgage loans purchased from lenders, such as chartered banks (i.e. RBC). As borrowers make their mortgage payments, these payments are "passed through" to the holders of the securities. MBSs are very safe because all mortgages in the pool, or group, are insured by CMHC.

foreign exchange --> interest rate

Transactions in the foreign exchange markets also affect the Canadian money supply and interest rates. The Bank can lower the exchange value of the dollar by selling dollars and buying foreign currencies. It can also raise the dollar's exchange value by doing the opposite—buying dollars and selling foreign currencies. When the Bank buys foreign currencies, the effect is the same as buying securities: the purchase of foreign currencies or securities increases the reserves in Canada's banking system. In contrast, selling foreign currencies is like selling securities: selling foreign currencies or securities reduces bank reserves.

quality ratings for bonds

Two factors affect the price of a bond: its risk and its interest rate. Bonds vary in terms of their risk. Bond investors use a tool called a bond rating to assess the risk of a bond. Several investment firms rate corporate and municipal bonds. i.e. Dominion Bond Rating Service (DBRS) , Standard & Poor's (S&P), Moody's, and Fitch.

IPO

When a company offers shares for sale to the general public for the first time, it is called an initial public offering (IPO).

certificate of deposit (CD)

a time deposit at a financial institution, such as a commercial bank, a savings bank, or a credit union. The sizes and maturity dates of CDs vary and can often be tailored to meet the needs of purchasers. CDs of $100,000 or less per depositor are insured by the Canada Deposit Insurance Corporation (CDIC). CDs in larger denominations are not federally insured but can be sold more easily before they mature.

who regulates banks

all banks are regulated by the federal government

financial institutions

are an intermediary between savers and borrowers. they collect funds from savers and then lend the funds to individuals, businesses, and governments. Financial institutions improve the transfer of funds from savers to users by increasing the efficiency and effectiveness of the process. Financial institutions make it easier for savers to earn more and for users of funds to pay less.

2.municipal bonds

are bonds issued by municipal governments. Two types of municipal bonds are available: corporate bonds and mortgage-backed corporate bonds.

1.government bonds

are bonds sold by the Canadian government. Government bonds are backed by the full faith and credit of the Canadian government, which means they are the least risky of all bonds. the Treasury sells bonds that mature in 2, 5, 10, and 30 years from the date of issue.

Treasury bills

are short-term securities issued by the Canadian Treasury and backed by the full faith and credit of the Canadian government. Treasury bills are sold with a maturity date of 30, 90, 180, or 360 days and must be a minimum of $1,000. They are virtually risk-free and are easy to resell.

where do Canadian bank rank compared with international banks?

banks in Asia and Europe are generally much larger than Canadian banks. only 3 of the world's 50 largest banks are based in Canada.

what areas of the government issue bonds?

bonds are issued by the federal, provincial, and local gonvernments

credit unions

credit unions offer many of the same services as commercial banks. Credit unions are co-operative financial institutions that are owned by their depositors, all of whom are members. Credit unions are designed to serve consumers, not businesses. Credit unions raise funds by offering members several different checking and saving accounts. Credit unions then lend these funds to members. Because credit unions are not-for-proit institutions, consumers often prefer them over commercial banks and other financial institution credit unions often pay higher rates of interest on deposit, charge lower rates of interest on loans, and charge fewer fees. Deposits at credit unions are insured at the provincial level. The Prince Edward Island Credit Union Deposit Insurance Corporation insures deposits at credit unions in the province of Prince Edward Island. It works essentially the same way that the CDIC does.

2 main types of financial institutions?

depository institution and non-depository institution

the role of financial institutions in the sale of securities

financial institutions purchase new securities issues from corporations or provincial and local governments and then resell the securities to investors. The institutions charge a fee for their service.

primary market

financial markets where firms and governments issue securities and sell them initially to the general public. firms and governments issue securities and sell them initially to the general public. A company may sell a bond or issue shares to the investing public when it needs capital to purchase inventory, expand a plant, make major investments, acquire another firm, or pursue other business goals.In a share offering, investors are offered the opportunity to purchase ownership shares in a firm and to participate in a firm's future growth, in exchange for providing the firm's current capital. Both for-profit corporations and government agencies also rely on primary markets to raise funds by issuing bonds.

ECNs= electronic communications networks

fourth market is the direct trading of exchange-listed stocks of the floor of the exchange. was limited to institutional investors who were buying or selling large blocks of shares. The fourth market has begun to open up to smaller, individual investors through markets called electronic communications networks (ECNs). In ECNs, buyers and sellers meet in a virtual stock market and trade directly with one another.

define inside trading

insider trading is defined as the use of material nonpublic information to make an investment profit

the Toronto stock exchange or TSX

is Canada's largest stock exchange. For a company's shares to be traded on the TSX, the firm must apply for a listing and meet certain listing requirements. The firm must continue to meet requirements each year to remain listed on the TSX. Corporate bonds are also traded on the TSX, but bond trading is less than 1 percent of the total value of securities traded on the TSX during a typical year.

process that insurance company used to determine their customers and how to charge

is called underwriting.

The New York Stock Exchange (NYSE)

is sometimes referred to as the "Big Board." is the most famous stock market and one of the oldest stock markets in the world. Shares traded on this exchange represent most of the largest, best-known companies in the United States. the NYSE is the world's largest stock market.

The role of the Bank of Canada (The Bank)

is the central bank of Canada and an important part of the nation's financial system. The Bank, has four basic responsibilities: 1. regulating monetary policy, 2. designing and issuing bank notes, 3. regulating the financial system, 4. managing funds for the federal government and other clients.

limit order

it sets a price ceiling when buying or a price floor when selling. If the order cannot be filled when it is placed, the order is let with the exchange's market maker, a firm who is always ready to buy or sell a specific share at a publicly quoted price. It may be filed later if the price limits are met.

financial market

markets where securities are issued and traded

what are the major types of securities?

money market instruments, bonds, and shares

electronic banking

more funds move through electronic funds transfer systems (EFTSs). EFTSs are computerized systems for conducting financial transactions over electronic links. i.e. pay employee directly into their bank accounts/ ATM/ debit card Consumers enjoy the convenience of this feature; at the same time, it eliminates the problem of bad cheques for retailers.

2 main tools the Bank uses to control the supply of money and credit

overnight interest rate and open market operations.

pension funds

provide retirement benefits to workers and their families. they are set up by employers and are funded by regular contributions from employers and employees. Because pension funds have predictable long-term cash inflows and very predictable cash outflows, they invest heavily in assets, such as common stocks and real estate.

Commercial paper

securities sold by corporations, such as Telus. These securities mature in 1 to 270 days from the date of issue. Although commercial paper is slightly riskier than Treasury bills, it is generally considered to be a very low-risk security.

net worth

the difference between what you own and what you owe

what is the financial system?

the mechanism by which funds are transferred between those who have excess funds and those who need additional funds

financial system

the mechanism by which money lows from savers to users. A well-functioning financial system is vital to a nation's economic health. Households, businesses, government, financial institutions, and financial markets together form what is known as the financial system.

industry self-regulation

the securities markets are also heavily self-regulated by professional associations and the major financial markets. he securities industry understands that rules and regulations are designed to ensure fair and orderly markets. he rules and regulations also promote investor conidence and beneit all participants. Two examples of self-regulation are the rules of conduct established by pro- fessional organizations and the market surveillance techniques used by the major securities markets." (Boone 464) Boone, Louis E. Contemporary Business, Canadian Edition. John Wiley & Sons (Canada). VitalBook file.

stock markets (exchanges)

where shares of stock are bought and sold by investors.

do other countries have organizations that play roles similar to those played by the Bank of Canada

yes. almost all nations have central banks that perform many of the same functions as the bank of canada