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Banking, credit, savings & interest Flashcards

(57 cards)

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1
Q

Canadian banking

A
  • sell services
  • profits earned from interest
  • 1867 unified banking system
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2
Q

What are bank acts

A

rules & regulations
charted banks license to operate=s charted
classes of bank

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3
Q

Canadian banking classes

A

Schedule Definition Example
1 Canadian BMO
2 foreign-owned ING Bank
3 foreign-bank branches Citibank

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4
Q

What is brank banking?

A

Head office & branches

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5
Q

What is bank of Canada (stable economy)

A
  • central bank
  • money supply
  • bank or prime lending rate
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6
Q

What does financial transactions mean

A

it is a company engaged in the business of dealing with financial and monetary transactions such as deposits, loans, investments, and currency exchange

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7
Q

What are 4 types of financial institutions

A
  1. banks (regular+virtual)
  2. Trust companies (investing)
  3. credit unions/caisee popularies
  4. insurance company
    - life & health + property & cars
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8
Q

What are some Accounts types

A
  • transaction (chequing)
  • combination (transaction- savings)
  • Current (business)
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9
Q

What are cheques

A

A written instruction to your bank (drawee) to take a specific amount of money out of your account (drawer) and pay it to a specified person (payee)

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10
Q

Cheques should be…

A
  • dated
  • signed
  • indicate the amount in words & numbers
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11
Q

What are some ways to bank?

A

1) Branch
2) ABMS (1970)
3) Debit cards (1993)
4) telephone
5) online banking

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12
Q

What are some financial services

A
  1. Loan- borrow money ex auto, education
  2. lines of credit -authorisation [ permission to withdraw more money from your banking account than you have]
  3. credit cards
    - using the banks money to make purchases, owe the bank not the business you by from
  4. direct deposits- using the banks money to make purchases, owe the bank not the business you buy
  5. money orders & drafts- like cheque with guarantee that payment will be made, fees are charges for each money order/draft.
  6. night depositories-businesses to deposit money after closing hours.
  7. overdraft protection- insurance where if anything happens, the line of credit is paid off
  8. pre-authorised bill payments- direct withdrawals, ex insurances, mortgage, auto loans
  9. Safety deposit boxes
  10. Combination service packages- combines bank accounts, ex checking & savings.
  11. online banking- convenient 24/7 access deposits, bill payments, direct transfers, e-transfers.
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13
Q

Shop around…

A
  • services offered
  • location- convenience & accessibility
  • fees- bank charges
  • reputation
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14
Q

What are 2 types of financial institutions

A

schedule 1: banks are domestic and are authorised under the bank act to accept deposits

Schedule 2: banks are forging banks subsidiaries authorized under the bank to keep deposits

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15
Q

How are banks worth determined

A

assets, deposits and capitalisation

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16
Q

Canadian banking

A

all deposit-taking institutions invest & lend their customers’ savings & charge fees for services

  • banks are business that sell financial services to earn profits
  • most bank revenue is from interest on loaned money & investments [by bank
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17
Q

The bank act

A

-Canadian constitution of 1867 created a common unified banking system controlled by the federal government
-outlines rules & regulations-all banks must follow
-banks are known as charter banks
the license to operates as a bak is called a charter

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18
Q

What is charter

A

the license to operate as a bank is called a charter

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19
Q

3 classes of bank

A

schedule 1
-owned by Canadian shareholders (domestiv)- BMO, CIBC, Scotiabank
schedule 2- foreign-owned & operate similar to schedule 1 banks- ING bank
Schedule 3
-foreign-owned & have restrictions set by the bank act- Citibank, capital one

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20
Q

Bankers bank

A
  • Stable economy by regulating the money supply

- controls bank rate-minimum interest banks can charge for loans

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21
Q

Other financial insitutions

A
  • trust companies-started as investors, now similar to banks
  • caisses poularies & credit unions- co-operative ownership, members have something in common & pool resources
  • insurance companies- insure rise (life, health, property, etc), works by sharing risk, everyone pays in, only few are paid out
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22
Q

Opening and accessing and account

A

Documents:
2 pieces of ID required
ex birth certificate or citizenship, driver’s licence, passport.
Fill put a signature card banks keep this record of your signature
will receive a debit card

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23
Q

Deposit or withdrawal

Study These Flashcards
A

can be made at…

  • financial institution [bank] automated banking machine [ATM/ABM]
  • mobile cheques deposit using bank app on your phone
  • cash back at stores [withdrawal]
  • need personal identification (pin)
24
Q

Types of accounts

Study These Flashcards
A 
Transaction accounts  (chequing account) used for everyday needs 
transaction register-own record of all transactions.
Saving account - collect some interests
combination- transactions+ savings  depending on plan may have service fee [per month]
25
reconciliation
transaction register (your record ) &the monthly bank statment (statment provided by bank) are compared to ensure they agree - reconcile each month so you know current balance is correct i.e always check the deposits and withdrawals from your bank account o make sure thy are legitimate.
26
cheques
- written instruction to your bank to withdraw money from your account and pay it to specific person/buisness - most written from a cheque book, but can be written on anything (special fee to process)
27
Cheque essentials
-date (indicates if cheque is stale or post-dated) -payee (receives the cheque as payment for g/s) -drawee (bank of person writing the cheque) -drawer ( account holder- the person who writes the cheque) amount [in number & words] MICR number [ indicates institution, branch number, &account]
28
If you deposit a check,
your bank or check-cashing service is the drawee
29
Witting cheques
``` security features -inks that change colour when rubbed -watermarks -special fibres Stop payment request can be made if -not to be cashed -lost/stolen Cheque clearing processing of cheques & the settling of account balances. Magnetic ink character recognition (MICR) coded characters across bottom that are read t electronic cheque sorting machines. ```
30
Holds on cheques
deposited cheques can have a hold [delay] to give institution time to clear the cheque (check that fund are available) -this means that you cannot withdraw the cheque amount until it has cleared i.e you don't have access to the money.
31
Why care about inflation
- inflation erodes the value of money - with 10% year inflation - 100 today will only be worth 62 in 5 years and $39 in 10 years - high inflation penalizes peopel who sae - when inflation is high, it also tends to vary a lot from year to year
32
How does BoC control inflation
we control the interest rates charges amongst banks on 'overnight' loans changes to this interest rate affects mortgage rates, car loan rates.
33
Saving
putting aside money to use in the future for example new computer, trip, car, education
34
Investing
using savings to earn extra income | for example interest, dividends [stock market]
35
Why save
1. emergencies - 3-5 months of gross income - layoff, medical, loss of property - cross income 2. goals (short vs long-term) 3. security & future- retirement ( 10% of annual salary) pay yourself 1st
36
selecting a savings plan -criteria
1.earnings & yield -rate of return (interest/principle *100) rule of 72 2. safety CDIC protects up to $100000 per a/c. 3. liquidity - ability to convert investment into $ & cash
37
What is the rate of return
Interest/ Principal x 100
38
Savings plans
saving accounts: safe earns interest- low Term deposits & GICS; fixed amount, fixed time RRSPs: retirement (not taxed) RESPs: education 20% of %2000-max 400
39
Investments
1) Canada savings bonds (Govt. of Canada) 2) corporate bonds (company) 3. Stocks (shareholders) 4. mutual funds (pools of money-investment company) 5. real estate (land+ anything attached) 6. collectibles (items of personal intrest)
40
Business investments?
1. Invest extra Cash 2. Generate income 3. strategy - business (growth) - suppliers (cut costs)
41
Where do i save/invest
3 criteria | probability of my investment- measure by return
42
what is credit
Buy now pay later! - using someone else's money - creditor (lends money) - debtor (borrows money)
43
Advantages of credit
- instant enjoyment - convenience - emergencies - saving money - credit rating - records
44
Disadvantages of credit
- costs (Interest) - overbuying - impulse buying - financial difficulties
45
Who borrows money
1. individuals 2. businesses 3. government
46
Types of credit
1. Credit cards 2. instalment sales credit 3. loans
47
Credit cards
Banks (ex: visa/Mastercard) retailers (ex: Canadian tire) travel & entertainment (ex: Diners club, amex)
48
Instalment sales credit
-down payment+fixed regular payments -finance charges+ purchase price -contract [financing company & debt] -buyer x own asset until fully paid off lien against asset asset serves as collateral
49
Loans
- terms (time) - demand (collateral) - student -education - mortgage (property)
50
Cost of credit=s (interest)
-principal (amount borrowed) -Term [time-ex year, months] -interest rates [%p.a] -interest cost P x R x term compounded
51
Cost of credit=s(interest)
``` Inflation & economic conditions determines interest rate, set by bank of Canada. -security or collateral asset-lien ex property, car, investments -Risk & credit rating based on 3Cs of credit history- credit bureaus ex eqifax, transunion ```
52
Credit worthiness
The 3 Cs of credit - character - capacity - capital
53
Character
Borrower's willingness: repay on time reliability trustworthiness
54
Capacity
Borrower's ability - make payments on time - pay when due
55
Capital
Value of borrower's assets
56
How to know if your credit worthy
1.Credit bureaus Gather credit info (7yrs) & sell it Ex: equifax, transunion
57
credit worthy?
-Credit rating level of risk: consumer, business, or government -credit history-build -credit file-check

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