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Part Four Money, Banking and Monetary Policy

Part Four Money, Banking and Monetary Policy. CHAPTER 10 MONEY AND BANKING. In this chapter you will learn. 10.1 The definition and functions of money 10.2 What constitutes the supply of money 10.3 What backs Canada’s money supply

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Part Four Money, Banking and Monetary Policy

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  1. Part FourMoney, Banking and Monetary Policy CHAPTER 10 MONEY AND BANKING Chapter 10

  2. In this chapter you will learn 10.1 The definition and functions of money 10.2 What constitutes the supply of money 10.3 What backs Canada’s money supply 10.4 About the structure of the Canadian financial system 10.5 About recent developments in money and banking Chapter 10

  3. The Definition and Functions of Money “Money is what money does” • Medium of exchange • Measure of value • Store of value Chapter 10

  4. The Components of the Money Supply Money DefinitionM1 • Currency: Coins + Paper Money • token money • Bank of Canada notes • Demand Deposits • about ⅔ of M1 • Institutions That Offer Demand Deposits • chartered banks are the primary depository institutions Chapter 10

  5. The Components of the Money Supply Money DefinitionM2 • M1 + near monies • Near monies are highly liquid financial assets that do not directly function as a medium of exchange but can be readily converted into currency Chapter 10

  6. The Components of the Money Supply Currency(coins & paper money) plusDemand deposits equalsM1 plus Personal savings deposits, plus Non-personal notice deposits equalsM2 M2 M1 185.9 667.7 Table 10-1 (billions of dollars) December, 2005 Chapter 10

  7. The Components of the Money Supply Money DefinitionM2+ • M2+ is M2 plus • deposits at trust & mortgage loan companies • deposits at caisses populaires & credit unions & other non-bank deposit-taking institutions • money market mutual funds Money DefinitionM2++ • M2++ is M2 plus Canadian saving bonds and non-money market mutual funds Chapter 10

  8. The Components of the Money Supply Currency(coins & paper money) plusDemand deposits equalsM1 plus Personal savings deposits, plus Nonpersonal notice deposits equals M2 plus Deposits: Other intermediaries equals M2+ plus Canadian saving bonds Plusnon-money market mutual funs M1 M2 M2+ M2++ 185.9 667.7 927.6 1366.8 Table 10-1 (billions of dollars) December, 2005 Chapter 10

  9. What “Backs” the Money Supply? • Money as Debt • Value of Money • Acceptability • Legal Tender • Relative Scarcity • Money and Prices • Purchasing Power of the Dollar • Inflation and Acceptability • Stabilizing the Purchasing power of money D=1/P Chapter 10

  10. The Canadian Financial System • The Evolution of the Canadian Banking System • 2005 • 20 domestically owned banks • 27 foreign bank subsidiaries • 22 foreign bank branches • big six banks have 90% of total banking assets & 75% of payments volume • mergers may lead to more concentration Chapter 10

  11. GLOBAL PERSPECTIVE 10.1 Chapter 10

  12. The Canadian Financial System • The Evolution of the Canadian Banking System • Canadian Chartered Banks • Making Loans • Other Financial Intermediaries • Cheque Clearing Chapter 10

  13. Recent Developments in Money & Banking • Expansion of Services • new products • minibanks • ABMs • debit cards, phone banking, Internet banking • Globalization of Financial Markets • Electronic Transactions Chapter 10

  14. Chapter Summary  10.1 The Definition and Function of Money 10.2 The Supply of Money 10.3 What “Backs” the Money Supply 10.4 The Canadian Financial System 10.5 Recent Developments in Money and Banking     Chapter 10

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