Flow of Money vs' Stock of Money

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CHAPTER 10Money andBanking
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Topics

• 10.1 What Is Money
• 10.2 The Money Supply
• 10.3 Characteristics of Money
• 10.4 Canadian Financial System
• 10.5 Recent Developments

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• MONEY
• Any item that is generally
• accepted in exchange for
• goods and services

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Role of Money

• Means of exchange.
• Measure of value.
• Store of value.

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Role of Money

• A means of exchange
• Alternative to barter
• Does not require double coincidence of wants
• Reduces transaction costs

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Role of Money

• A measure of value
• Measure value in terms of one standard unit of
  account
• Easily compare value of goods

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Role of Money

• A store of value
• Held and exchanged later for goods and services
• Makes saving possible

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Characteristics of Money

• MONEY MUST BE
• Widely accepted
• Relatively scarce
• Portable
• Divisible
• Durable

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What Counts as Money?

• LEGAL TENDER
• Fiat Money
• Anything the government says must be accepted to
  pay a debt

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The Value of Money

• Based on purchasing power
• If prices ?, value of ?
• D value of P price index

D 1 / P
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Flow of Money v. Supply of Money

• SALES
• Jeans 20
• Book 20
• Pizza 20
• TOTAL SALES 60

SUPPLY OF MONEY 20
Book
20
Pizza
Jeans
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Flow of Money v. Supply of Money

• Canada 2006

FLOW OF MONEY GDP 1,099 billion
SUPPLY OF MONEY Dec. M1 209 billion
Sources Bank of Canada Weekly Financial
Statistics, Feb 2007Stats Canada,
http//www40.statcan.ca/l01/cst01/econ70a.htm
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MONEY SUPPLY The total volume of money in
circulation
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Measuring Money Supply

• M1
• Dec 2007
• Currency outside banks 49 billion
• Demand (chequing) accts 331 billion
• M1 380 billion

Source Bank of Canada Weekly Financial
Statistics, Feb.2008
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Measuring Money Supply

• M2
• Dec 2007
• M1 380 billion
• Nonpersonal notice deposits 11 billion
• Personal savings 387 billion
  M2 778 billion

Source Bank of Canada Weekly Financial
Statistics, Feb 2008
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Measuring Money Supply

• M2
• Dec 2007
• M2 778 billion
• Near-bank deposits 236 billion
• Money market mutual funds 57 billion
• M2 1,071 billion
• Credit unions, life insurance annuities,
  government owned institutions

Source Bank of Canada Weekly Financial
Statistics, Feb 2008
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Money Supply(Dec 2006, billions, seasonally
adjusted)

• M2
• - M2 near-bank deposits, money market
  mutual funds
• M2
• - M1 notice deposits, personal savings
• M1- currency, current accounts

- M2 1071b
- M2 778b
- M1 380b
Source Bank of Canada Weekly Financial
Statistics, January 2007
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Source Bank of Canada Weekly Financial
Statistics, January 2007
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The Canadian Financial System
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Financial Institutions

• TYPES
• 1. CHARTERED BANKS
• Bank Act (revised 1992)
• Each bank incorporated under separate Act of
  Parliament
• Receive deposits, make loans

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Financial Institutions

• 1. CHARTERED BANKS
• 21 Schedule 1 (domestic)
• 23 Schedule 2 (foreign subsidiaries)
• 22 Schedule 3 (foreign branches)

Source Canadian Bankers Associationwww.cba.ca
Retrieved March 2, 2007
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Financial Institutions

• 1. CHARTERED BANKS
• Royal Bank
• Bank of Montreal
• CIBC
• ScotiaBank
• TD Canada Trust
• National Bank of Canada

BIG SIX 90 of totalbanking assets
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Financial Institutions

• 2. NEAR BANKS
• Credit Union / Caisse Populaire
• Cooperative organization
• Take deposits, make loans to members
• Trust Companies
• Privately owned institution
• Trustee for pension funds, estates
• Take deposits, make loans
• Other Loan, Insurance

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Recent Developments
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Recent Developments

• Expansion of Services
• Deregulation
• Globalization of Financial Markets
• Increased opportunity, competition
• Electronic Transactions
• Payments, fund transfers
• eCommerce