Money, Banking, and Financial Markets - Assignment Example

Lecturer: Question Money and Banking Article Analysis Bank of Canada initiatives have started to bear fruits, and this is evidenced by the fact that the stock market is experiencing growth. On November 21st2014, the composite index of the Toronto Stock Exchange S&P/TSX rose by 35.95 points representing a 0.24% increase to close at 15,111.13 (The Globe and Mail Par P1). The index has increased by 268 points since last year that is equivalent to 11% (The Globe and Mail Par 2). Figure 1. The chart shows the growth of the S&P/TSX Index There are signs of more growth with the Central bank stepping up its efforts to ensure the growth is sustained. The global financial outlook is also fuelling growth in Canada, with the stock market in America recording growth (The Globe and Mail Par. 3). Around the world key indexes are on the rise, fuelled by the reduction in the benchmark interest rates by the Central Bank of China (The Globe and Mail Par. 4). The Eurozone has also announced it is acquiring assets in a move to bolster the economy of that region (The Globe and Mail Par. 4). The Canadian dollar is growing against other currencies, and there is an expectation that there will be an increase in Interest Rates by the Bank of Canada to reflect on the new levels of inflation. Figure 2. The chart shows the appreciation of the Canadian dollar against the U.S. Dollar and the Euro Key Policies implemented by the Canadian Government and the Bank of Canada to promote growth Moves made by the Government have situated Canada as an inexorably appealing spot to open and develop a business. A solid and aggressive business environment, thusly, helps the economy develop (The Globe and Mail Par. 4), makes new occupations and raises our expectation for everyday life. The Government has conveyed duty decreases totaling more than $60 billion to occupation making organizations from 2008–09 through 2013–14 (Bankofcanada.ca Par. 23). To build business investment and enhance gainfulness, the government general corporate pay assessment rate was diminished to 15 for every penny in 2012 from 22.12 for every penny in 2007 (Bankofcanada.ca Par. 23), including the disposal of the corporate surtax in 2008 for all organizations. In recognition of the especially unsafe impact that capital expenses have on business investment, the government capital expense was killed in 2006. The Government likewise gave an interim money related motivating force to urge the provinces to dispose of their general capital expenses (Bankofcanada.ca Par. 24). The last commongeneral capital duty was dispensed with in 2012. To empower the development of little organizations by abandoning them with duty funds that can be held and reinvested in the business, the little business assessment rate was decreased to 11 for every penny in 2008, and the measure of wage qualified for this lower rate was expanded to $400,000 in 2007 and to $500,000 in 2009 (Statcan.gc.ca Par. 18). To expand the potential revenues of putting resources into little organizations, the Lifetime Capital Gains Exemption on qualified little business offers has been expanded to $800,000 (Statcan.gc.ca Par. 19), and this new breaking point is currently recorded to increase. To help the assembling and processing sector quicken and embrace extra investments and expand gainfulness, an impermanent quickened capital expense stipend for interest in assembling or processing machinery and equipment was presented in 2007 and afterward reached out through 2015 (Bankofcanada.ca Par. 30). Financial Action Plan 2013 declared a two-year augmentation of this measure to give anticipated backing of $140 million in 2014–15 and an aggregate of $1.4 billion over the 2014–15 to 2017–18 (Statcan.gc.ca Par. 19). Role of the Bank of Canada in Financial Markets Financial Markets play an important role in the country’seconomy; it helps in moving funds from those investors with more funds than they can use to those who need the funds. Through direct financing, those in need of funds sell securities in the financial markets to raise the required funds. Financial markets ensure that capital is allocated efficiently, promoting economic growth. Financial Markets comprise of business sectors for cash, securities, equities, and forex exchange, representing one of the three components of the Canadian financial system. It is essentially through the monetary markets that the Banks key policy rate impacts interest rates and the conversion scale (Yeh, 38). This, thusly, helps the Bank attain its financial arrangement goals. The Bank is additionally involved in monetary markets through trading of government securities. On uncommon events, the Bank gets involved in the forex exchange in the interest of the administration to ensure the market for the Canadian Dollar is stable. The Bank innovates and studies the market to create the right framework and to organize how the Bank can empower the advancement and strength of Canadian markets. Canadas budgetary framework comprises of money related organizations, for example, banks and credit unions; the monetary markets; and installments frameworks. It is the channel through which investment funds get to the investors, and through which cash and budgetary cases are exchanged and settled. A stable budgetary framework is subsequently fundamental to the strength of Canadas economy. The Bank of Canada works with different organizations and business sector members to advance the sheltered and productive operation of the frameworks key components (Bankofcanada.ca Par. 14). The Bank: gives liquidity to the framework, gives arrangement counsel to the central government on the configuration and improvement of the money related framework, regulates significant clearing and settlement frameworks, teams up with other household and global bodies included in fiscal power issues. Banking in Canada Banking regulations, corporate governance systems, lending structures and practices in Canada are fundamentally different from other countries in the world.The Office of the Superintendent of Financial Institutions (OSFI) does regulation of banks, investment traders, and insurance companies in Canada and there are regular meetings between the top management of financial companies, their boards of directors and OSFI to guarantee proper governance of the institutions. Regulation in Canada is on a consolidated foundation and the approach to regulation is both on prescription and principles basis. In addition to meeting the legislative requirements, institutions must additionally satisfy the prescribed requirements (Huang and Ratnovski, 130). Despite the existing regulation framework there still exists gaps, such as how the financial institutions disclose their trading results and there are more changes envisaged to make the system better and safe. To enforce complete and reliable reporting of financial market undertakings there is a proposal from the Federal Government for the establishment of a nationwide securities regulator. Borrowing Trends Reports from the Royal Bank of Canada indicate that there is less borrowing for buying real estate, which is good news as it reduces households’ vulnerability. The total household debt growth remains at 4.2% (Bankofcanada.ca), but there is an increase in non-mortgage borrowing. With more moderation in the housing sector expected, weakness of the economy is easing as home risk is the highest risk. Banks will give more incentives to business borrowers and invest in sovereign bonds and treasuries. There are certain situations under which people change the behavior and accept to bear more risks. Moral hazard occurs mostly when there is information asymmetry and when there is an agreement that touches on the behavior of two diverse agents. When there are two parties in the transaction and one party has more information than the other is Asymmetric information. Works Cited Bankofcanada.ca, “Monetary Policy”. N.p., 2014. Web. 23 Nov. 2014. http://www.bankofcanada.ca/markets/ Mishkin and F Serletis. The Economics of Money, Banking, and Financial Markets. Reading, Mass.: Addison-Wesley, 1998. Print. Statcan.gc.ca, “The Daily — National Balance Sheet and Financial Flow Accounts, Second Quarter 2014”.N.p., 2014. Web. 19 Nov. 2014. http://www.statcan.gc.ca/daily-quotidien/140912/dq140912a-eng.htm The Globe and Mail,. “The Close: Dow, S&P 500 Hit New Highs On Central Bank Action”.N.p., 2014. Web. 23 Nov. 2014.http://www.theglobeandmail.com/globe-investor/inside-the-market/market-updates/the-close-dow-sp-500-end-at-records-on-central-bank-action/article21706421/ The Globe and Mail,. The Globe And Mail - Markets.N.p., 2014. Web. 23 Nov. 2014. http://www.theglobeandmail.com/globe-investor/markets/indexes/ Yeh, Stuart S. “Financial Sector Incentives, Bailouts, Moral Hazard, Systemic Risk, and Reforms”. Risk, Hazards & Crisis in Public Policy 1.2 (2010): 97-130. Web. http://onlinelibrary.wiley.com/doi/10.2202/1944-4079.1050 Read More