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COPYRIGHT © 2008 by Nelson, a division of Thomson Canada Ltd
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Chapter 4 – Managing Your Cash and Savings
Chapter 4 – Managing Your Cash and Savings
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Chapter 4 - Learning Goals
1. Understand the role of cash management in the personal financial planning process.
2. Describe today’s financial services marketplace, both traditional and non-depository financial institutions.
3. Select the chequing, savings, electronic banking, and other bank services that meet your needs.
4. Calculate the interest earned on your money using compound interest.
5. Develop a savings strategy that incorporates a variety of savings plans.
6. Open and use a chequing account.
Learning Goals
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Internet Links and On Line Resources
• Credit Union Central of Canada• ING Bank (internet bank)• PC Financial (internet bank owned by CIBC)• ICICI Bank (internet bank)• Canada Deposit Insurance Corporation (CDIC)• Order cheques online or for a list of websites providing this
service.• Financial Consumer Agency of Canada• A Working Women’s Guide to Financial Security, “Planning for
Independence” • Current rates found at Canoe Money• Government of Canada on T-bills and other government
financial securities• Canada Savings Bonds• Banking Basics: Chequing Account Checklist• How to Read a bank statement
Web Links
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Key Chapter Terms and Definitions Cash management Chartered bank Credit union Trust companies Securities dealers Demand deposit Time deposit Money market mutual fun
d Asset management accou
nt Electronic Funds Transfer
System Debit cards Automated banking machi
ne (ABM) Compound interest Simple interest
Nominal (stated) rate of interest
Effective rate of interest Guaranteed investment ce
rtificate (GIC) Canada treasury bill Canada Savings Bonds
(CSB) Chequebook ledger Overdraft Overdraft protection Stop payment Account reconciliation Bank draft Traveller’s cheque Certified cheque
Terms
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DefinitionsCash Management
The routine, day-to-day administration of cash and near cash resources, also known as liquid assets, by an individual or family.
Terms
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DefinitionsChartered Bank
A financial institution in Canada that is chartered by the federal government under the Bank Act to provide banking services including deposit-taking in the form of chequing and savings accounts as well as lending services in the form of personal and corporate loans and mortgages.
Terms
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DefinitionsCredit Union and Caisses Populaire
A member-owned financial cooperative that offers different types of chequing accounts, savings accounts, and loans to its members (depositors.)
Caisses Populaire is the french term for credit union used in the province of Quebec, Ontario and Manitoba.
Terms
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DefinitionsTrust Company
A deposit-taking financial institution registered under either federal or provincial law.• Most are subsidiaries of major Canadian banks.• Like banks they accept deposits and provide lending
services.• In addition, they are able to act as trustees
(administer an estate) – hence their name!• Trust companies have developed a number of other
lines of business in service of the corporate community including maintaining shareholder’s registers, etc.
Terms
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DefinitionsDeposit Insurance
A type of insurance that protects funds on deposit against the failure of the institution; insuring agencies include the Canada Deposit Insurance Corporation (CDIC) for banks and various provincial stabilization funds for credit unions.
Terms
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DefinitionsSecurities Dealers
Securities Dealers (Investment Dealers) act as brokers for individual and corporate investors. In addition, they provide a wide range of services:• Sell money market mutual funds• Special ‘wrap’ accounts• Credit cards
Securities dealers also provide underwriting services (supports corporations and advises them and implements the design and sale of new securities) Terms
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DefinitionsCanada Deposit Insurance Corporation
A federal crown corporation with access to the consolidated revenue accounts of the Government of Canada – provides deposit insurance to customers of federally-regulated financial institutions (banks and most trust companies)
Terms
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DefinitionsDemand Deposit
An account held at a financial institution from which funds can be withdrawn (by cheque or in cash) on demand by the account holder; same as a chequing account.
Terms
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DefinitionsTime Deposit
A savings deposit at a financial institution; so-called because it is expected to remain on deposit for a longer period of time than a demand deposit.
Examples:• Term deposits• Guaranteed Investment Certificates
Terms
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DefinitionsMoney Market Mutual Fund
A mutual fund that pools the funds of many small investors and purchases high-return, short-term marketable securities offered by the Canadian government, major corporations, chartered banks and various government organizations.
A mutual fund invested in money market securities such as:
• Government of Canada Treasury Bills• Commercial Paper• Bankers’ Acceptances• Finance Company Paper
Terms
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DefinitionsAsset Management Account
• A comprehensive deposit account; combines chequing, investing and borrowing activities and automatically “sweeps” excess balances into a money market mutual fund and automatically provides loans when shortages exist.
Terms
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DefinitionsElectronic funds transfer systems (EFTS)
• Systems that use the latest telecommunications and computer technology to electronically transfer funds into and out of customers’ accounts.
Terms
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DefinitionsDebit cards
• Specially coded plastic cards used to transfer funds from a customer’s bank account to the recipient’s account to pay for goods or services.
• An ABM card is a debit card that also provides access to a variety of banking transactions through an ABM.
Terms
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DefinitionsAutomated banking machine (ABM)
• A type of remote computer terminal at which customers of a bank or other depository institution can make basic transactions 24 hours a day, 7 days a week.
Terms
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DefinitionsCompound interest
• Interest earned by applying the nominal (stated) rate of interest to the sum of the initial deposit and the combined interest already earned.
Terms
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DefinitionsSimple interest
• Interest that is paid only on the initial amount of the deposit.
Terms
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DefinitionsNominal (stated) rate of interest
• The promised rate of interest paid on a savings deposit or charged on a loan.
Terms
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DefinitionsEffective rate of interest
• The annual rate of return that is actually earned (or charged) during the period the funds are held (or borrowed).
Terms
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DefinitionsGuaranteed investment certificate (GIC)
• A type of savings instrument issued by certain financial institutions in exchange for a deposit; typically requires a minimum deposit and has a maturity ranging from 30 days to as long as five or more years.
Terms
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DefinitionsCanada Treasury bill (T-bill)
• A short-term (3-month, 6-month or 12-month maturity) debt instrument issued by the Canadian government in the ongoing process of funding the national debt.
Terms
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DefinitionsCanada savings bond (CSB)
• A savings bond issued in various denominations by the Canadian government.
Terms
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DefinitionsChequebook ledger
• A ledgeer, provided with a supply of cheques, used to maintain accurate records of all chequing account transactions.
Terms
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DefinitionsOverdraft
• The result of writing a cheque for an amount greater than the current account balance.
Terms
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DefinitionsOverdraft protection
• An arrangement between the account holder and the depository institution wherein the institution automatically pays a cheque that overdraws the account.
Terms
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DefinitionsStop payment
• An order made by an account holder instructing the depository institution to refuse payment on an already issued cheque.
Terms
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DefinitionsAccount reconciliation
• The process of verifying the accuracy of one’s chequing account records in light of the bank’s records as reflected in the bank statement, which contains an itemized listing of all transactions within the chequing account.
Terms
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DefinitionsBank draft
• A cheque payable to a third party that is drawn on a bank on itself in exchange for the amount specified plus, in most cases, a service fee (of $5 or $10).
Terms
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DefinitionsTraveller’s cheque
• A cheque sold (for a fee of about 1.5 percent) by many large financial institutions, in denominations ranging from $20 to $100, that can be used for making purchases and exchanged for local currencies in most parts of the world.
Terms
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DefinitionsCertified cheque
• A personal cheque that is guaranteed (for a fee of $10 to $15 or more) by the bank on which it is drawn.
Terms
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THE END!