Introduction to Canadian Financial System

This course will be organized into learning themes.  The major learning themes are as follows:

1.             Introduction to the Canadian financial system.

2.             Fundamentals of the financial system.

3.             Money, the Central Bank and the financial system.

4.             Applications to financial markets.

5.             Applications to financial intermediaries.

6.             Regulation and evolution of the financial system.

1.             Theme 1 - Introduction to the Canadian Financial System

                Theme Objective 1 - To describe the purposes and organization of the course.

                (i)            To identify the purposes of the course;

                (ii)           To present the organization of the course;

                (iii)          To explain the managerial approach used in the course.

2.             Theme 2 - Fundamentals of the Financial System

                Theme Objective 2 - To identify the basic concepts associated with the financial system.

                (i)            To describe the organization of a financial system.

                                . major functions of a financial system;

                                . components of a financial system;

                                . tracing the flow of funds in the financial system;

                                . surplus and deficit sectors.

                (ii)           To examine the organization of financial transactions.

                                . principal features of financial transactions.

                                . organization of a competitive financial market;

                                . submarkets and links between them;

                                . financial system fragmentation;

                                . efficiency of alternative transaction mechanisms;

                (iii)          To examine the role of financial intermediaries.

                                . diversification;

                                . reduction of information and transactions costs;

                                . risks transfer;

                                . monitoring and enforcement.

                (iv)          To examine the terms of financial transactions.

                                . concepts of risk and return;

                                . credit risks and market risks;

                                . dimensions of liquidity;

                                . elements of risk management.

3.             Theme 3 - Money, the Central Bank and Financial Markets

                Theme Objective 3 - To explain the role of money and of the Central Bank within the financial system.

                (i)            To develop an historical perspective about money.

                                . the importance and functions of money;

                                . the various forms of money;

                                . the Canadian payment system.

                (ii)           To acquire a contemporary view and future perspective of money.

                                .major developments in the Canadian financial system, 1935-1985;

                                . the role of money in the contemporary payment system;

                                . cash-based system;

                                . cheque-based system;

                                . electronic funds transfer system;

                                . recent financial products and innovations.

                (iii)          To understand how the Bank of Canada affects the money supply.

                                . the Bank of Canada:  mission and responsibilities:

                                . the Bank of Canada's organizational structure;

                                . the Bank of Canada's financial data;

                                . various definitions of money supply.

                 (iv)         To be exposed to the implementation of the monetary policy by the Central Bank.

                                . monetary targets and instruments;

                                . various tools of monetary policy;

                                . choice of intermediate targets:  base control versus interest rate control;

                                . interaction of money demand and supply;

                                . link between money supply and the exchange ratio;

                                . implementing monetary policy under different policy regimes:

                                  limitations and problems.

4.             Theme 4 - Applications to Financial Markets

                Theme Objective 4 - To show how earlier theoretical developments explain similarities and differences of several financial markets.

                  (i) To identify the characteristics of securities markets;

                                . economics of securities markets;

                                . money market;

                                . Canadian and US stock markets;

                                . bond markets.

                 (ii)          To identify the characteristics of other domestic markets.

                                . markets for trading risks;

                                . forward and futures markets;

                                . swaps and options markets.

                (iii)          To understand international intermediation and markets.

                                . international finance and the balance of payments;

                                . foreign exchange markets and determination of exchange rates;

                                . risk management in the international financial market.

                                . recent regulatory issues in international intermediation.

5.             Theme 5 - Applications to Financial Intermediaries

                Theme Objective 5 - To show how the economics of financial transactions and intermediation affect the form and functions of financial intermediaries.

                  (i)          To discover the management strategies of financial intermediaries.

                                . effectively organizing the intermediary;

                                . adapting to changes in technology and system structure;

                                . profitability of strategic choices;

                                . models for managing financial risks and intermediaries;

                                . liquid assets and liquidity management;

                                . asset and liability management;

                                . interest rate swaps;

                                . dynamic balance sheet management.

                 (ii)          To understand management strategies in banking.

                                . goals and strategic decisions;

                                . operating policies and decisions;

                                . international banking;

                                . banking supervision.

                (iii) To explain how to market funds to different client classes.

                                . large corporations;

                                . special classes of business;

                                . consumer finance;

                                . residential construction financing;

                                . government financing;

                                . elements of asset securitization.

5.             Theme 5 - Applications to Financial Intermediaries

                 (iv)         To raise management issues in near bank and non-bank intermediaries.

                                . mortgage and loan companies;

                                . credit unions;

                                . Canadian securities firms;

                                . insurance companies;

                                . trust companies.

6.             Regulation and Evolution of the Financial System

                Theme Objective 6 - To describe the goals and principles of regulation in relation to the evolution of the financial system.

                  (i) Breakdown of the Four Pillars and re-regulation.

                                . current issues in the deposit insurance system.

                 (ii)          To examine the system performance and policies that affect it.

                                . goals and principles of system supervision;

                                . supervision of operations;

                                . supervision of structural changes;

                                . government intermediaries and programs;

                                . legislative intervention.

                (iii)          To assess the financial system of the future.

                                . evolution due to new product development;

                                . the payments system of tomorrow;

                                . evolution in intermediation;

                                . evolution in financial markets;

                                . increasing internationalization of the system;

                                . importance of legislative change.