Money, Banking, and Financial System: A Canadian Perspective

This assignment delves into the study of money and banking within the Canadian financial system. It emphasizes the significance of understanding money's role as a medium of exchange, the dynamics of financial markets (including foreign exchange, stock, and bond markets), and the interconnectedness of financial institutions, government regulations, and the behavior of various economic participants such as households and businesses. The assignment explores the relationship between monetary policy and economic activity, highlighting the transmission mechanism through which monetary policies influence inflation, interest rates, and ultimately, economic activities like investment. Furthermore, it discusses recent developments in the Canadian financial system, including deregulation, financial innovations, and the entry of non-traditional financial institutions, and how these changes have impacted the system's competitiveness and regulatory landscape. The document is available on Desklib, a platform offering study tools for students.

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Student’s Name:
Professor’s Name:
Course:
Date:
Money and Banking
Multiple Choice Questions
1 c
2 c
3 c
4 c
5 a
6 c
7 c
8 c
9 a
10 b
Problems
1 The study of money and banking is significant. To start with, it gives insight into the
functions of money in the economy. Money is a medium of exchange that the market participants
use in the marketplace (O'Connor and Christopher 105). It allows the exchange of goods and
transfer of assets like the immovable objects.
Additionally, it explores the financial markets. The components that make up the
financial markets include foreign exchange, stock, and bonds. It means that the market for the

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financial assets is known as financial markets (Madura 3). It goes further to explain the link that
exists between them. The various financial assets lead to different interest rates. Consequently, it
gives an understanding of the future direction of inflation. Furthermore, financial institutions are
studied in money and banking as essential functionalities in the financial system.
Moreover, financial system participants are studied. The participants are government,
households, and business. All the participants cannot operate in isolation. Hence, the process in
which they interlink is deeply explained. For example, the government sets rules and regulations
to monitor the financial system. It carries out its regulatory function through the central bank.
2 There is a link that exists between the monetary policy and economic activity. The two
are connected through the transmission mechanism. In this mechanism, the means through which
the aspects of the economy affects monetary policies or through which the monetary policies
affects the economy is explained. Monetary policies indirectly affect the economic activities. The
relationship is in such a way that the monetary policy directly affects actual inflation and
expected inflation which in turn affects interest rates (Mahadeva and Sinclair 1). Again, interest
rates influence economic activity. Intern, economic activity may affect monetary policy and
money supply. For example, in case the expansionary monetary policy is pursued, inflation rises
which lower the interest rates. With lower interest rates, the borrowing cost is reduced which
spurs economic activities like an investment.
3 In the recent past, the financial system in Canada has experienced significant
developments. One of the critical developments is deregulation. As a result, it has seen a
reduction in the extent to which the government is involved in the financial system. Furthermore,
there has been financial innovations, computer technology, and increased volatility (Niosi, Godin
and Manseau 10). Consequently, the level of competition in the market has intensified leading to

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crumbling divisions in the financial institutions. Another crucial development is the introduction
of AT &T and Canadian Tire. The two are distinctive from the traditional financial institutions.
The difference lies in their ability to increase competition in the financial system and reduction
in government regulation. Hence, they have reduced the complexity of government regulations.
Therefore, the changes have positively impacted the Canadian financial system

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Works Cited
Madura, Jeff. Financial Markets and Institutions. S. l.: Cengage Learning, 2018.
Mahadeva, Lavan, and Peter Sinclair, eds. Monetary transmission in diverse economies.
Cambridge University Press, 2002.
Niosi, Jorge, Benoît Godin, and André Manseau. Canada's National System of Innovation.
Montreal [Que.: McGill-Queen's University Press, 2000. Internet resource.
O'Connor, David E, and Christopher C. Faille. Basic Economic Principles: A Guide for Students.
Westport, Conn. [u.a.: Greenwood Press, 2000.