What Is The Difference Between Canada And Us Economy
Canada is not only one of the biggest economies in the world but also one of the richest nations. Like the other developed nations, the Canadian economy is dominated by the service industry, which employs about three fourth of the Canadian working population, but, unlike the other developed countries, Canada gives a lot of importance to its primary sector. Canada also has the eighth largest commercial fishing and seafood industry in the world. Though the Canadian economy is closely integrated with the American Economy, it has developed its own economic institutions. The economy of Canada combines elements of public and private enterprises. Canada closely resembles the U.S. in its market-oriented economic system and pattern of production.
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International trade, especially in natural resources, makes up a large part of the economy.
During the global economic crisis, the economy got into a recession in the final months of 2008, and Ottawa posted its first fiscal deficit in 2009 after 12 years of surplus. However, Canada’s major banks emerged from the financial crisis of 2008-09 among the strongest in the world, owing to the financial sector's tradition of conservative lending practices and strong capitalization. The financial market of Canada is the Toronto Stock Exchange. Some of securities traded in the financial market in Canada are given below. Here securities traded in both the money and the capital markets are discussed.
Money Market Instruments:
Most of the instruments traded in the money market have short term maturity and hence, involve less risk. Some of the money market instruments are listed below:
Government of Canada Treasury Bills: These are short term debt instruments issued by the Canadian Government with 1, 3, 6 or 12 months maturity period. These pay an amount at maturity and have no interest payments. Treasury bills are the most liquid of all the money market instruments, because they are the most actively traded financial instrument. These are the safest of all money market instruments, because there is almost no possibility of default i.e., the party issuing the debt instrument (which, in this case is the Canadian Government) is unable to pay off the set amount when the instrument matures. The federal government is always able to meet its debt obligations, because it can raise taxes to pay off its debts. Treasury bills are mainly held by banks, although households, corporations, and other financial intermediaries hold small amounts.
Certificates of Deposit: A certificate of deposit (CD) is a debt instrument sold by a bank to depositors that pays annual interest of a given amount and at maturity pays back the original purchase price. These are generally negotiable. These negotiable CDs are issued in multiples of $100 000 and with maturities of 30 to 365 days, and can be resold in a secondary market, thus offering the purchaser both yield and liquidity. Chartered banks also issue non-negotiable CDs. That is, they cannot be sold to someone else and cannot be redeemed from the bank before maturity without paying a substantial penalty. Non-negotiable CDs are issued in denominations ranging from $5000 to $100 000 and with maturities of 1 day to 5 years. They are also known as term deposit receipts or term notes.
Commercial Paper: Commercial paper is an unsecured short-term debt instrument issued in either Canadian dollars or other currencies by large banks and well known corporations, such as General Motors and DaimlerChrysler. Finance and commercial paper are issued in minimum denominations of $50 000 and in maturities of 30 to 365 days for finance paper and 1 to 365 days for commercial paper.
Bankers’ Acceptances: A banker’s acceptance is a bank issued by a firm, payable at some future date, and guaranteed for a fee by the bank that stamps it “accepted.” The firm issuing the instrument is required to deposit the required funds into its account to cover the draft. If the firm fails to do so, the bank’s guarantee means that it is obligated to make good on the draft.
Repurchase Agreements: Also known as repos, these are basically short term loans with a maturity period of less than two weeks. Here, treasury bills can be used as collateral. Repurchase agreements are recent innovation in financial markets, having been introduced in 1969. The biggest lenders in this market are generally the large corporations.
Overnight Funds: These are overnight loans by banks to other banks. When the interest in these funds is high, it indicates that, the banks are in short of funds, whereas, when it is low, it signifies that the banks’ credit needs are low.
Capital Market Instruments:
Capital market instruments are debt and equity instruments with maturities of greater than one year. They have wider price fluctuations than money market instruments and are considered to be risky investments.
Stocks: Stocks are equity claims on the assets and net income of a corporation. The value of new stocks issues every year is typically 1% of the value of outstanding stocks.
Mortgages: Mortgages are loans to household or firms purchasing hose, land or other structures which are real. In these types of loans, land or the structure is used as collateral. The mortgage market is the largest debt market in Canada, with the amount of residential mortgages outstanding more than nine fold the amount of commercial and farm mortgages. Banks and life insurance companies make the majority of commercial and farm mortgages. The Canadian government plays an active role in the mortgage market via the Canada Mortgage and Housing Corporation (CMHC).
Mortgage-backed Securities: These are the recent instruments introduced in the year 1986. These securities are not government securities but are guaranteed by the Canada Mortgage and Housing Corporation (CMHC) which is a government agency. It operates in the following way:
Private financial institutions such as chartered banks, trust and mortgage loan companies, and credit unions gather a group of residential first mortgages with similar interest rates and terms to maturity into a bundle.
These mortgages must be individually guaranteed under the National Housing Act. This is then sold to a third party. When individuals make their mortgage payments to the financial institution, the financial institution passes the payments through to the owner of the security by sending a cheque for the total of all payments.
Corporate Bonds: These are long-term bonds issued by corporations with very strong credit ratings. The typical corporate bond sends the holder an interest payment twice a year and pays off the face value when the bond matures. Some corporate bonds, called convertible bonds, have the additional feature of allowing the holder to convert them into a specified number of shares of stock at any time up to the maturity date.
Government of Canada Long and Medium Term Bonds: These bonds are issued by the government to finance its deficit. Medium term bonds have an initial maturity period of 3-10 years, whereas the long term bonds have a maturity of more than 10 years. These instruments are issued either in bearer or registered form in denominations of $1000, $5000, $10000, $25000 or $100000. In registered bonds, the name of the owner appears in the certificate and is registered at the Bank of
Canada.
Canada Savings Bonds: These are non-marketable bonds issued by the Canadian government for about two weeks ending on November 1. These are floating rate bonds in the denominations of $100 to $10000. These are offered exclusively to individuals, estates and a few specified trusts. These are issued as registered bonds and can bought from financial institutions or through payroll savings.
Provincial and Municipal Government Bonds: State and local governments also issue bonds to finance the expenditure of constructing schools, roads, public places etc. Also known as provincials and municipals, these are denominated in either domestic or foreign currencies
Government Agency Securities: These are long-term bonds issued by various government agencies like the Ontario Municipal Improvement Corporation and the Alberta Municipal Financing Corporation to assist municipalities to finance items such as mortgages, farm loans, or power-generating equipment. The provincial governments guarantee many of these securities. They function much like Canadas, provincials, and municipals and are held by similar parties.
Consumer and Bank Commercial Loans: These are loans to consumers and businesses made primarily by banks, but—in the case of consumer loans—also by finance companies. There are generally no secondary markets in these loans, which makes them the least liquid of the capital market instruments
International trade, especially in natural resources, makes up a large part of the economy.
During the global economic crisis, the economy got into a recession in the final months of 2008, and Ottawa posted its first fiscal deficit in 2009 after 12 years of surplus. However, Canada’s major banks emerged from the financial crisis of 2008-09 among the strongest in the world, owing to the financial sector's tradition of conservative lending practices and strong capitalization. The financial market of Canada is the Toronto Stock Exchange. Some of securities traded in the financial market in Canada are given below. Here securities traded in both the money and the capital markets are discussed.
Money Market Instruments:
Most of the instruments traded in the money market have short term maturity and hence, involve less risk. Some of the money market instruments are listed below:
Government of Canada Treasury Bills: These are short term debt instruments issued by the Canadian Government with 1, 3, 6 or 12 months maturity period. These pay an amount at maturity and have no interest payments. Treasury bills are the most liquid of all the money market instruments, because they are the most actively traded financial instrument. These are the safest of all money market instruments, because there is almost no possibility of default i.e., the party issuing the debt instrument (which, in this case is the Canadian Government) is unable to pay off the set amount when the instrument matures. The federal government is always able to meet its debt obligations, because it can raise taxes to pay off its debts. Treasury bills are mainly held by banks, although households, corporations, and other financial intermediaries hold small amounts.
Certificates of Deposit: A certificate of deposit (CD) is a debt instrument sold by a bank to depositors that pays annual interest of a given amount and at maturity pays back the original purchase price. These are generally negotiable. These negotiable CDs are issued in multiples of $100 000 and with maturities of 30 to 365 days, and can be resold in a secondary market, thus offering the purchaser both yield and liquidity. Chartered banks also issue non-negotiable CDs. That is, they cannot be sold to someone else and cannot be redeemed from the bank before maturity without paying a substantial penalty. Non-negotiable CDs are issued in denominations ranging from $5000 to $100 000 and with maturities of 1 day to 5 years. They are also known as term deposit receipts or term notes.
Commercial Paper: Commercial paper is an unsecured short-term debt instrument issued in either Canadian dollars or other currencies by large banks and well known corporations, such as General Motors and DaimlerChrysler. Finance and commercial paper are issued in minimum denominations of $50 000 and in maturities of 30 to 365 days for finance paper and 1 to 365 days for commercial paper.
Bankers’ Acceptances: A banker’s acceptance is a bank issued by a firm, payable at some future date, and guaranteed for a fee by the bank that stamps it “accepted.” The firm issuing the instrument is required to deposit the required funds into its account to cover the draft. If the firm fails to do so, the bank’s guarantee means that it is obligated to make good on the draft.
Repurchase Agreements: Also known as repos, these are basically short term loans with a maturity period of less than two weeks. Here, treasury bills can be used as collateral. Repurchase agreements are recent innovation in financial markets, having been introduced in 1969. The biggest lenders in this market are generally the large corporations.
Overnight Funds: These are overnight loans by banks to other banks. When the interest in these funds is high, it indicates that, the banks are in short of funds, whereas, when it is low, it signifies that the banks’ credit needs are low.
Capital Market Instruments:
Capital market instruments are debt and equity instruments with maturities of greater than one year. They have wider price fluctuations than money market instruments and are considered to be risky investments.
Stocks: Stocks are equity claims on the assets and net income of a corporation. The value of new stocks issues every year is typically 1% of the value of outstanding stocks.
Mortgages: Mortgages are loans to household or firms purchasing hose, land or other structures which are real. In these types of loans, land or the structure is used as collateral. The mortgage market is the largest debt market in Canada, with the amount of residential mortgages outstanding more than nine fold the amount of commercial and farm mortgages. Banks and life insurance companies make the majority of commercial and farm mortgages. The Canadian government plays an active role in the mortgage market via the Canada Mortgage and Housing Corporation (CMHC).
Mortgage-backed Securities: These are the recent instruments introduced in the year 1986. These securities are not government securities but are guaranteed by the Canada Mortgage and Housing Corporation (CMHC) which is a government agency. It operates in the following way:
Private financial institutions such as chartered banks, trust and mortgage loan companies, and credit unions gather a group of residential first mortgages with similar interest rates and terms to maturity into a bundle.
These mortgages must be individually guaranteed under the National Housing Act. This is then sold to a third party. When individuals make their mortgage payments to the financial institution, the financial institution passes the payments through to the owner of the security by sending a cheque for the total of all payments.
Corporate Bonds: These are long-term bonds issued by corporations with very strong credit ratings. The typical corporate bond sends the holder an interest payment twice a year and pays off the face value when the bond matures. Some corporate bonds, called convertible bonds, have the additional feature of allowing the holder to convert them into a specified number of shares of stock at any time up to the maturity date.
Government of Canada Long and Medium Term Bonds: These bonds are issued by the government to finance its deficit. Medium term bonds have an initial maturity period of 3-10 years, whereas the long term bonds have a maturity of more than 10 years. These instruments are issued either in bearer or registered form in denominations of $1000, $5000, $10000, $25000 or $100000. In registered bonds, the name of the owner appears in the certificate and is registered at the Bank of
Canada.
Canada Savings Bonds: These are non-marketable bonds issued by the Canadian government for about two weeks ending on November 1. These are floating rate bonds in the denominations of $100 to $10000. These are offered exclusively to individuals, estates and a few specified trusts. These are issued as registered bonds and can bought from financial institutions or through payroll savings.
Provincial and Municipal Government Bonds: State and local governments also issue bonds to finance the expenditure of constructing schools, roads, public places etc. Also known as provincials and municipals, these are denominated in either domestic or foreign currencies
Government Agency Securities: These are long-term bonds issued by various government agencies like the Ontario Municipal Improvement Corporation and the Alberta Municipal Financing Corporation to assist municipalities to finance items such as mortgages, farm loans, or power-generating equipment. The provincial governments guarantee many of these securities. They function much like Canadas, provincials, and municipals and are held by similar parties.
Consumer and Bank Commercial Loans: These are loans to consumers and businesses made primarily by banks, but—in the case of consumer loans—also by finance companies. There are generally no secondary markets in these loans, which makes them the least liquid of the capital market instruments