BBI2O Grade 10 Business – Final Exam

Business Exam Notes

  1. Economics

Need vs. Wants

  • Needs = necessary for survival , wants are not
  • One set of wants can lead to the other
    • E.g. want to win the lottery, which makes it easier to satisfy other wants

Goods vs. Services

  • Goods (e.g. Staples sells electronic goods)
  • Services (e.g. food bank provides service to community)

Producer vs. Consumer

  • Producers are the business that make goods or provide services
  • Consumers are the people who buy the things/services that producers supply
    • E.g. buying a computer, servicing at computer-repairing shops
  • Producers and consumers operate together to create a marketplace, which is any place where they engage in the buying and selling of goods/services

Demand and Supply

  • Demand –  the quantity of good/service that consumers are willing and able to buy at a particular price
    • Law of Demand
      • As price goes up, demand goes down. Vice versa.
    • Influences on demand
      • Expectations
      • Competition’s price
      • Change in income
    • If demand is low, supply is high, prices go down
    • If demand is high, supply is low, prices go up
  • Supply – the quantity of good/service that businesses are willing/able to provide within a range of prices that people would be willing to pay
    • Law of Supply
      • As price goes up, supply goes up. Vice versa.
    • Influences on supply
      • Change in number of producers
        • If more competitors enter into the market because it seems good, then there will be more supply but the same demand so prices will have to go down to stay competitive, so then some companies won’t be able to keep up and they opt out of the market and the cycle starts again.
      • Changes in price
        • If the price decreases, some people may stop producing it because it’s not making enough of a profit.
        • E.g. if the price of wheat goes down, some wheat farmers may switch to farming corn
      • Changes in technology
        • Better technology makes it easier to manufacture things for a cheaper price and therefore you can make more of it
      • Changing expectations for the future
      • Changing production costs

Stages of the Business Cycle

  • Trough
    • Low point, slowdown
  • Recovery
    • Demand for g/s increase
  • Peak
    • Highest level
  • Recession
    • Decrease in demand
  • Depression
    • Slowdown leading to a hald

Types of Economic Resources and Economic Systems

Economic Resources

  • Also known as factors of production
  • 3 kinds of economic resources:
    • Natural Resources
      • Resources that come from the earth
      • Most are non-renewable
    • Human Resources
      • AKA Labour resources
      • People who work to create the goods and services
    • Capital Resources 
      • Include buildings, equipment, tools etc.
      • Usually last a long time and often require a substantial investment
      • Money is a capital resource

Economic Systems

  • A way of dealing with the selection, production, distribution and consumption of goods and services in society
  • Answer three major economic questions
    • What goods and services should be produced within the system?
    • For whom should these goods and services be produced?
    • How should these goods and services be produced?


  1. Types of Businesses

Forms of Business Ownership


  Features Advantages Disadvantages
Sole Proprietorship One owner Be your own boss

Easy to start up

Profits to the owner

Unlimited liability

Financing may be difficult

Owner may not be familiar with all aspects of the business

Partnership Two or more owners

Written partnership agreement


More capital financing

Shared responsibilities

Unlimited liability in general partnerships

Partner disagreements

Corporations Many shareholders

One vote per share

Board of directors to make desicions

Limited liability

Transfer of ownership is simple

Timely and costly start up

People who only own a few shares don’t have much influence on how company is run

Co-operatives Owned by members

Each member has one vote regardless of number of shares

Board of directors

Less expensive goods/services

Easily set up

Decision making process could be difficult
Franchises Licensing rights to name, operation, designs and expertise to other businesses Brand recognition

Shared marketing

Corporate training and support

Fees are $$

Follow strict rules and regulations



Types of Businesses

  • Service
    • Doing something for customer
    • E.g. carpet cleaner
  • Not-for-profit
    • Does not generate a profit
    • Purpose is to meet specific needs in the community
    • E.g. charities
  • Retail business
    • Selling things
    • Usually buys items from a producer and sells them to a consumer
    • Sometimes referred to as distributers
    • E.g. Wal-Mart, American Eagle
  • Manufacturing Business
    • Producing products from raw materials or component parts and then selling them to distributors or consumers
    • E.g. car and appliance manufacturers

Factors to Consider when Establishing a Business

  • Whether to be a SOHO
    • Small office home office
  • Start-up costs
    • Debt-financing
      • Borrowing money from a bank
        • E.g. a loan
    • Equity-financing
      • Using your savings or asking investors
  • Where can you find info about a business?
    • Statistics Canada
    • Companies that track consumer information
  • Level of risk
  • Resources you will need
    • Forecasting
      • Determining what resources you require and how much financing you will need to acquire them
  1. Ethics and CSR

Ethics, Morals, Values


  • Ethics – the principles of morality and proper conduct that people are businesses use to guide their behaviour
  • Morals – a rule used to decide what is good or bad
  • Values – a personal or corporate belief about what is important

Code of Ethics

  • A document that explains specifically how employees should respond in different situations
  • Helps different people approach problems in the same way
  • Some say people should rely on their own judgement first

Ethical Dilemmas

  • Dilemma: A difficult choice between two or more options
  • Ethical dilemma: Having to weigh values and morals against profitability and competitiveness
  • Questions to ask:
    • Who will be helped by what you do?
    • Who will be hurt?
    • What are the benefits and problems of this decision?
    • Will the decision survive the test of time?

Types of Unethical Behaviour

  • Fraud –  crime of lying or pretending
    • Bank fraud
      • Fraudulent loans to a non-existent business then pockets the money
    • Consumer fraud
      • Business tricks a customer into buying goods/services they don’t need through unethical advertising or false claims
    • Contract fraud
      • Business or individual uses temptations (e.g. bribes) to create a contract
    • Insurance fraud
      • Business or individual falsely claims lost, damaged or stolen property in order to receive insurance claims
    • Mail fraud
      • Individual uses  postal services for fraudulent reasons e.g .chain letters
    • Pyramid scheme fraud
      • A person recruits another person in order to receive more money than they invested in the scheme
    • Stock market fraud
      • Insider trading
    • Telemarketing fraud
      • High-pressure phone calls to get customers to buy now or donate to fake charity
    • Welfare fraud
      • Receives benefits without being eligible
  • False or misleading advertising
  • Advertising a bargain price for merchandise that is unavailable for sale in a reasonable quantity
    • Bait and switch
  • Placing two different prices on a product and selling it to the consumer at the higher price
    • Double ticketing
  • Forgery
    • Involve passing bad cheques by forging someone else’s name
  • Theft
    • Stealing someone else’s property
  • Embezzlement
    • Form of fraud where someone violates a trust by moving funds into their account instead of the correct account
  • Misuse of funds
    • Moving money from one account into another without permission
  • Discrimination
    • Not hiring a person because of an issue not related to the person’s ability to do the job (e.g. race, religion, gender etc.)
  • Concealing information
    • Not disclosing data that should be shared e.g. about defective products
  • Tampering with records
    • A form of fraud where records are altered to deceive someone

CSR and Principles

  • How business will protect community and consumers
  • Whistleblowing – the decision of an employee to inform officials or the public about a legal or ethical violation
  • CSR Principles
  1. Provide a safe and healthy work environment
    1. E.g. fitness facilities onsite at a workplace
  2. Adopting fair labour practices
    1. Pay more than minimum wage
  3. Protecting the environment
    1. Environmental programs
  4. Being truthful in advertising
    1. Ensure that ads do not claim inaccurate or deceptive things
  5. Avoiding price discrimination
    1. Bases pricing structure on one price such as manufacturer’s suggested list price
  6. Donating to charity
    1. Payroll plans
    2. Host events
    3. Make it easier for workers to donate

Duty to Report + Accommodate

  • Duty to Report – they must disclose all important information to shareholders, investors, partners etc.
  • Duty to Accommodate – refers to an employer’s obligation to take appropriate steps to eliminate discrimination against employees
    • Written into Canadian Human Rights Act
  • CEPA (Canadian Environmental Protection Act)
    • Provide expanded whistle-blower protection
    • Contribute to sustainable development through pollution prevention
    • Protect the environment and human life/health from risks associated with toxic substances
    • Establish a public registry that improves the public’s access to environmental information
    • Give citizens the right to sue where CEPA violation results in significant harm to the environment
  • Kyoto Protocol/Accord
    • 1998
    • Required countries to reduce CO2 emissions by 5%
  • Employment Standards Act (ESA)
    • Dictates minimum pay, maximum hours etc.

Glass Ceiling, Harassment, Discrimination

  • Glass ceiling – invisible barriers to senior leadership positions
  • Harassment – refers to those behaviours that are found to be threatening or disturbing and these behaviours are not acceptable in society


  1. International Trade

Benefits of IB

  • Access to markets
    • Much bigger than domestic market
  • Access to resources
    • More resources in other countries
  • Cheaper Labour
    • Reduces cost of production and maximizes profit
  • Increased quality of goods
    • Can take advantage of what countries have to offer
  • Increased quantity
    • Increase sales and increase production to meet demand

5Ps of IB

  • Promotion
    • Ease of promotion
    • E.g. internet
  • Product
    • E.g. Canada cannot produce many citrus fruits so we  buy them from warmer places such as US and Mexico, however we have lots of lumber so we sell that to Japan and England
  • Preference
    • Some countries specialize in certain products
  • Price
    • Cost of wages, taxes and raw materials may be lower in other countries
  • Proximity
    • E.g. Windsor is near Detroit so Detroit influences what gets sold in Windsor

Social Costs, Offshore Outsourcing, Sustainable Development

  • Offshore outsourcing – practice of hiring service providers from countries where labour costs are lower to complete some or all of the steps in the production process
  • Sustainable development – process of developing that meets the needs of the present without compromising the ability of future generations to meet their own needs
  • Environmental degradation – occurs when nature’s resources are being used up faster than nature can replenish them

Tariffs, Non-Tariffs, Landed Cost, Excise Tax

  • Tariffs (customs duties) – form of tax on certain types of imports
    • Gives price advantage to Canadian producers
  • Non-tariff barriers – standards of the quality of imported goods that are set so high that foreign competitors cannot enter the market
    • E.g. European ban on hormone-treated beef
  • Landed cost- actual cost of an imported item including all charges (transport costs, vendor costs, tax)
  • Excise tax – tax on  the manufacture, sale or consumption of a particular product within a country
    • To encourage to buy Canadian goods
    • To discourage people from doing a certain activity (example: smoking)
    • To raise money for the government
    • Eg )Tax of 10 cents per litre on gas


  • North American Free Trade Agreement
  • At first was called Canada- US Free Trade Agreement (FTA) 1989 but then Mexico was included
  • Concerns: for Canada: gives US + Mexico too much access to Canadian resources, for US: Canada and Mexico are perceived to be taking jobs away, Mexico: Canada + US are exploiting Mexico for low wages
  • Trade agreement
  • Benefits: Economic growth by 30% + for all countries

Import/Export, Trade Surplus/Deficit, Direct/Indirect Exporting, Balance of Trade


  • Trading bloc – group of countries that share same trading interests
  • Bilateral –
  • GATT – General Agreement on Tariffs and Trade, international organization where members negotiate, resolve trade and collect data
  • Indirect exporting – goods move from exporter to an intermediary and then on to importer (new businesses use this because not enough resources)
  • Direct exporting – exporter deals directly with importer (established businesses)
  • Trade surplus –  more earnings from exports than imports
  • Trade deficit – pays more for imports than earnings from exports
  • Balance of Trade – relationship between a country’s total imports and total exports

IB Etiquette and Culture

  • Culture – sum of  a country’s way of life, beliefs and customs


  1. Production

Six Factors of Production

  • Natural resources
    • Six types: agriculture, fishing, trapping ,mining, water, fuel and energy, logging and forestry
    • Known collectively as primary industries
    • When taking something out of the earth or sea it can be known as an extractive industry
  • Raw materials
    • Any goods used in the manufacturing of other goods
    • E.g. flour is the raw material the makes bread, wheat is the natural resource and raw material for flour
    • Ingredients are raw materials that go into a product
    • Supplies are raw materials that do not  go into a product but assist in production process
  • Labour
    • Includes all physical and mental work needed to produce goods or services
    • Consolidation is when a company closes down small manufacturing sites and centralizes into one major site
  • Capital
    • Money invested into business
      • This type of capital is liquid
    • Non-liquid capital includes items that the business uses in everyday operations and also the intellectual property
      • Capital goods and intellectual property
        • E.g. buildings and ideas
  • Information
    • A commodity that can even be for sale
  • Management
    • People who control the factors of production
    • Allocates companies resources

Production Process Steps

  • Purchasing
    • Consider hidden costs
  • Processing
    • Refining – processing step used by metal, oil and even sugar companies to convert a raw material into a semi/finished product
  • Quality Control
    • Ensure that the product a company makes conforms to certain standards
    • Set by ISO ( International Organization for Standardization)
  • Grading
    • Related to quality control, graded products are checked for size and quality against fixed standards

Improving and Increasing Productivity

  • JIT – Just-in-time inventory system
    • Co-ordinates suppliers, warehouse storage and factory floor delivery so there is never a surplus or deficit
  • Training
    • Initial, ongoing, retraining and specialized training
  • Investment in technology
    • New technology e.g. blackberries
  • Capital investment
    • New building, computer etc.

Jidoka, Autonomation, Automation

  • Japanese factory workers have a system
    • Automation – the use of automatic controls to operate machines
    • Autonomation – devices can stop themselves
    • Jidoka – employees and machines can stop line


  1. Human Resources

Functions and Responsibilities of HR

  • Coordinating all activities involving the company’s employees
  • Searches labour market (where employers and employees meet) to find people
  • Occupational forecasts – predictions about jobs
  • Employee turnover  – rate at which employees leave the firm voluntarily for another job or to retire

Levels of Skills/Jobs

  • Unskilled – little training e.g. dishwasher
  • Semiskilled – requires some instruction e.g. cashier
  • Skilled – employees require training from an educational institution or previous employment e.g. cake decorating
  • Professional – highly trained people in specific occupations e.g. accountant

Employability Skills

  • Academic
    • Communicate
    • Think
    • Learn
  • Personal management
    • Positive attitude
    • Responsibility
  • Teamwork

ESA, Labour Relations, Human Rights Code, Health and Safety (employee and employer rights)

  • Head-hunter – employee search firm
  • Advertisements etc.
  • Protected grounds – gender, religion, sexual preference (cannot be discriminated against for this)
  • ESA – Employee Standards Act
  • Human Rights Code
    • Establish rights of employees
      • Minimum age of employment
      • Minimum wage
      • Vacation pay
    • Employers
      • Discipline employees
      • Establish salary
      • Set employment terms and conditions
      • Hire most qualified person
      • Decide what their employment needs are
  • Health and Safety
    • Business suffer double loss when employee becomes ill
      • Loss employee skill and productivity
      • Must provide sick pay
    • Business benefit from healthy employees
      • Wellness programs – promote physical and emotional wellbeing
    • Employees have the right to
      • Be informed about hazards in the workplace
      • Participate in safety training
      • Refuse dangerous work
  1. Management

Management Functions

  • Planning
    • Setting short term and long term goals for business
  • Organizing
    • Arranging people and resources
    • Upper management
      • Sets long term goals for company
      • Top of the pyramid
    • Middle management
      • Responsible of running building and factory
    • Lower management
      • Implements plans from above
  • Leading
    • Focus employees on achieving objectives and motivating staff to accomplish objectives
    • Encouraging participation
  • Controlling
    • Increase, maintain or decrease resources they are allocated
    • Budgeting

Types of Managers

  • Purchasing
  • Production
  • Marketing and Distribution
  • Research and development
  • Finance

Leadership Styles

  • Laissez-faire
    • Let employees do their own thing
  • Democratic
    • Get everyone’s input before making a decision
  • Autocratic
    • Take action by yourself without anyone’s input

Types of teams, teamwork skills,

  • Committee
    • Made up of people from different areas who do ongoing work on a specific task
    • E.g. social committee
  • Task force
    • Established to accomplish specific task and then disbanded
    • E.g. building design project
  • Cross-functional team
    • Members from different areas
    • Allows for diversity and quick decision making
    • E.g. Car-development team of engineers, salespeople, accountants, R+D
  • Self-managed work team
    • No official leader
    • Manage their own hiring, training etc.
    • E.g. non-profit
  • Virtual team
    • Works through computer communication
    • Can save travel costs
  • Informal team
    • Forms naturally
    • E.g. company softball team

Advantages and Disadvantages of Teams

  • Advantages
    • More ideas/creativity
    • Improved decision making
    • Higher motivation
    • Improved discipline
    • Shared risk
  • Disadvantages
    • Some put in more effort than others
    • Unequal distribution of work
    • More time
    • More costly
    • Nothing gets done
    • Personality conflicts
    • Difficulty in scheduling meet-ups


  1. Marketing

4 Ps

  • Product
    • Quality
    • Design
    • Features
    • Benefits
    • Product/service mix
  • Place
    • How product gets to the consumer
    • Channels of distribution
      • Direct
        • Sells straight to consumers
      • Indirect
        • Business sells to intermediary first
        • Retailers, wholesalers
      • Specialty
        • E.g. online, vending machines
  • Promotion
    • How to encourage consumers to buy the product
    • Coupons
    • contests
  • Price

2 Cs

  • Competition
    • Competitive market consists of all the sellers of a specific product often expressed as total dollars spent annually on this product
    • Percentage of market that a company has is the market share
    • Direct + indirect competition
      • Direct = Lays vs. Doritos
      • Indirect = Chapters vs. Empire
  • Consumers
    • Demographics
      • Age
      • Gender
      • Income level
      • Family Life Cycle
      • Ethnicity and Culture
  • Psychographics
    • Less obvious
    • Studies the way we live/ lifestyle, motivations

Marketing and Branding

  • Brand name
    • Word or group of words to distinguish from other products
    • Part of company’s image
  • Logos
    • Monogram
      • Stylized rendering of a company’s initials
    • Visual
      • Line drawings which are directly associated with band name
    • Abstract
      • Shapes carry a visual message but do not represent anything
      • Eg) Nike’s swoosh
  • Slogan
    • Will remind people of the company
    • Short, catchy phrase that is attached to name and logo
  • Brand identification
    • Consumer should be able to identify products and company from name, slogan and logo
  • Brand equity
    • Value of brand in marketplace
    • Develops brand awareness
  • Brand insistence
    • Consumer will accept no substitutes
    • Enormous brand equity
  • Market share
  • Market segment
    • Part of the overall market that has similar characteristics
      • E.g. soft drink market would have flavour characteristics
        • Root beer
          • A&W vs. Barq
        • Cola
          • Coke vs. Pepsi
  • Advertising is paid for promotion
  • Publicity is media information about a business that they don’t pay for

Product Life Cycle

  • Introduction
    • Product launched into marketplace
    • Unaware about product and need to be informed about features, etc
    • First consumers are early adopters
  • Growth
    • Competitors enter market
    • “everybody has to try it”
    • New competitors enter and dilute profitability
    • Few top products survive
  • Maturity
    • Growth is flat
    • Brand equity is at highest point
    • Already paid for all major costs of production
    • Business can use revenue from mature products to develop and fund new products
  • Decline
    • Small changes can reverse decline
    • Sales decreasing
  • Decision Point
    • Reposition product
    • Some products may become obsolete
    • Either reformulate, repackage and reintroduce or discontinue product

Non-Traditional Product Life Cycles

  • Fads
    • Extremely popular for a very short period of time and dies very quickly
    • Selective market
  • Niches
    • Very short growth cycle but  solid, not financially spectacular maturity stage
    • Few companies enter and dominate
    • Many barriers to entry
    • Small market size
    • Product dominates a section of market
    • Eg) Lululemon
  • Seasonal
    • Christmas decorations
    • Halloween decorations

Marketing Research

  • Secondary Data –  information that others have collected
  • Primary data –  researchers collect analyze for a specific purpose e.g. survey
  • Open-ended questions –  researchers collect analyze for a specific purpose e.g. survey, person develops own answers
  • Closed-ended questions – answer is already there e.g. Yes/No 


  • To create good advertisements
    • Attract attention
    • Gain Interest
    • Build Desire
    • Get Action


  1. Accounting

Balance Sheet and Income Statement (proper format and proper accounts)

  • Who?
  • What?
  • When?
  • Balance Sheet – snapshot of how a business is doing on a given day (As at ___)
  • Income statement – over a period of time (For the ___ ending on ____)

Asset, Liability, Owner’s Equity (definitions and equations)

  • Asset – something that has value and is owned by a person
  • Liability – debts or amount owed to others
  • Owner’s equity – net worth for a business
  • Assets – Liabilities = Owner’s Equity

Revenue, Expense, Net Income (definitions and equation)

  • Revenue – money or promise of money
  • Expenses – used to help generate revenue for business  
  • Net income –  money left over after expense have been deducted from profit
  • Revenue – Expenses = Net Income

Liquidity, Maturity, Depreciation, Transaction, Maturity, and Cost Principle

  • Cost principle – accounting practice of always recording an asset at the actual amount it cost the business
  • Matching principle –principle that accurate profit reporting can only be done if all costs are within a certain period of time
  • Transaction – process of exchanging something of value for something else of value
  • Liquidity – how easy an asset is turned to cash


  1. Entrepreneurships
  2. Innovation and Invention


  • Entrepreneurial Characteristics
    • Risk taker
    • Perceptive
    • Curious
    • Imaginative
    • Persistent
    • Goal-setting
    • Hardworking
    • Self-confident
    • Flexible
    • independent
  • Venture Evaluation Criteria
    • Feasibility
      • Can you actually do it?
      • Financing
      • Location
      • Licenses and permits
      • Suppliers
      • Staff
    • Marketability
      • Does your target market want this product?
      • Is your product competitively-priced?
      • Short term or long term?
      • Who is competition?
      • What makes your product special?
    • Profitability
      • Will you make money?
      • Prepare income statement to project revenue and expenses
  • Innovation vs. Invention
    • Idea driven enterprise – created as a result of invention or innovation
    • Market driven enterprise – look for customer base, then develop product
    • Both are seeking a venture

Copyright, Patent, License, Royalty

  • Copyright – gives someone exclusive rights to publish, produce/sell/distribute work of literature, music, art etc.
  • Patent – gives the holder the sole right to make, use and sell invention for a set period of time
  • License – inventor allows another business to use their invention for a fee


  1. Income Management

Gross vs. Net Income

  • Gross
    • Total amount received by a person before deductions
  • Net
    • Total amount after expense have been paid

Disposable vs. Discretionary Income

  • Disposable income
    • Left over after deductions (income tax)
    • For basic needs (water, shelter, food)
  • Discretionary income
    • Left after necessities have been paid
    • Not committed for basic needs
    • Used for luxuries/wants (entertainment, toys)

Comparison Shopping vs. Impulse Buying

  • Shop around to compare quality and special features of products offered in different stores
  • Better value for money

Conspicuous consumption

  • desire to flaunt purchases to impress others

Budget (the purpose, steps in developing a budget and make suggestions to reduce expenditures)

  • Way of managing your finances
  • Overview of income, expenses, savings and investments
  • Needs to flexible as goals change
  • Fixed expense vs. flexible expenses

Canadian Bank Notes Security Features

  • Windows
  • Watermark portraits
  • Holographic stripe

Legal Tender

  • Must be accepted as payment for goods and services
  • Coins and Canada notes (bills)
  • Cheques, credit cards are not legal tender


  1. Banking in Canada

Schedule I, II, III Banks

  • Schedule I
    • Owned by Canadian shareholders
    • Shares traded in Cdn stock exchange
    • Accepts deposits, offers investment and financial services
    • E.g. BMO, CIBC, Scotiabank, TD, RBC
  • Schedule II
    • Foreign subsidiaries
    • Mostly foreign owned controlled by small number of private shareholders
    • Same powers as 1 but government can set limit on number of branches they can have
    • Most Schedule II banks concentrate on investment banking and corporate customers
    • E.g. HSBC, ING
  • Schedule III
    • Foreign branches
    • Foreign owned bank branches with permission to operate in Canada
    • Bank Act sets restrictions on them
    • Concentrate  on investment and corporate banking
    • E.g. Capital One, Citibank

Types of Financial Institutions

  • Trust companies
    • Services similar to banks
    • Assist customers with the purchase and sale of real estate
    • Federal/provincial government grants trust company the right to operate
  • Caisses populaires + credit union
    • Co-operative business ownership
    • Concentrate on residential mortgages, consumer credit deposits
    • To borrow money one must have some savings deposited in that institution
    • Provides services only to members and families
    • Not for profit organizations
    • Amount borrowed determined by committee
  • Insurance companies
    • Focused on life and health insurance
    • Insure risks
    • Makes money from premiums and investments
    • Policy holders replenish pool of premiums with more annually

Bank Act, Bank of Canada, Bank Rate, Branch banking, CPI

  • CPI – Consumer Price Index which measure purchasing power
  • Bank Act – gave federal government control over money  and banking
    • Government had a unified banking system
    • Outlines rules that banks must follow
    • Chartered banks – all banks must receive a charter from the federal government
  • Bank Rate
    • Minimum rate of interest that the Bank of Canada charges for loans it makes to chartered banks
  • Bank of Canada
    • Not a chartered bank, customers cannot open accounts
    • Regulates money supply by lowering and raising bank rate
    • “Banker’s bank”
    • Controls the flow of money in the economy
    • Sets the rate (around 2%)
  • Branch banking
    • Links smaller communities to major financial centres
    • One major head office and many small branches

Banking/Financial Services

  • Straight transaction accounts
    • Used for personal/household bills
    • Rarely pays interest
  • Combination
    • Save money and pay expenses
    • Chequeing, debit transactions, bit of interest
  • Current account
    • For business use to deposit, withdraw and write cheques
    • No interest
  • Online, telephone automated bank machines
  • Stop payment – if cheque is written, stolen, lost, you don’t want to go through, call bank and get stop payment
  • A hold on a cheque means that there will be a delay before you can cash it
  • Lines of credit – instant cash
  • Loans
  • Credit cards
  • Money order – form of payment similar to cheque
    • May have to pay small fee
    • Guarantees that payee will receive the money
  • Overdraft protection – protects from NSF funds in chequing account
  • Credit bureau – businesses that gather credit information

Parts of a Cheque

  • Personal information of account holder
  • Date
  • Drawer
    • Person or business from whose chequing account money will be taken
  • Drawee
    • The financial institution on which a cheque to drawn
  • Payee
    • Person or business to whom a cheque is made payable
  • Cheque number
  • Transit/branch number
  • Financial institution number
  • Designation number
  • Account number

Selecting a Financial Institution and Accounts

  • Reputation
  • Convenience
  • Fees
  • Types of services available
  • Level of comfort


  1. Savings and Investing

Savings vs. Investing

  • Savings = putting money aside for future use
  • Investing = using savings to earn extra income, higher yield but greater risk than savings

Simple vs. Compounding Interest

  • Simple = only calculated on principal
    • Interest = Principal x Rate x Time
  • Compound = calculated on principal + any interest owned
    • Amount earned = P(1+i)T
  • Time is expressed in years (eg, 100 days = 100/365)

Rate of Return

  • When interest is expressed a percentage of the original investment
  • Eg) invested $1000, earned $25, rate of return – 2.5%

Bull vs. Bear Market

  • Bull = demand and prices are high
  • Bear = low demand, low prices

Types of Investments and Savings Plans

  • Savings Accounts
    • Term deposits and Guaranteed Investment Certificates
      • Deposit a fixed sum of money for a fixed time at a fixed rate
      • Term deposits can be cashed earlier and have lower interest
      • GICs are locked in
    • RRSP
      • Register retirement savings plan
        • You don’t have to pay tax on it
        • Pay income tax only when you withdraw
          • But income after retirement is probably lower than it is now, is you will be in a lower tax bracket
    • RESP
      • Registered education savings plan
        • Finance post-secondary education
        • Income earned from investing in RESP grows tax-free
    • $100 000 insured when money deposited into bank
  • Investment
    • Stocks
      • Blue chip – well established companies that make regular dividends
      • Penny stocks – start-up companies
      • Common stock
        • Gives shareholders a voice in the business
        • Most available
        • If shares fall, dividends may not be paid
        • Earn dividends after preferred stock gets paid
      • Preferred Stock
        • Paid first at fixed rate (usually higher than common stocks)
        • Less risk and more stable
        • Less chance of big gains in years of big profit
        • No voting rights in company
    • Bonds
      • Lending out your money to company or govt for a set period of time
      • CSB
        • Canada savings bond
        • Paid on or before maturity date written
        • Guaranteed by Canadian gov
        • Can be cashed at any time
          • But if cashed within three months you don’t earn any interest
        • Can be purchased through payroll deduction
      • Corporate bonds
    • Mutual funds
      • Pool of money from many investors that is set up and managed by an investment company
      • Risks spread out over large number of securities
    • Real estate
      • Land and anything attached to it
      • Prices usually go up (appreciates)
      • Rent it out
    • Collectibles
      • May increase in value over time
      • Demand has to be greater than supply

Reasons for Individuals and Businesses to Invest

  • Business
    • Advance corporate strategy
    • Generate income
    • Accommodate excess cash until it is needed
  • Individuals
    • Higher rate of return
    • Can earn higher income


  1. Credit

Credit, Credit Worthiness, Collateral, Credit Rating, Credit Crisis

  • Credit
    • A privilege of using someone else’s money for a period of time
  • Credit Worthiness
    • Borrower’s ability to assume and pay back credit (debt)
  • Collateral
    • Offers your house, car etc. to reduce risk of loan
    • Can usually get you a lower rate on a loan
  • Credit Rating
    • Indication of the level of risk that consumers business or govt will pose if credit is granted to them
    • Measure of worthiness
    • Shared by businesses
  • Credit Crisis
    • Being consistently unable to pay off credit cards
    • Using cash advances on everyday expenses
    • Not knowing how much debt you have
    • Seeming to always be in debt
  • Creditor
    • Any person that grants a loan or sells on credit
  • Debtor 
    • Any person/business that buys on a credit or receives a loan

Advantages and Disadvantages of Credit

  • Advantages
    • Can make major purchases
    • Overcome cash-flow shortages
    • Company cards
    • Widely accepted as substitute for cash
  • Disadvantages
    • Increased costs
    • Defaulting on a loan
    • Overbuy
    • Financial difficulties

Credit Cards

  • Advantages
    • Many small and large companies accept them
    • Great for web-based use
    • Don’t need to carry around a large amount of cash
  • Disadvantages
    • Many fees
    • Impulse Buying over comparison shopping

Installment Sales Credit

  • Is a credit plan that requires a purchaser to make a down payment and fixed regular payments with finance charges added to the purchase price
    • When buying expensive purchases such as a  car
    • Bigger down payment is better
  • Term loan – a form of installment credit in which the borrower agrees to make fixed monthly payments over a set period of time (term)
  • Lease – similar but the borrower doesn’t actually own the asset it’s just a long-term rental
  • Demand loan

3 Cs of Credit

  • Character 
    • Borrower’s willingness to repay  a loan, trustworthiness and reliability
    • “Will they repay their debt?”
    • Have you used credit before?
    • Do you pay your bills on time?
    • Do you have a good credit report?
    • Can you provide character references?
    • How long have you lived at your present address?
    • How long have you been at your present job?
  • Capacity
    • Ability to make payments on time and pay a debt when it’s due
    • Can they repay their debt?”
    • Do you have a steady job? If so, what is your salary?
    • How many other loan payments do you have?
    • What are your current living expenses?
    • What are your current debts?
    • How many dependents do you have?
  • Capital
    • Value of borrower’s assets 
    • “What do they own that could be given up if they cannot repay their debt?”
    • What property do you own that can secure the loan?
    • Do you have a savings account?
    • Do you have investments to use as collateral?