Foreign-Owned Banks and Credit Unions in Canada

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Questions and Answers

What primary role do foreign-owned banks in Canada serve?

They serve as insurance providers for Canadian businesses.

They facilitate the investment of foreign capital in Canada. (correct)

They manage retirement savings plans for Canadian citizens.

They only lend money to Canadian individuals.

Which of the following services is NOT typically offered by credit unions and caisses populaires?

Insurance

Debit and credit cards

Investment dealer services

International stock trading (correct)

Under the Cooperative Credit Associations Act (CCAA), credit unions are restricted in what way?

They must follow a general portfolio investment approach.

They cannot make loans to non-members. (correct)

They are prohibited from serving specific ethnic groups.

They cannot provide administrative services.

What type of companies are authorized to engage in trust business in Canada?

Trust and loan companies. Signup and view all the answers

What is a key function of trust companies in Canada?

To act as a trustee for corporate and individual assets. Signup and view all the answers

What limitation does the CCAA impose on credit unions regarding investments?

They can only invest in authorized financial entities. Signup and view all the answers

What kind of financial services do trust companies overlap with chartered banks?

Savings acceptance and loan issuance. Signup and view all the answers

Which of the following statements about credit unions is true?

They must adhere to the investment rules of the CCAA. Signup and view all the answers

What financial planning service is typically offered by trust companies?

Estate planning and asset management. Signup and view all the answers

What is the primary focus of life insurance companies regarding investments?

Exercising extreme caution to meet contractual obligations Signup and view all the answers

Which type of insurance generates the largest aggregate premiums in Canada?

Automobile insurance Signup and view all the answers

What is the role of underwriting in the insurance business?

To evaluate risk and contractual responsibility Signup and view all the answers

Which statement accurately describes reinsurance?

A practice of transferring risk between insurance companies Signup and view all the answers

What restriction does the Bank Act impose on Canadian Schedule I banks regarding insurance?

They are restricted from selling insurance, except related to loans and mortgages Signup and view all the answers

Which product is specifically limited to life insurance companies according to federal legislation?

Annuities Signup and view all the answers

Which product is included under life insurance?

Term life insurance Signup and view all the answers

What does the Insurance Companies Act primarily grant insurance companies?

Enhanced powers for consumer and corporate loans Signup and view all the answers

Which of the following is NOT a line of business mentioned for property and casualty insurance?

Health Signup and view all the answers

Which aspect is considered most significant in the insurance business in Canada?

Underwriting practices Signup and view all the answers

What characterizes the trading of industrial companies' shares on the OTC market?

They do not typically provide greater liquidity than listed securities. Signup and view all the answers

Who primarily acts as market makers in the OTC equity market?

Investment dealers who hold an inventory of securities. Signup and view all the answers

What is a distinctive feature of OTC derivatives compared to exchange-traded derivatives?

OTC derivatives can be tailored with special features. Signup and view all the answers

What is the primary mission of the Canadian Securities Administrators (CSA)?

To develop a national regulatory system for protecting investors Signup and view all the answers

Why might an investor choose to trade securities in the unlisted market?

They have less regulatory oversight and fewer requirements. Signup and view all the answers

What is a potential drawback of trading unlisted securities compared to listed ones?

They are often more speculative and risky. Signup and view all the answers

Which of the following best describes the role of a Self-Regulatory Organization (SRO)?

To regulate its own members under provincial regulatory authority Signup and view all the answers

In the OTC market, how do investment dealers complete transactions for unlisted securities?

They consult bid and ask quotes from various market makers. Signup and view all the answers

The CSA has issued national policies primarily to address which issue?

Harmonizing regulation across provincial and territorial jurisdictions Signup and view all the answers

What characteristic defines a Self-Regulatory Organization (SRO) in relation to its members?

It has the power to set its own rules of conduct and financial requirements. Signup and view all the answers

What does the OTC derivatives market primarily consist of?

Large international financial institutions negotiating directly. Signup and view all the answers

Which of the following describes the CSA's approach to dealing with federally regulated financial institutions?

The CSA increases its national policies due to their growing involvement. Signup and view all the answers

Which of the following is true about investment dealers in the unlisted equity market?

They can refuse to trade at their quoted prices. Signup and view all the answers

What is one of the key benefits provided by the CSA to investors?

Protection from unfair, improper, and fraudulent practices Signup and view all the answers

What is a common misconception about OTC trading?

It occurs in a centralized market with publicly available orders. Signup and view all the answers

What is the nature of the market dynamics in the OTC derivatives market?

It remains open 24 hours a day for transactions. Signup and view all the answers

Who can access the institutional fixed-income marketplace?

Registered dealers, institutional investors, governments, and pension funds Signup and view all the answers

What service does the CanPX system primarily provide?

Real-time bid and offer quotations for fixed-income instruments Signup and view all the answers

Which aspect does capital NOT possess?

Inflation risk Signup and view all the answers

What type of investment is an example of direct investment?

Buying a house Signup and view all the answers

What do bonds and debentures represent in financial terms?

The issuer's debt with a promise of repayment Signup and view all the answers

Which of the following best describes equity?

Shares of ownership in a company Signup and view all the answers

Who benefits when foreign investors use Canadian capital?

Foreign investors seeking lower borrowing costs Signup and view all the answers

What is a key function of MarketAxess?

Providing market data and a trading platform Signup and view all the answers

Which of these statements is true about the characteristics of capital?

Capital is characterized by its mobility, sensitivity, and scarcity. Signup and view all the answers

What type of organizations primarily use capital for financing social programs and infrastructure?

Government agencies Signup and view all the answers

Study Notes

Foreign-Owned Banks and Investment

Foreign-owned banks in Canada facilitate foreign capital investment while providing alternative funding for Canadian corporations.

Credit Unions and Caisses Populaires

Offer diverse banking services: deposit-taking, lending, mortgages, mutual funds, insurance, investment dealer services, debit, and credit cards.
Serve member-savers from common interest groups based on neighborhood, ethnicity, or social ties.
Governed by the Cooperative Credit Associations Act (CCAA), restricting their financial activities and allowable investments.
Required to follow a "prudent portfolio approach" to investment, limiting exposure to certain assets and real estate.

Trust and Loan Companies

Federally and provincially incorporated trust companies manage corporate and individual assets, including properties, stocks, and bonds.
Services include savings, term deposits, personal loans, mortgages, and estate planning.

Insurance Companies

Two main lines: life insurance and property/casualty insurance.
Life insurance encompasses health, disability, term, whole life insurance, pension plans, RRSPs, and annuities.
Property and casualty insurance covers home, auto, and commercial business losses, with automobile insurance generating the largest premiums.
Underwriting evaluates risk for policies, while reinsurance mitigates risk exposure among insurance companies.
Governed by the Insurance Companies Act, granting regulatory powers but placing restrictions on certain services.

Over-the-Counter (OTC) Markets

OTC trading encompasses equities not listed on stock exchanges, often more speculative with lower liquidity.
Investment dealers act as market makers, providing liquidity by quoting bid and ask prices based on their inventory.

OTC Derivatives Market

Dominated by large banks and investment dealers, operating 24/7 without physical negotiations.
Allows custom-designed derivative products tailored to buyer and seller needs.

Reporting and Market Access

Most investment dealers in Canada are not required to report unlisted trades.
Institutional investors and dealers access the fixed-income marketplace for bonds and securities.
MarketAxess provides competitive pricing and trading platforms for corporate bonds, while CanPX offers a composite display of real-time bond quotations.

Capital Characteristics

Capital displays mobility, sensitivity, and scarcity and can be invested directly (e.g., real estate) or indirectly (e.g., stocks).
Used by individuals for purchases, businesses for growth, and governments for social programs.

Regulatory Framework

The Canadian Securities Administrators (CSA) harmonizes securities regulation across Canada's provinces and territories.
Aims to create fair, efficient capital markets, protecting investors from misconduct.
Self-Regulatory Organizations (SROs) manage and enforce compliance among their members, supplementing provincial regulatory functions.

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Description

This quiz explores the role of foreign-owned banks and credit unions in Canada. Participants will learn about how these institutions facilitate foreign investment and provide various financial services to consumers and businesses alike. Understand the functions and offerings of credit unions and caisses populaires in the Canadian banking landscape.