The money market is a 1 trillion market (annual turnover) and a crucial component to help implement monetary policy by the Bank of Canada.

Types of financial instruments traded include:

- Government of Canada Treasury Bills (T-Bills)
*Note - Bank rate is upper end of operating band.

- Short-term government bonds (less than 3 years to maturity)
- Provincial and Municipal short-term notes and T-Bills
- Day-to-day loans, PRA's, and SRA's
- Note - Special PRA's and Special SRA's (repos and reverse repos)
- Purpose is to put downward/upward pressure on rates.
- Call and Short Loans (from chartered banks to securities dealers - at prime rate)
- Chartered Bank Deposites
- Term Notes
- Deposit Certificates (CD's)
- Swapped Deposits (to us)
- Forward Contracts (like futures yet with private party transaction)
- Interbank funds
- Finance Paper (packages of instalment debt contracts held with customers)
- Corporate/Commercial Paper (30 day notes)
- Bankers' Acceptances (30-90 days, bank assumes risk)
- Guaranteed Trust and Investment Certificates (GIC's) (Better than normal accounting)
- Repurchase Aggreements (repos)
- Resale Agreements (Preverse Repos)

Key Money Market Instruments Outlined is a post from: Discuss Economics Blog

"So basically after i get my pay cheque and decide to put my money into an rrsp, that money has already been taxed by the gov't so how does it really reduce my TI vs. having your employer take the money first to put it in a rrsp for you then taking the taxes off the rest of your paycheque?"

A. You have to consider the potential rebate when u do your taxes. With your own u get to dictate where you put your rrsp investment dollars.

"Would I get a potential rebate or would you get the taxed portion back?"

A. Well it's a formula, they (the govt) would put that into consideration. That portion you invested becomes ''untaxable", how much percentage rebate you get I'm not sure.

"What i'm saying is, if you have $100 gross and tell your employer to invest it b/f taking taxes off of it .. you have $100 in rrsp. If you wait to do it on your own.... taxes are already taken off and now that $100 is only worth $70 (assuming 30% bracket)"

A. i believe so, but remember, you don't tell them where you put it and you can contrbute the remaining 30 when the return comes in. So u loose a year potentially

"So then you only have $70 in rrsp... so isnt it better to just invest with your employer; but i mean is that how it works? you would get that $30 back under the title of "rebate"? so in reality it would be better off to invest via the employer immmediate pre-tax deduction than to lose out the $30 x 12 months, right? Would it be wiser to invest with my company RRSP program and get the non-taxable income deducted right away, or invest on my own by taking deductions off and getting a rebate later.

A. I'm not sure, but u have to think of it from the perspective of the 70 dollars and the return you're getting w/ company or with a real rrsp....

Company RRSP or Do it myself? is a post from: Discuss Economics Blog

This article will cover several popular questions first time investors post. To start, here is question number 1: How much money is enough to retire/invest? Good question, have ever consider this while thinking how you will reach your financial goals.

• If only i could get a raise, or a better paying position, I could invest.
• If only my spouse could get work.
• If only my spouse could get a better paying job or a raise.
• Maybe I should get a second job.
• Life would be so much easier if I had a bit more money.

Haha, I liked the last one best. Frankly, consumerism in western culture has knocked some stupid in peoples heads. More and more advertising, etc., coupled with our own personal appetite for turning 'WANTS' into 'NEEDS', makes the desire for more money without end.

So does having more money make financial planning easier? Let's answer this question with a series of questions.

• Would more money help you change your spending and saving habits?
• Would more money help you distinguish and prioritize between wants and needs?
• If you and/or your family had more money would you know where it would go?
• If it is difficult to wisely mange your current salary, would more money make a positive difference?
• How many lottery winners stay rich?

DiscussEconomics have seen single parents earning an income that fluctuates between $27,000 and $31,000 never more raising teens, saving for retirement, and simultaneously taught their kids to focus on long term goals. How is this possible? Quite frankly, smart and responsible money planning. People on the 'average' salary can get ahead. People better than average? You're financial wiggle room increases a hundred fold, don't squander it.

Questions 2: Do I need to invest in mutual funds to achieve financial independence?

How many times have you heard the scheme, "I can do better in the stock market than those professional money managers." Oh really! It is possible that in the short run an individual will outperform certain fund managers, however, that's short term, and that's not an on average stat. The key, however, is not the return, it is volatility. Professionals are much better at using volatility (risk) to their advantage than you. They know the roller coaster stock market upside down and have a portfolio full of diversified options to hedge their risks.

Here are some numbers to help the argument. In July 2003, Dalbar released a study on investor behavior between 1984 and 2002. During this time the S&P 500 for US equities had an annualized return of 12.2%, and the average US equity fund returned 9.3%. The average US equity investor earned only 2.6% per year not even keeping pact with inflation at 3.1% per year. Mind as well use a GIC! That's only one example, but it's a strong argument, just look at the stats.

Here's some more info to help. Why is it to my advantage (as investor) to get a professional money manager? Well there are some, ask yourself these questions:

• Do you have at your command teams of analysts and researchers who can travel the world in search of information to find the real news behind the news?
• Can you meet with management of companies to ask the hard questions?
• Are you able to visit company sites to study their operations?
• Can you analyze companies' financial reports?

Mutual funds also give investors the opportunity to buy more than a few companies with a smaller amount of money. Individual investors who don't have access to advice tend to make wrong decisions both at the peak and bottom of the market cycle. If you want to play the stock market go ahead, hopefully you have disposable income that can be lost, it's high risk, occasionally pays off big, but more than not leaves you with your pants down.

Next Issue: A question about market value and the price of appreciating shares. All of the information in this newsletter is for your own personal information and is applicable in the US and Canadian regions, however basic concepts work for any money situation in the world.

Questions on How to Set your Own Financial Goals is a post from: Discuss Economics Blog

Advantages of owning common shares:

1) A marketable asset
2) Potential for capital appreciation
3) Favourable tax treatment
a) Dividends
b) Capital gains
4) Voting - a say in the affairs of the company
5) Dividend income
6) Limited liability investment

Most suitable for long-term investment (10+ years); hopefully your company doesn't go under

Problems: can be very volatile (risky) over short periods of time.

Quick Intro on Common Shares is a post from: Discuss Economics Blog

BUT, you need to remember this crucial aspect when withdrawing:

Withdrawals, excluding qualifying transfers, made from your TFSA in the year will be added back to your TFSA contribution room at the beginning of the following year.

You cannot contribute more than your TFSA contribution room in a given year, even if you make withdrawals from the account during the year. If you do so, you will be subject to a tax of 1% of the highest amount in the month, for each month you are in an overcontribution position.

Example
In 2009 you invests $5,000 in a TFSA. Later that same year you withdraw $3,000. However, turns out you don't need the money, or you get your 3K back. You DO NOT have unused TFSA contribution room left, thus you would have to wait until the beginning of 2010 to deposit the $3,000 in your TFSA (plus another 5000). Before 2010 you will overcontribute to your TFSA and will be charged a monthly tax of 1% on the overcontributed amount.

You don't need to report any contributions or withdrawals you made during the year on your individual tax return.

So remember withdraw, the room is still there, however, you can't replace within the same year period.

[tags]tfsa[/tags]

Important Reminder on TFSA Contributions – Can’t Recontribute is a post from: Discuss Economics Blog

Following up from our introduction to economics/macroeconomics article, this post talks about 'self-interest' and maximizing over a set of preferences subject to constraints.

Let's start off with some examples, but first, the tools we'll need (some images used because it's a bit tough to get the right characters).

Consumption Bundle (CB):

Preference Ordering: Will use statements to rank bundles from least to most. It is possible to construct if: 1. You are always able to make such a statement, 2. Statements are consistent.

Let's explore some of these ordering assumptions.

A1 - "Completeness" Assumption: Given any two CB's, one of them is true.

A2 - "Consistency or Transivity" Assumption: Given any 3 CBs:

A1 and A2 are CORE assumptions about preferences or rational decision markers.

Taken together they guarantee an individual can consistently rank any set of CB. (They have complete preference ordering.)

A3 - "Non-satiation" Assumption: If some is good, more is better.

A4 - "Maximization" Assumption: Individuals always make choices that maximize their preference ordering.

The implications of A3 and A4 are:

1. Scarcity, you always want more than what's available.
2. People always fully exploit opportunities (all gains from trade are exhausted in equilibrium).
3. Imposes argument to explain behaviour.

In part two, a bit on trade offs and more assumptions.

[tags]consumption bundle, consumer, assumptions[/tags]

Consumption Bundle Assumptions is a post from: Discuss Economics Blog

- When a bond trades at par value:
- Market Price = face value
- Coupon Rate = market interest rate

- When a bond trades at a discount:
- Market Price < face value
- Coupon Rate < market interest rate

- When a bond trades at a premium:
- Market Price > face value
- Coupon Rate > market interest rate

Bond Pricing Principles

- Interest rates and bond prices are inversely related.
- The longer the time a bond matures, the more volatile the market value of bond in response to changes in interest rules.
- Lower coupon bonds are more volatile in price than higher coupon bonds when interest rate changes.

- Lower coupon --> greater % in future = volatility

[tags]bonds, market price, coupon rate, bond rate, bond trades[/tags]

Why Bonds Trade at par, Discount, or Premium is a post from: Discuss Economics Blog

Firstly, there is a component of reducing debt loads and adjusting lifestyles. Those two go hand in hand. You lose your job? Tightening the purse strings? Chances are that requires a change in lifestyle that sees disposable income diminish. Maintaining this lifestyle will help you increase your savings/income for investments.

But what about your asset mix? Well, you can attempt to reduce risk. Reducing market exposure to less risky or guaranteed instruments is one method. However, it is unnecessary to move your entire portfolio to cash. Remember, you also don't want to pull your money our that's lost 50% give or take, and put it into 2% returning instruments.

If you're closer to retirement, then as a general rule you want to begin reducing risk by heading to safer instruments (cash compared to equities). Canada has now implemented a new tax-free savings account that permits 5000 investment tax free per year. It can go a long way to increase your networth. You can also withdraw without losing your contributing room. However, the TFSA is not a long term instrument as the returns are at savings account interest rates.

The younger you are the more risk you can handle, the less balance your require since you don't need the investment right away. If you're approaching retirement, within ten years, you can start benefiting from balance. Also include strong bonds as part of your strategy.

The good news about all of your losses is capital losses. With non-registered accounts you can save on your taxes. If you end up selling equities at a loss those losses may be applied to offset your capital gains. Capital gains and losses can be carried forward to subsequent years as well.

Dollar cost averaging plays now as well. As noted, now is the time to buy. If you have the cash, then definitely consider putting in and maximizing your RRSP this year to buy equities at rock bottom prices. You may also be able to swap investments. Check out your portfolio and you may find that blue chip companies are going for prices around what you currently have.

So these were some aspects to consider when thinking about the right solution to deal with this current market climate.

How to Invest in Volatile and Recessionary Markets is a post from: Discuss Economics Blog

The increase in total RRSP contributions also masks a growing income disparity, given that most of the growth is attributable to Canadians who earn more than $80,000 per year. In 2005, only 20 per cent of Canadians between the ages of 35 and 64 with a yearly income of less than $30,000 contributed to their RRSPs. At the same time, the declining relative importance of employer-sponsored pension plans is doing little to remedy this gap.

One can expect years of recessionary trends savings tend to increase, however, long term savings do not since people are more worried about their present situation rather than the future. If you do have the capability to purchase longterm instruments such as equity mutual funds, then within the next quarter could be the best time to invest for 2008 RRSP contributions. BUY LOW AND SELL HIGH FOLKS! Right now is pretty much as low as it will go.

[tags]rrsp, 2008 recession, recession, equity[/tags]

News Flash – Canadians Don’t Use RRSP Room is a post from: Discuss Economics Blog

[Full Credit of Sherman's Lagoon, Jim Toomey 2002]

Welcome to DiscussEconomics blog for another investment advice resource designed to help your make intelligent investment decisions. This issue is about investments and their risks. There has been alot of discussion lately about investing and its risks (stemming from the sub-prime scare). Negative returns and unfavorable market conditions have caused many people to conclude that investing is unsafe and unprofitable. Saving, with its guaranteed return is thought to be more sensible.

The examination of the word risk is a good beginning for this article. Risk is the chance of being harmed or being exposed to danger. In its strictest meaning it is incorrect to say investing is risky.

When people say risk they mean volatility. Volatility is the fluctuation in value of your investment. The value of an investment can fluctuate a lot, (major roller coaster ride), which is an aggressive investment or a little, which is a conservative investment. There are degrees in between.

The volatility of investments in recent times has made major headlines. It must be mentioned at this point that the real news has been the many more companies that have quietly been profitable despite the market downturn. Many people have concluded that the roller coaster ride has given them too much of an upset stomach and that they'd prefer the tamer totally horizontal railroad ride. Of course there is comfort in safety, but unlike Linus' security blanket it comes at a price.

Reward is proportional to volatility. Depending on how long you have to invest, volatility like time, can be a necessary and crucial ally. Those who choose to avoid volatility entirely will be donating their gains to an institution's profit. Does 4% on a GIC or investment part of an insurance policy sound good? If the answer to that question is yes, then you won't mind that the bank or insurance company will take your money and and make double or more for their bottom line.

So how to manage volatility and still sleep at night? To answer that question let's first introduce the characters who are part of this story. The stock market is a place where shares of companies are bought and sold. Companies must have a certain capitalization size before their shares can be publicly traded. Technology has enabled investors to remotely participate in the stock market. Individuals and institutions trade in the stock market. Buying and selling are influenced by both financial and nonfinancial news.

A mutual fund is an agreement between individual investors and professional money managers about the collective money of those investors. In return for a fee the managers invest on their behalf. Mutual fund managers participate in the stock market.

A bond is a loan to a government or corporation. In return for the use of your money you get paid interest at regular intervals.

The main tools to manage volatility are asset allocation and diversification. Asset allocation is when your portfolio has different investment vehicles such as the aforementioned three, or buying investments that contain those asset classes.

An example of diversification is spreading your investments in different sectors of the economy eg oil and gas or the media. Diversification is also buying into different geographic regions of the world. These are just a few of the ways to diversify your portfolio.

Here is a timely analogy for diversification. It can be compared to a garden. Picture a garden of lettuce only. Let's say this summer is going to be mostly hot and sunny.Since I know this is Calgary let's throw in a few hailstorms too. What will this garden grow? A few shredded bitter leaves. Garden number two will have peas, tomatoes, potatoes, carrots with the lettuce. Chances are much greater that come harvest time you will be able to throw a veggie party. No matter what the weather you have covered all your bases. It's the same with investing. High low or flat markets, different investments will perform differently.

The most important point I would like to end with is that in order to be a successful investor you must do the OPPOSITE of what everyone else is doing. In this aspect of your life you have to be unpopular. Is everyone running for the safety of term deposits? Then the best thing to do would be to do what they are not doing.

Investment Advice – Making Intelligent Investment Decisions is a post from: Discuss Economics Blog