Overview
Several other financial intermediaries play an important role in the Canadian financial services industry. These businesses are categorized below according to the types of products and services they offer.
Investment Funds
Investment funds are companies or trusts that sell shares or units to the public and invest the proceeds in a diverse securities portfolio. There are primarily two types of investment funds:
- Closed-end Funds: These funds typically issue shares only at startup or at other infrequent periods.
- Open-end Funds (Mutual Funds): These funds continually issue shares to investors and redeem these shares on demand. Open-end funds dominate the market, accounting for approximately 95% of aggregate funds invested.
Alberta Treasury Branches (ATB Financial)
Formed in 1938 when chartered banks withdrew from many smaller towns, the Alberta Treasury Branches (ATB Financial) is a full-spectrum financial institution catering to Albertans. It became a provincial crown corporation in 1997 and was renamed ATB Financial in 2002.
Consumer Finance Companies
Consumer finance companies make direct cash loans to consumers who are usually unable to secure a loan from a bank. These companies often charge higher interest rates than traditional banks.
Sales Finance Companies
Sales finance companies purchase instalment sales contracts from retailers and dealers at a discount. These contracts typically involve the financing of items such as new cars, appliances, or home improvements bought on instalment plans by consumers.
Pension Plans
Pension plans have seen remarkable growth over the last 60 years, becoming a significant component of the institutionalization of savings.
Charts and Diagrams
Here is a chart representing the market distribution of investment funds:
gantt
title Investment Funds Market Distribution
dateFormat YYYY-MM-DD
section Funds
Closed-end Funds:done, a1, 2023-01-01, 30d
Open-end Funds (95%):a2, 2023-02-01, 340d
Frequently Asked Questions (FAQs)
What is the difference between open-end and closed-end funds?
- Open-end Funds (Mutual Funds): These funds continually issue shares to investors and redeem these shares on demand. They are by far the larger market player.
- Closed-end Funds: These funds issue shares typically only at startup or at other infrequent periods.
What services does ATB Financial provide?
ATB Financial offers a full range of financial services to individuals, small businesses, and corporations. This includes but is not limited to savings and checking accounts, personal and business loans, mortgages, investment products, and financial advisory services.
Why do consumer finance companies charge higher interest rates?
Consumer finance companies typically lend to individuals who may not qualify for traditional bank loans due to lower credit scores or higher risk profiles. To mitigate this elevated risk, these companies charge higher interest rates.
Key Takeaways
- Investment Funds are a major player in the market, with open-end funds accounting for 95% of aggregate investments.
- ATB Financial provides comprehensive financial services tailored to Albertans.
- Consumer Finance Companies serve higher-risk consumers, usually at higher interest rates.
- Sales Finance Companies facilitate instalment purchases of consumer goods through retailer-financed contracts.
- Pension Plans have significantly contributed to the growth of savings institutionalization in Canada over the past six decades.
Glossary
- Investment Funds: Entities that sell shares or units to the public and invest proceeds in various securities.
- Closed-end Funds: Funds that issue shares at predetermined times and do not redeem shares on demand.
- Open-end Funds: Also known as mutual funds, these continually issue shares and redeem them on demand.
- ATB Financial: A provincial crown corporation in Alberta providing broad financial services.
- Consumer Finance Companies: Firms that provide loans to higher-risk consumers, often at higher interest rates.
- Sales Finance Companies: Companies that buy retail instalment sales contracts.
- Pension Plans: Retirement savings plans facilitating long-term investment.
📚✨ Quiz Time! ✨📚
## Which type of investment fund continually issues shares to investors and redeems these shares on demand?
- [ ] Closed-end funds
- [x] Open-end funds
- [ ] Exchange-traded funds (ETFs)
- [ ] Hedge funds
> **Explanation:** Open-end funds, commonly known as mutual funds, continually issue new shares to investors and redeem these shares on demand. This is contrasted with closed-end funds, which typically issue shares only at start-up or at other infrequent periods.
## What percentage of aggregate funds invested in investment funds is accounted for by open-end funds?
- [ ] 50%
- [ ] 75%
- [ ] 90%
- [x] 95%
> **Explanation:** Open-end funds, or mutual funds, account for approximately 95% of the aggregate funds invested in investment funds. This highlights the dominance of open-end funds in the investment fund market.
## What is the Alberta Treasury Branches (ATB Financial) primarily known as?
- [x] Savings banks
- [ ] Commercial banks
- [ ] Investment banks
- [ ] Cooperative banks
> **Explanation:** The Alberta Treasury Branches (ATB Financial) are primarily known as savings banks that provide a full range of financial services to Albertans. They were formed in 1938 and became a provincial crown corporation in 1997.
## What year did the Alberta Treasury Branches (ATB) become a provincial crown corporation?
- [ ] 1987
- [ ] 1992
- [x] 1997
- [ ] 2002
> **Explanation:** The Alberta Treasury Branches (ATB) became a provincial crown corporation in 1997, and they were renamed ATB Financial in 2002.
## Which type of financial intermediary typically charges higher rates of interest than banks for direct cash loans to consumers?
- [ ] Savings banks
- [ ] Pension plans
- [ ] Sales finance companies
- [x] Consumer finance companies
> **Explanation:** Consumer finance companies make direct cash loans to consumers who are usually unable to secure a loan from a bank. These companies typically charge higher rates of interest than banks.
## Which financial intermediary purchases instalment sales contracts from retailers and dealers at a discount?
- [x] Sales finance companies
- [ ] Investment funds
- [ ] Consumer finance companies
- [ ] Pension plans
> **Explanation:** Sales finance companies purchase instalment sales contracts from retailers and dealers at a discount, facilitating consumer purchases of items like cars, appliances, and home improvements on instalment plans.
## What type of growth have pension plans accounted for over the past 60 years?
- [ ] Decline in consumer savings
- [x] Remarkable growth in the institutionalization of savings
- [ ] Marginal increase in investment funds
- [ ] Decrease in interest rates
> **Explanation:** Pension plans have accounted for remarkable growth in the institutionalization of savings during the past 60 years, significantly impacting the financial services industry.
## Which type of entity is responsible for making direct cash loans to consumers often at higher interest rates?
- [ ] Savings banks
- [ ] Pension plans
- [x] Consumer finance companies
- [ ] Investment funds
> **Explanation:** Consumer finance companies make direct cash loans to consumers who typically cannot secure loans from traditional banks, and they often charge higher interest rates.
## What are closed-end funds more likely to be characterized by in comparison to open-end funds?
- [ ] Continuously issuing shares to investors
- [x] Issuing shares only at start-up or at other infrequent periods
- [ ] Higher liquidity
- [ ] Continuous redemption of shares on demand
> **Explanation:** Closed-end funds typically issue shares only at start-up or at other infrequent periods, unlike open-end funds which continuously issue and redeem shares.
## Sales finance companies facilitate consumer purchases for which types of items?
- [x] New cars, appliances, or home improvements on instalment plans
- [ ] Stocks and bonds for investment purposes
- [ ] Real estate transactions
- [ ] Foreign exchange transactions
> **Explanation:** Sales finance companies facilitate consumer purchases of items such as new cars, appliances, or home improvements by purchasing instalment sales contracts from retailers and dealers at a discount.