A Comparison of the Canadian Financial System and the Financial System of the United States

[Name of the Institute]

A Comparison of the Canadian Financial System and the Financial System of the United States

Introduction

The aim and objective of this assignment is to compare and contrast the financial system of Canada and financial system of United States of America.

Discussion

According to the International Monetary Fund, Canada is ranked at 13th at GDP and it ahead Spain and Australia at 2012. This shows Canada is one of the most developed capitalist and countries in the world. Canada's economy success proportionally counts on its financial system, which will be discussed in the rest of this paper. In addition, United State of America locates at North America as same as Canada. U.S is the largest economy in the world and has a dominant impact in international financial market. The rest of the paper will contain comparisons in various aspects between Canadian and U.S financial system. The purpose of these comparisons is to identify the advantages and disadvantage of Canadian financial system, and to give suggestions regarding developing a more effective, functional, and protective financial system.

The major comparisons are based on related knowledge from the course, which includes Financial Market Structure, Currency, Monetary Policy, Financial Innovation, Nonbank Finance, and Financial Crisis.

Canadian Financial System

Financial Market Structure

Financial market structure of Canada comprises the capital markets, bonds and equities, derivatives and currencies. This is one of the three elements of the Canadian financial system. It is mainly through financial markets that official interest rate affect bank interest rates and exchange rates. This allows bank to achieve objectives of its monetary policy.

Bank also participates in the financial markets through auctions of government securities. In rare cases, the Bank may also intervene in the foreign exchange market by the government to strengthen the markets for the Canadian dollar. The Bank conducts extensive research to enhance understanding of the structure of the Canadian financial system and determine how the Bank can foster the stability and development of the Canadian market (Gospodinov & Ng, 2013).

Money and Capital Markets of Canada

The money and capital market play pivotal role in the development of any economy. It perform economic function of allocating the resources between supply and demand. It governs the whole financial system of Canada. People in Canada participates in the capital markets of Canada for earning savings. The money and capital markets of Canada includes stocks of companies, bonds, T-bills, real estate and investing directly in Canadian financial institutions such as banks, credit unions, mutual funds, pension funds, and life insurance policies. The capital market plays an chief role in channeling these savings into investments; this process has the impact of contributing in economic development of the country by sustaining and stimulating successive economic growth through capital formation and creation of jobs (Gospodinov & Ng, 2013).

Currency

The currency of Canada is Canadian dollar. It is the 7th most traded currency in the world which accounts for more than 5.3% of the world's daily share (Garrett, ...