Econ Ch6 Carney May Cut Canada Interest Rate to Record 0.5% as GDP Drops

With the economy the way it is, many companies and businesses are not only doing what it takes to survive this recessionary quarter, but also to do what it takes to help keep us from a recession. It was reported on March 3, 2009 The Bank of Canada has slashed their 1% interest rate to an all-time low of 0.5%. This cut in the interest rate was decided upon by the Bank of Canada governor Mark Carney, which was only two days before the European Central Bank and Bank of England were going to cut to new lows as well.

http://www.bloomberg.com/apps/news?pid=20601082&sid=ay1nAkWkn47M&refer=canada

Because the unemployment rate is high, spending among consumers is very low. By lowering the interest rate, this would hopefully increase loans given, and give people more of a reason, which would ultimately increase spending, because in the end, the way to get out of this recession, ironically, is to spend. This is part of the monetary policy, whereby this will eventually be implemented among chartered banks all across Canada. Another reason for this interest rate would be the hopes of the money being loaned to be used to invest in businesses; this would help to slow down the unemployment rate, because there is more money in businesses to be expended.

Although I feel this plan is overall a good idea, there are many different ways people may spend this borrowed cash that may cause even more economic problems in the future for Canada. Remember, the whole reason for the US economy in turmoil is because of loaned cash from the government that was unable to be paid back by borrowers, because of bad investments. There will obviously be more changes to be made, but this was a much needed move by the Governments of Europe, England, Canada, and possibly the US.

FAC Ch 4: BMO buys AIG's Canadian life insurance unit

It is essential to evolve one’s business; in order to do such a thing; you must make acquisitions that benefit the company. This is the case for BMO financial group, which, on Tuesday January 13th, purchased American International Group for $375 million cash. This purchase is undoubtedly going to help BMO expand financially, and will assist in it being one of the top four largest banks in Canada. According to John Aiken, an analyst at Dundee Securities, this deal was a steal for BMO, as they bought it for less than 1.1 times AIG’s book value, which actually had an average industry valuation of 1.3 times.

http://www.financialpost.com/news-sectors/trading-desk/financials/story.html?id=1171778

By, purchasing AIG, BMO has insured itself more potential of earning revenue in the future. This will give them more diverse selling activities and collections of revenues from customers, now with a $375 million entity in their hands. For the former AIG shareholders, however, this was the complete opposite. Although they had acquired sufficient revenue, it had to be sold, in order to pay off a $60 billion loan from the US government. Because BMO now has two very different sources of income, they may need to have two separate earnings management meanings, so as to run the operation section of the business more accurately.

Although the cost of AIG was quite high, especially when we think of the economy the way it is today, I believe this is a wise decision by the BMO financial group. $375 million is a lot of money, but it the cost of AIG may have been much higher, if not for their $60 billion loan from the US government. This will give BMO a wider range of customers, and more sources for revenue. Even with quite a bit of money already used for the purchase of AIG, with the right selling activities, like proper promotions, much higher revenues will be produced.