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87 Cards in this Set
- Front
- Back
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cash advances |
usually charge high interest plus a fee
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financing
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paying only a portion of the credit card bill monthly
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interest rate of credit cards
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usually between 11 and 23%
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finance charge
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the amount you must pay as a result of using credit
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previous balance method
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interest charged on the balance at the beginning of the new billing period
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average daily balance method
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interest charged on average daily balance at the end of everyday in the billing period
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adjusted balance method
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interest is charged based on the balance at the end of the new billing period
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simple interest rate
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the percentage of credit that must be paid as interest on an annual basis
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annual percentage rate (APR)
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the simple interest rate including any fees charged by the creditor
allows comparison among potential lenders |
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personal bankruptcy
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a plan to the court in which you repay at least a portion of your debt and pay attorney filing fees
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products
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What is sold: services, type of investment or depository vehicle, or type of account
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services
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manner in which those products are sold, assessed, or monitored
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commercial banks
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accept deposits in checking and savings accounts
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What do commercial banks use your funds for
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commercial/business loans, personal loans to individuals, mortgage loans
they also sell CD's (bank is borrowing from you) |
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What do savings institutions offer (S&L's)
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savings and checking accounts, credit and debit cards, CD'S
but they focus on individuals, not businesses and commercial accounts ex: first federal savings and loan |
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credit unions
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not for profit, membership defined through common affiliation (either employer or community)
ex: western federal credit union |
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credit unions offer
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Same as commercial banks:
savings and checking accounts, credit and debit cards, personal and mortgage loans |
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credit unions summed up
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not for profit, smaller more focused customer base, more personalized service
little higher interest rates on deposits, and lower interest rates on loans and credit cards federally insured thru NCUSIF |
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What is insured by FDIC
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checking and savings accounts, money market account (MMDA & CD'S )
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What's not insured by FDIC
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mutual funds, stocks and bonds, annuities
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non depository institutions
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finance companies, securities firms, insurance companies,investment companies, financial conglomerates
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finance companies
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specialize in personal loans to individuals, big ticket items (car, appliances), deal directly with individual, contracted by retail store or chain
focus on those with higher credit ratings (so interest rates higher and higher loan default) |
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2 types of securities firms
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investment banking and brokerage services
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investment banking
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placing securities: finding investors who wish to purchase corporate securities
advising firms: who are selling securities advising firms: who are merging on valuation and financing |
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brokerage services
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execute trades of buy and sell orders, matching omg buyers and sellers
ex: Merrill Lynch |
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different types of insurance companies
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life insurance, property and casualty companies, and health insurance
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investment companies
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pool investors money to purchase diversified collection of stocks and/or bonds (called mutual funds), minimum amount one can't invest (500-1000), investor gets share of the mutual fund, way for small investor to be diversified
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financial conglomerates
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combine all or some of:
banking subsidiary security subsidiary investment subsidiary insurance subsidiary |
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example of some financial conglomerates
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Goldman Sachs, American express, citigroup, wells Fargo
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when selecting a depositary financial institution look at:
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insurance, convenience, deposit interest rates, and fees
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What are interest rates influenced by
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monetary policy, fiscal policy, business cycle
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money supply
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total of demand deposits (checking accounts) nationally + total of all currency in circulation
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increased government borrowing
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increased demand for investor funds and interest rates go up
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decreased government borrowing
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decreased demand for investor funds and interest rates go down
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decreased business borrowing
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less competition for loans and interest rates go down
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increased business borrowing
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increased demand for loans and interest rates go up
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banks business
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banks buy and sell money
buy money by paying interest on deposits and CD's sell money by making loans (buy low sell high) the difference what you receive on deposit and what you pay on loans is the banks profit margin (3-7%) |
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credit |
funds provided by a creditor to a borrower that will be repaid by the borrower in the future with interest |
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types of credit |
non-installment credit, installment credit, revolving open-end credit |
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non-installment credit |
credit provided for a short period, such as department store credit |
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installment credit |
credit provided for specific purchases, with interest charged on the amount borrowed |
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revolving open-end credit |
credit provided up to a specific maximum amount based on income and credit history; interest is charged each month on the remaining balance |
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credit bureaus |
reports provided by credit bureaus to document a persons credit payment history |
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primary credit bureaus |
Equifax, Experian, and TransUnion |
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what is credit score affected by |
credit utilization, length of relationship with creditors, recent credit inquiries |
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what does your credit score NOT factor in |
income, debt-to-income ratio, savings or investments, or your net worth |
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way to have the best credit score |
go into debt, stay in debt, continually pay accounts with adding too much or paying too much off |
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percentage wise what affects a credit score |
35%- payment history 30%- how much available credit you are actually using 15%- length of time you've been in debt (length of relationship with creditors) 10%- type of debt (mortgage, credit card, etc.) |
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range of credit scores |
350-850 (with 600 being considered a good, not great, score)
40% of population has >750, 13% has >800
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how long will poor credit history stay on your report?... bankruptcy? |
7 years, 10 years |
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average cost of identity theft |
$1,868 |
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shoulder surfing |
this occurs in public places when an identity thief stands close to you and reads the number of your credit card as you conduct business |
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dumpster diving |
this occurs when an identity thief goes through your trash for discarded items revealing personal information for fraudulent purposes |
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skimming |
this occurs when a store employee steals your credit card number by copying the information contained in the magnetic strip on the card |
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pretexting |
occurs when an identity thief poses as an employee of a company with which you conduct business to solicit your personal information |
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phishing |
occurs when pretexting happens online |
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pharming |
similar to phishing, but targeted to larger audiences, directs users to bogus Web sites to collect their personal information |
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abusing legitimate access to records |
co-workers, places you do business, public records |
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how are you supposed to respond to identity theft |
take immediate action, contact federal trade commission, contact local law enforcement, notify credit bureaus, contact creditors, maintain a record of all phone calls and correspondence |
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money management |
a series of decisions made over a short-term period regarding cash inflow and outflows |
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liquidity |
your ability to cover any cash deficiencies that you may experience (related to your personal cash flow statement |
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adequate return |
dependent upon the risk-free rate and the level of risk you are willing to tolerate, usually should consider multiple investments with varied returns and levels of liquidity |
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emergency fund ratio |
cash & cash equivalents/ monthly non-discretionary cash flows
benchmark= 3 to 6 months |
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liquidity ratio |
cash & cash equivalents/ current liabilities
benchmark= 1.0 to 2.0 |
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different types of money market investments |
checking account, NOW account, savings account, money market deposit account (MMDA or MMA), certificates of deposit (CD'S), treasury bills, money market fund (MMF), and asset management account (sweep account) |
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checking account aka |
demand deposit account |
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NOW (negotiable order of withdrawal account) |
a type of deposit offered by depository institutions that provides checking services and pays interest
(requires a minimum balance, lowering liquidity) |
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savings deposits |
pay interest and are slightly less liquid than checking accounts |
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money market deposit account (MMDA) |
a deposit offered by a depository institution that requires a minimum balance, has no maturity date, pays interest, and allows a limited number of checks to be written each month
(less liquid than checking, but pays a higher interest rate)
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different types of CD'S |
retail CD's, return, and liquidity |
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Retail CD's |
certificates of deposit that have small denominations |
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return (with CDs) |
CD's historically pay higher interest rates than savings deposits |
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liquidity (with CDs) |
penalties are imposed for early withdrawal
choice amoung CD maturities |
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in regards to risky deposit rates |
while CDs with especially high deposit rates sound appealing, they carry greater risk of loosing principal and interest, ask if they are insured by FDIC, in an investment sounds too good to be true, it probably is |
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treasury securities |
debt securities issued by the US treasury, purchased by the public in the secondary market |
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treasury bills (T- bills) |
treasury securities with maturities of one year of less |
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return (with treasury securities) |
purchased at a discount; result when sold is capital gain |
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secondary market |
a market where existing securities such as treasury bills can be purchased or sold |
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money market funds (MMFs) |
accounts that pool money from individuals and invest in securities that have a short-term maturity
usually less than 90 days
US government securites, wholesale CDs |
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commercial paper |
short-term debt securities issued by large corporations that typically offer a slightly higher return than T-bills |
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asset management account |
an account that combines deposit accounts with a brokerage account and provides a single consolidated statement
(comparison of money market investments) |
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credit risk (aka default risk) |
the risk that a borrower may not repay on a timely basis |
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interest rate risk |
the risk that the value of an investment could decline as a result of a change in interest rates |
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liquidity risk |
the potential loss that could occur as a result of converting an investment into cash |
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options if you suspect economy may weaken |
you want to ensure that you maintain a greater degree of liquidity, you could allocate more funds to liquid market money securities and less funds to other types of investments |
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how to determine the optimal allocation of money market investments |
anticipate upcoming bills and have adequate funds in your checking account, estimate additional funds needed in near future and invest in a liquid investment, use remaining funds in a way that will maximize your return, considering your risk tolerance |
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