Intro To Financial Planning Lession 1

Front 1

What are the six stages of the financial planning process?

Back 1

Establishing the client's financial goals and objectives and defining the relationship between the planner and the client
Gathering data
Processing and analyzing information
Recommending the plan
Implementing the plan
Monitoring the plan

Front 2

What are the advantages/disadvantages of using a directive approach in an interview?

Back 2

Advantages:
Brief
Provides measurable data

Disadvantages:
Inflexible
Does not allow interviewee input as to topics

Front 3

What are the advantages/disadvantages of using a non-directive approach in an interview?

Back 3

Advantages:
More in-depth responses are gathered
Closer relationship between parties is established

Disadvantages:
Is more time consuming
Generates subjective data which may be difficult to evaluate

Front 4

What are the five basic physical attributes associated with physical attention?

Back 4

S - Face the other person Squarely.

O - Adopt an Open posture.

L - Lean toward the other person.

E - Maintain good Eye contact.

R - Be Relaxed while attending

Front 5

Describe the M1 concept

Back 5

M1 - Coins and currency in circulation plus personal demand deposits in banks and other financial institutions. (This is the most liquid measure)

Front 6

Describe the M2 concept

Back 6

M2 - Represents the aggregate total of all money in circulation, including M1 plus saving accounts in savings institutions; traveler's checks and most money market accounts. (M2 is generally 4 times as large as M1.)

Front 7

Describe the M3 concept

Back 7

M3 - Includes M2 plus institutional money market funds large denomination time deposits and certain less spendable assets such as repurchase agreements.

Front 8

discount rate

Back 8

the borrowing rate from the Federal Reserve

Front 9

Fed Funds Rate

Back 9

the lending rate BETWEEN member banks

Front 10

Price

Back 10

amount of money seller is willing to accept in exchange for given quantity of good or service (e.g. $1.00 per gallon)

Front 11

Inflation

Back 11

is the increasing of the general level of prices and services over time. The end result is a drop in purchasing power. Its most common measure is CPI (Consumer Price Index), published monthly by the Bureau of Labor Statistics. It is important to note that not only individual consumers, but also businesses, government agencies and foreign markets are impacted by rising price levels.

Front 12

Deflation

Back 12

the opposite of inflation, and occurs when the general level of prices is falling.

Front 13

Disinflation

Back 13

occurs when the overall level of prices continues to rise, but its growth rate is slowing. The most likely time to observe this trend is during a recession.

Front 14

Hyperinflation

Back 14

occurs when inflation is extremely pronounced (such as in 1923 Germany when prices skyrocketed more than 2000% in one month).

Front 15

The Consumer Price Index

Back 15

a weighted average measuring the changes in the prices paid for goods and services by consumers for a specific time period. It does not include every item that an individual consumer might use, but instead measures a sampling of several hundred goods and services.

Front 16

Interest Rate

Back 16

the price of money.

Front 17

Discount Rate

Back 17

the interest rate charged by the Fed on a loan that it makes to a member bank

Front 18

Nominal Interest Rate

Back 18

measures the yield in dollars per year per dollar invested.

Front 19

How is the Real Interest Rate determined?

Back 19

determined by adjusting the nominal interest rate for the rate of inflation

Front 20

What economic cycle does this describe?: Declining demand for goods and services
Decreased production
Prices begin to decline
Industrial output and industrial production will fall
Businesses cut back on inventory and production
Capacity utilization declines

Then,
Labor productivity increases; efficiency improves
Unit labor costs fall
Wages may fall
Lower costs of production
Lower prices
Increased consumer purchasing power, leading to increased demand
The recovery has begun!

Back 20

Trough to Recovery

Front 21

WhatWhat economic cycle does this describe?: Economic activity increases
Employment and incomes are up
Consumer sentiment improves
Spending increases
Profits increase early on
Wages, interest rates lag behind costs
Labor productivity remains high
Business expenditures on inventory and capital increase
Interest rates remain low
Prices begin to rise
Inventories increase/lagging wages catch up
Expansion begins to lose momentum

Back 21

Recovery to Expansion

Front 22

What economic cycle does this describe?: Demand remains strong
Temporary shortages
Lagging costs and wages catch up with prices
As limits on monetary expansion are reached, interest rates rise
Inventories and capital goods expenditures continue to rise
Costs continue to rise
Profits begin to decline
Interest rates begin to rise

Back 22

Expansion to Peak

Front 23

What economic cycle does this describe?: Psychological factors come into play
Prices begin to fall/profits are squeezed
Costs and wages are slow to fall/lag behind prices
Declines in production and employment
Inventory liquidation

Back 23

Peak to Contraction

Front 24

Substitution effect

Back 24

As the cost of a certain product increases, consumers tend to substitute another similar product.

Front 25

Income effect

Back 25

As the cost rises further, consumers may simply reduce consumption.

Front 26

Market Equilibrium

Back 26

is said to exist at the price and quantity where Supply and Demand are in balance.

Front 27

Price Elasticity

Back 27

the responsiveness of the quantity demanded to changes in the product's price (all other things being the same).

Front 28

When is a product considered elastic?

Back 28

if its quantity demanded responds greatly to price changes.

Front 29

When is a product considered inelastic?

Back 29

when its quantity demanded responds little to price changes.

Front 30

What is believed to be the main determinant of quality of life?

Back 30

standard of living with wealth playing an important part

Front 31

Average propensity to consume

Back 31

The percentage of each dollar of income that is spent currently, rather than saved or how much we spend of what we make

Front 32

Fiscal policy

Back 32

used to stimulate or slow economic activity

Front 33

monetary policy

Back 33

Controls the amount of money in circulation

Front 34

CPI

Back 34

Consumer Price Index a measure of inflation based on the changes in the cost of a market basket of consumer goods and services

Front 35

GDP

Back 35

Gross Domestic Product the total of all goods and services produced by workers located within a country. It is used to measure economic growth