Financial Sector and Budget Challenge Vocab (copy)

interest rate

the cost of borrowing money or the price, calculated as a percentage of the amount borrowed, charged by lenders to borrowers for the use of their savings for one year

wealth

value of accumulated savings

financial asset

a paper claim that entitles the buyer to future income from the seller

physical asset

a claim on a tangible object that gives the owner the right to dispose of the object as he or she wishes

liability

a requirement to pay money in the future

transaction costs

the expenses of negotiating and executing a deal

financial risk

uncertainty about future outcomes that involve financial losses and gains

diversification

investing in several different assets with unrelated risks

liquid

an asset that can be quickly converted into cash without much loss of value

illiquid

an asset that cannot be quickly converted into cash without much loss of value

loan

a lending agreement between an individual lender and an individual borrower

default

occurs when a borrower fails to make payments as specified by the loan or bond contract

loan-backed security

an asset created by pooling individual loans and selling shares in that pool

financial intermediary

an institution that transforms the funds it gathers from many individuals into financial assets... banks, credit unions, insurance companies

mutual fund

a financial intermediary that creates a stock portfolio and then resells shares of this portfolio to individual investors

stocks

a security that represents ownership in a corporation

bonds

a security that is an IOU issued by governments or corporations

dividends

a sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits (or reserves)

capital gain

a profit from the sale of property or an investment

pension fund

a nonprofit institution that invests the savings of members and provides them with income when they retire

life insurance company

sells policies that guarantee a payment to a policyholder's beneficiaries when the policyholder dies

demand deposit from a bank

a claim on a bank that obliges the bank to give the depositor his or her cash when demanded

bank

a financial intermediary that provides liquid assets in the form of bank deposits to lenders and uses those funds to finance the illiquid investment spending needs of borrowers

credit Union

essentially a not-for-profit financial intermediary that provides liquid assets in the form of bank deposits to lenders and uses those funds to finance the illiquid investment spending needs of borrowers

insurance premium

your bill for insurance coverage

insurance deductible

the amount you pay for covered services before your insurance plan starts to pay

bank overdraft

when an account has a negative balance

bank overdraft protection

is an option offered by financial institutions that prevents check, ATM, electronic transfers, or debit card transactions, from causing the account's balance to drop below zero

non-sufficient funds

making a purchase or financial transaction for more than the balance in your account

401 (k) plan

a retirement savings plan offered by many American employers that has tax advantages to the saver

security deposit for apartment or rental

money that is given to a landlord, lender, or seller of a home or apartment as proof of intent to move-in and care for the domicile

credit card

an invitation to debt. Allows the holder to buy now and pay later. Fees, interest payments and finance charges can be accessed to card holders

debit card

allows the cardholder to make purchases without having to write a check or use cash. Money is withdrawn directly from one's personal account

credit report

a detailed breakdown of an individual's credit history prepared by a credit bureau and used to determine a borrower's creditworthiness

Roth IRA - .

an individual retirement account allowing a person to set aside after-tax income up to a specified amount each year. Both earnings on the account and withdrawals after age 59½ are tax-free.

Traditional IRA

allows individuals to direct pre-tax income toward investments that can grow tax-deferred. The IRS assesses no capital gains or dividend income taxes until the beneficiary makes a withdrawal

Principal

the original amount of money borrowed or put into an investment

Accrued

received or accumulated as in accrued interest

Simple interest

calculated by multiplying the daily interest rate by the principal, by the number of days that elapse between payments or the cost of borrowing money without accounting for the effects of compounding

Compound interest

interest that is earned (or charged) on the original principal plus any accrued interest