DECA PFL Exam Master List

Credit

The arrangement by which businesses or individuals can purchase now and pay later. When businesses and individuals buy on this, they pay interest on the amount of this. If interest rates increase, businesses and indivudals often stop buying on this because it is too expensive. For example, if the interest rate is 4% and the amount of this is $100, the cost of buying on this is $4. However, if the interest rate increases to 15%, the cost of $100 of this is $15. Therefore, high interest rates usually cause businesses and consumers to hold off buying expensive items on this. Fluctuations in interest rates do not have an impact on the use of tax incentives, discounts, or rebates.

Tax incentives

An aspect of a government's taxation policy designed to incentivize or encourage a particular economic activity by REDUCING(!!!) tax payments.

Tax rebate

A refund of taxpayer money after a retroactive tax decrease. For example, in 2001 after the dot-com bubble, Congress wanted to stimulate consumer spending by issuing one of these mid-year. The government believed that issuing checks would have a more immediate positive effect on the economy than reducing tax rates, which would not be realized until the following year.

Discount

A deduction from the usual cost of something, typically given for prompt or advance payment or to a special category of buyers. For example, some stores offer consumers a discount on bulk purchases.

Savings account

A type of investment in which you lend money to a bank for the benefit of being able to access it at pretty much any time. They are insured by the FDIC, so they're extremely safe.

Federal Deposit Insurance Corporation (FDIC)

Independent agency of the United States government that protects bank depositors against the loss of their insured deposits in the event that a bank or savings association they insure fails, up to $250,000.

Certificate of Deposit (CD)

A lending investment in which you lend money to a bank at a set interest rate for a particular period of time. You are guaranteed a certain rate of return, but you can't access your money before the end of the time period without paying a penalty.

Collectibles

Items worth far more than their original sale price and are considered alternative investments. An example of these are Pokemon cards.

Alternative investments

Vehicles that don't fall into any other category like stocks, bonds, cash, or real estate. Some typical examples include private equity, real estate, and commodities. They provide an alternative to traditional investments, such as debt and equity securities.

Securities

Fungible, negotiable financial instruments that holds some type of monetary value. The three main types are equity - which provides ownership rights to holders; debt - essentially loans repaid with periodic payments; and hybrids - which combine aspects of debt and equity.

Opportunity cost

THE BENEFIT THAT IS LOST (!!!) when a person decides to use SCARCE resources for one purpose rather than another. For example, when a person places $500 in the bank, the BENEFIT is having money available for the future. The COST/LOSS of placing money in the bank means that the person does not have the moeny to purchase a desired item.

Discretionary income

The amount of an individual's income that is left for spending, investing, or saving after paying taxes and paying for personal necessities, such as food, shelter, and clothing. Includes money spent on luxury items, vacataions, and nonessential goods and services.

Salary

A fixed regular payment, typically paid on a monthly or biweekly basis but often expressed as an annual sum, made by an employer to an employee, especially a professional or white-collar worker. Does not change regardless of the number of hours worked.

Wage

A fixed regular payment, typically paid on a daily or weekly basis, made by an employer to an employee, especially to a manual or unskilled worker. Time-based; workers entitled to these payments are employed at a fixed rate per hour or per day.

Dividend

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

Interest

The monetary charge for borrowing money or delaying payment, generally expressed as a percentage such as annual percentage rate (APR).

Gross income

The total amount earned before taxes or other deductions.

Net income

The total amount of money earned (gross income) minus expenses, interest, and taxes. This reflects the actual profit of a business or individual.

Fixed costs/fixed expenses

Expenses that remain the same from month to month (e.g. rent, insurance, cable bill)

Variable costs/variable expenses

Expenses that vary from month to month (e.g. electricity, gasoline)

Discretionary costs/discretionary expenses

Avoidable or non-essential expenses; things you don't need (e.g. eating out, gifts, candy)

Intermittent costs/intermittent expenses

Expenses that occur at various times throughout the year and tend to be in large lump sums (e.g. car repairs, tuition payments)

Income tax

A type of tax that governments impose on businesses and individuals. By law, taxpayers must file a return for these anually to determine their tax obligations. Based on GROSS income.

Year To Date (YTD)

The term covering the period of time between the beginning of the year and the present. It can apply to either calendar or fiscal years. Even if your fiscal year might not necessarily begin on January 1st, no matter the dates, this time period covers the first day of the year in question up until the day of calculation.

Credit agency/credit bureau

A business that maintains files of credit information on individuals and businesses. It is important to make sure that they have accurate information about your credit history because other businesses purchase the reports to make decisions about extending credit to you or providing a loan to you. Although people can provide information to improve their credit ratings, it is them that change or update the information.

Ownership investment/equity

Becoming a partial owner of a company or piece of property through the purchase of investments such as stock, growth mutual funds, and real estate. With them, you have influence on some decisions made about the investment. For example, if you own stock, you may vote for members of the board of directors that makes decisions about the company or make proposals concerning its operations.

Lending investment

A type of investment in which you cover a company or person's debt with an agreement that they'll repay you with interest.

Cash equivalents

Investments that are "as good as cash", meaning they are very liquid. An example of them are money market funds.

Liquid

A term used to describe an asset that is easy to sell or convert into cash with little to no loss in its value.

Insurance

An agreement between two parties in which one pays for specific losses incurred by the other in return for installment payments (premium). The risk is transferred from the insured to the insurer.

Rule of 72

A way to determine how long an investment will take to double given a fixed annual rate of interest. DIVIDING 72 by the ANNUAL rate of return gives investors a rough estimate of how many years it will takae for the initial investment to duplicate itself.

Health insurance

A contract between a company and consumer in which the company agrees to pay all or some of the insured person's healthcare costs in return for payment of a monthly premium. Usually a one-year agreement, during which you are responsible for paying specific expenses related to illness, injury, pregnancy, or preventative care. Usually includes doctor visits, hospital care, tests, certain therapies, and prescription drugs.

Annual Percentage Rate (APR)

The yearly interest generated by a sum that's charged to borrowers or paid to investors. Is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan or income earned on an investment.

Adjusted balance method

An accounting method that bases finance charges on the amount(s) owed at the end of the current billing cycle after credits and payments post to the account.

Finance charge

Adjusted balance x periodic rate x number of periods

Adjusted balance

Previous balance - (payments + credits)

New balance

Adjusted balance + finance charge + new purchases + fees

Periodic rate

The interest rate charged for each period, such as monthly or quarterly. This rate on a credit card with an 18 percent annual percentage rate is 1.5 percent per month. The annual percentage rate is: (this rate x # of periods)

Credit unions

Cooperatives providing financial products and services to a group of individuals who work for the same employer or share some other common interest or characteristic. Only members may save or borrow from them. They are comparable to banks, but are not-for-profit and can have lower fees.

Certified Public Accountant (CPA)

A designation provided to licensed accounting professionals.

Certified Financial Planner (CFP)

A formal recognition of expertise in the areas of financial planning, taxes, insurance, estate planning, and retirement saving.

Chartered Financial Analyst (CFA)

A globally-recognized professional designation that measures and certifies the competence and integrity of financial analysts.

Bond

A fixed-income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). Could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments. Are used by companies, municipalities, states, and sovereign governments to finance projects and operations. Owners of them are debtholders, or creditors, of the issuer. Details include the end date when the principal of the loan is due to be paid to the bond owner and usually include the terms for variable or fixed interest payments made by the borrower.

Truth in lending laws

Laws that typically require lenders to reveal the true cost of a loan by providing information about interest rates and total repayment amounts.

Economic resources

Items that can be used to produce goods and services; they are in limited supply. Categories of them are natural resources, human resources, and capital resources. They are the inputs of production.

Purchasing power

A consumer's ability to purchase goods and services.

Federal funds rate

The interest rate that U.S. banks pay one another to borrow or loan money overnight; controlled by the FOMC. Affects interest rates on everyday consumer products.

Federal Open Market Committee (FOMC)

Division of the Federal Reserve that sets monetary policy by managing open market operations.

Federal Reserve

The central bank of the US, often called the Fed. Duties include conducting national monetary policy, supervising and regulating banks, maintaing financial stability, and providing banking services.

Central bank

A financial institution given privileged control over the production and distribution of money and credit for a nation or a group of nations. In modern economies, it is usually responsible for the formulation of monetary policy and the regulation of member banks.

Monetary policy

A set of tools used by a nation's central bank to control the overall money supply and promote economic growth and employ strategies such as revising interest rates and changing bank reserve requirements.

Fed pivot

The moment when the Federal Reserve reverses its policy outlook and changes course from expansionary to contractionary monetary policy, or vice versa.

Expansionary/loose

A term to describe the form of macroeconomic policy that seeks to encourage economic growth.

Contractionary/tight

A term to describe the form of macroeconomic policy that seeks to slow down overheated economic growth.

Fiscal policy

The use of government spending and tax policiese to influence economic conditions, especially macroeconomic conditions. These include aggregate demand for goods and servicces, employment, inflation, and economic growth.

Macroeconomics

A branch of economics that studies the behavior of the overall economy, which encompasses markets, businesses, consumers, and governments. Examples economy-wide phenomena such as inflation, price leves, rate of economic growth, national income, gross domestic product (GDP), and changes in unemployment.

Microeconomics

A branch of economics that studies the implications of incentives and decisions, specifically how those affect the utilization and distribution of resources on an individual level. Shows how and why different goods have different values, how individuals and businesses conduct and benefit from efficient prodduction and exchange, and how individuals best coordinate and cooperate with one another.

Money supply

The total quantity of money that exists at one time in a nation.

Export quotas

The restrictions on the quantity of goods that can move out of a country

Inflation

A rise in prices, which can be translated as the decline of purchasing power over time.

Cost of sales

The accumulated total of all costs used to create a product or service, which has been sold.

Professional fees

Non-refundable charges that must be paid in advancce for the services of an experienced professional. Includes legal costs, such as the costs associated with obtaining patents and trademarks.

Technology costs

Expenses associated with acquisition or development, implementation, deployment, and maintenance of technology assets, including depreciation of R&D equipment.

Administrative costs

Expenses an organization incurs that are not directly tied to a specific core function such as manufacturing, production, or sales. These overhead expenses are related to the organization as a whole, as opposed to individual departments or business units.

Overhead

The ongoing business expenses not directly attributed to creating a product or service. Important for budgeting purposes but also for determining how much a company must charge for its products or services to make a profit.. Any expense incurred to support the business while not being directly related to a specific product or service.

Sales and marketing costs

Internal and external expenses incurred that are directly and indirectly related to selling and marketing a product or service. Include the salaries of all sales and marketing employees, the dollars spent on marketing campaigns (sponsorships, trade shows, display ads, etc.), and any platforms or tools to support marketing and sales activities.

Budget credit account

Credit accounts that advertise credit terms such as "90 days Same as Cash".

Installment credit account

Credit accounts that provide the borrower with a lump sum of money that they must repay in fixed installments by a certain date. Commonly used to purchase large, expensive items such as cars.

Open credit account

Credit accounts that come with a credit line that allows you to make electronic purchases like a credit card. Unlike a credit card, charge cards don't come with interest rates, but you are required to pay your balance in full each month to avoid penalties.

Revolving credit account

Credit accounts that involve setting a credit limit and paying the amount due each month or making minimum monthly payments on the account. They remain open even as you make payments. Credit cards are an example.

Charge sale

A type of sale that allows customers to buy merchandise and use it before paying; buying on credit is an example.

Collect On Delivery (COD) sale

A type of sale that occurs when a customer pays for an item upon delivery.

Cash sale

A type of sale that occurs when customers pay for merchandise with money or the equivalent (check, money order, etc.)

Layaway sale

A type of sale that occurs when a business withdraws an item from stock and holds it in storage for a customer.

Time value of money

A financial principle that states the value of a dollar today is worth more than the value of a dollar in the future. This philosophy holds true because money today can be invested and potentially grow into a larger amount in the future.

Dividend reinvestment plan (DRIP)

A method used by many investors to grow their investments more quickly. It involves using stock dividends to purchase more shares of that stock.

Capital budgeting

The process that a firm's financial managers use to determine which projects to invest in.

Accrual accounting

An accounting method in which payments and expenses are credited and debited when earned or incurred. Opposite of cash basis accounting, where expenses are recorded when payment is made and revenues are recorded when cash is received.

Seniority

The length of time an individual has been employed by a business. Those who have been employed the longest have the most of this. When all other factors, such as ability and competence, are equal, businesses often promote on the basis of this.

Goodwill

An intangible asset that is associated with the purchase of one company by another. It represents the value that can give the acquiring company a competitive advantage. The portion of the purchase price that is higher than the sum of the net fair value of all of the assets purchased in the acquisition and the liabilities assumed in the process. The value of a company's name, brand reputation, loyal customer base, solid customer service, good employee relations, and proprietary technology represent aspects of this. This value is why one company may pay a premium for another.

Balance sheet

A financial statement that reports a company's assets, liabilities, and shareholder equity at a specific point in time. Provides the basis for computing rates of return for investors and evaluating a company's capital structure. A financial statement that provides a snapshot of what a company owns and owes, as well as the amount invested by shareholders. Can be used with other important financial statements to conduct fundamental analysis or calculate financial ratios.

Short-term time horizon

Investing for a goal you want to reach in less than five years.

Intermediate-term time horizon

Investing for a goal you want to reach in five to fifteen years.

Long-term time horizon

Investing for a goal you want to reach in more than 15 years.

Internal financial report

A report that involves compiling and analyzing financial information for use by management in decision-making. Designed to be viewed only by individuals within the organization.

External financial report

A report that involves compiling and reporting financial information for distribution among shareholders and potential investors. Can be accessed by any person outside the organization.

Yield percentage

The rate of return on a security, determined by dividing the dividend by the actual closing price. When evaluating, it's important to keep in mind that a stock with a high dividend yield is typically less volatile than one with a low yield.

Rate of Return (RoR)

The net gain or loss of an investment over a specified time period, expressed as a percentage of the investment's initial cost. When calculating it, you are determining the percentage change from the beginning of the period until the end.

Volume

How many shares or contracts were traded in an asset or security over a period of time, usually over the course of a trading day.

Net change

The difference between a stock's closing price and the previous day's price, which may increase or decrease.

Ticker

A system of letters that uniquely identifies a company and is often based on the company name.

Risk pyramid

An asset allocation strategy whereby low-risk assets like cash and treasuries are placed at the bottom, and smaller allocations to riskier assets like growth stocks are placed at the top.

The middle of this model represents moderately-risky assets like corporate bonds and blue-chip stocks. The resulting pyramid structure should balance risk and reward based on an individual's time horizon, assets, and risk tolerance.

Defined benefit

A type of retirement plan that guarantees the specific benefit that will be payable at the time of retirement. The employee does not have much control over the funds until they are received, but the employer is the one who bears the risk for making surer that the amount is paid.

Defined contribution

A type of retirement plan that is funded primarily by the employee, with the employer matching contributions.

401(k)

A retirement savings plan offered by many American employers that has tax advantages for the saver. It is named after a section of the U.S. Internal Revenue Code (IRC). The employee who signs up for this account agrees to have a percentage of each paycheck paid directly into an investment account. The employer may match part or all of that contribution. The employee gets to choose among a number of investment options, usually mutual funds. There are two basic types of this account; traditional and Roth, not to be confused with traditional and Roth IRAs. Traditional types are pre-tax while withdrawals are taxed; Roth types are made with after-tax income and withdrawals aren't taxed.

Individual retirement account (IRA)

A long-term savings account that individuals with earned income can use to save for the future while enjoying certain tax advantages. Designed primarily for self-employed people who do not have access to workplace retirement accounts such as the 401(k), which is available only through employers. There are four main types; traditional, Roth, SEP, and SIMPLE.

Traitional IRA

An IRA that 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. Individual taxpayers can contribute from qualified earned compensation.

Income thresholds may also apply. Contributions to this IRA may be tax-deductible depending on the taxpayer's income, tax-filing status, and other factors. Retirement savers may open this IRA through their broker (including online brokers or robo-advisors) or financial advisor.

Roth IRA

An IRA where ontributions are not tax-deductible, and qualified distributions are tax-free. This means you contribute to it using after-tax dollars, but as the account grows, you do not face any taxes on investment gains. Because you paid taxes on your contributions, you can actually withdraw them, penalty-free, at any time; however, you cannot withdraw earnings until age 59½ without being subject to the 10% early-withdrawal penalty.