Banking and Financial Systems

FBLA stuff

medium of exchange

an agreed-upon system for measuring the value of goods and services.

financial intermediary

a bank is this for the safeguarding, transferring, exchanging, or lending of money.

Commercial banks

are the institutions commonly thought of as banks

Retail Banks

this and other thrift institutions such as mutual savings banks, savings and loans, and credit unions, developed to help individuals not served by commercial banks

Central banks

the government banks that manage, regulate, and protect both the money supply and the banks themselves.

merger

occurs when one or more banks join or acquire another bank or banks.

identity theft

occurs when someone achieves financial gain by using another person's personal information to unlawfully assume the identity of the other person.

creditworthy

a customer that has a good credit rating, sufficient collateral for loans, and an ongoing income source sufficient to make timely loan payments.

depositers

people who put money into banks

spread

the difference between what a bank pays in interest and what it receives in interest. Also known as net interest income

revenue

income

profit

net income

asset

anything of value

liquid asset

anything that can be readily exchanged, like cash

liability

cash obligation

Return on assets (ROA)

the ratio of net income to total assets

Return on equity (ROE)

measures how well a bank is using its equity

equity

represents net assets, or total assets, minus total liabilities

niche markets

targeting particular customers in defined locations or by particular services.

deregulation

loosening of government control

Automated Teller Machines (ATMs)

a machine that can perform almost any banking action

Smart Card

are credit, debit or other types of cards that have embedded microchips

payroll card

a card where banks can facilitate salary payments between employers and employees

online banking

allows customers to perform banking transactions from their home computers

mobile banking

customers can execute a variety of banking transactions with mobile phones

currency

all media of exchange circulating in a country

bank currency

bank notes

deposit currency

a form of this is checks

Federal Reserve Act

created a system to stabilize the banking system

reserves

percentages of deposits that are set aside to help with liquidity drops

reserve liquidity

ways to convert the reserves readily to cash

margin

stocks bought for a fraction of their price, then resold for profit without the full purchase price of the stock ever being paid

bank run

when many people try to withdraw their money at once

Federal Deposit Insurance Corporation (FDIC)

guarantees deposits against bank failures up to $100,000 per depositor, per bank and sometimes even more for special kinds of accounts or ownership categories.

stagflation

when inflation rises but the economy as a whole is not doing well

recession

decline in total production lasting a minimum of two consecutive quarters

member bank

any bank that is part of the federal reserve system

District reserve bank

carry out banking functions for government offices in their area, examine member banks in their district, decide whether to loan bank funds, recommend interest rates, and implement policy decisions of the board of governors

federal funds rate

the rate at which banks borrow from each other

Federal open Market Committee (FOMC)

makes discount rate decisions

inflation

when rising prices decrease the value of money

Truth in Lending Act

Title 1 of the consumer credit protection act guarantees that all information about costs of a loan

Equal Credit Opportunity Act

prohibit the use of race, color, religion, national origin, marital status, age, receipt or public assistance, or exercise of any consumer right against a lender as a factor in determining creditworthiness

Fair Credit Reporting Act

aims to protect the information that credit bureaus, medical information companies, and tenant screening services may collect.

Fair Debt Collection Practices Act

protects customers from unfair collection techniques

charter

legal approval to operate a business as a bank

CAMELS system

Capital adequacy, Asset adequacy, Management, Earnings, Liquidity, and Sensitivity

ROCA score

a composite score of performance in risk management, operational controls, compliance, and asset quality

fixed exchange rate

a monetary valuation of one country's currency is tied to the valuation of another country's currency

flexible exchange rate

enables currencies to fluctuate based on market conditions

balance of payments

record of all of the exchanges of goods and services that occur between two countries

Federal Reserve System Open Market Account

the account the fed maintains international reserves in is the...

money supply

is defined as the liquid assets held by banks and individuals

liquidity

is a measure of how quickly things can be converted to something of value like cash

commodity money

based on some item of value

Fiat money

money that is deemed legal tender by the government, and it is not based on or convertible into a commodity

fractional-reserve system

where one keeps back or reserves only a fraction of the total gold that had been deposited

primary reserves

consists of vault cash and the required percentage amounts on deposit in the Federal Reserve District Bank

vault cash

cash on hand

secondary reserves

including securities the bank purchases from the federal government, and deposits that are due from other banks

excess reserves

reserves held by a bank beyond its reserve requirement

multiplier effect

new deposits go out to customers as loans and create more deposits, thus expanding the amount of money in the system

federal funds rate

amount of interest charged for short-term, interbank loans

discount rate

interest rate that the federal reserve sets and charges for loans to member banks

prime rate

rate that the banks charge their best and most reliable customers

transaction account

an account that allows transactions to occur without restrictions on the frequency or the volume of transactions

demand deposit

payable on demand whenever the depositor chooses

individual account

owned by one person

joint account

2 or more owners

Check 21

created a new category of negotiable instrument

time deposits

deposits that are held for or mature at a specified time

Money Market deposit accounts

offer a higher rate of interest than savings accounts, but they usually require a higher initial deposit to open an account

Certificates of deposit

certificates issued by banks that guarantee the payment of a fixed interest rate until the maturity date

maturity

which is a specified date in the future

interest

price paid for the use of money

compound interest

adding interest to the principal and paying interest on the new total is called ""

Annual Percentage rate

nominal rate on which interest

negotiable instrument

a written order or promise to pay a sum of money, either to a specified party or to the person who holds it

endorsing

signing your name on the back of the check

payee

receiver of the funds

identification numbers

check number, bank number, and account number

drawee

bank that maintains the account and holds the funds of the person or business that is writing the check

drawer

person who is writing the check

draft

an order signed by one party that is addressed to another party

bill of exchange

a negotiable and unconditional written order, such as a check, draft, or trade agreement, addressed by one party to another

promissory note

a written promise to pay at a fixed or determinable future time a sum of money to a specified individual

holder in due course

a written, signed unconditional promise or order to pay a fixed amount on demand or at a defined time to ""

blank endorsement

signature of the holder

restrictive endorsement

limits the use of the instrument to a means specified by the endorser

full endorsement

transfers the check to another party

qualified endorsement

an attempt to limit the liability of the endorser without limiting an instruments further negotiability

transit number

a 9-digit number that identifies the bank that holds the checking account and is responsible for payment

returned check

a check written on an account that doesnt have adequate funds

charge cards

a consumer purchases but must pay the account in full at the end of the month

credit cards

allow consumers to pay all or part of their bills each month and finance the unpaid balance

cash cards

commonly used at an ATM

debit cards

transfer money from a persons designated account to the account of the retailer

Asset Transformation

using deposits to generate revenue by putting deposits to work via loans

adverse selection

concept that the borrowers who are most willing to accept a high interest rate are the same borrowers who are most likely to default on their loans

captive borrower

a consumer with a weak credit history that can easily get a loan