FBLA Banking and Financial Systems

banking

The issuing, exchanging, loaning, and custody of money and the extension of credit.

payer

The person who writes a check.

2-for-1 stock split

When each stockholder receives an additional share for each share held, but the value of each share is reduced by half: two shares now equal the original value of one share before the split.

3-for-2 stock split

When each stockholder receives an additional share for every two shares held, but the value of each share is reduced by 2/3: three shares now equal the original value of two shares before the split.

credit card

A card issued by a financial company giving the holder an option to borrow funds, usually at point of sale. They have higher interest rates (around 19% per year) and are primarily used for short-term financing. Interest usually begins one month after a purchase is made and borrowing limits are pre-set according to the individual's credit rating.
One of the most popular and widely accepted forms of payment for consumer goods and services in the U.S.

debit card

An electronic card issued by a bank which allows bank clients access to their account to withdraw cash or pay for goods and services. This form of payment also removes the need for checks as it immediately transfers money from the client's account to the business account.
The major benefits to this type of card are convenience and security.

Securities Investor Protection Corporation

Insures investors accounts for up to $500,000 (including $100,00 in cash), in the event of fraud or the bankruptcy of a member securities brokerage.

add-on clause

Provision contained in an installment contract. An add-on clause creates a security interest in the earlier goods until full payment is made on the new goods. By this clause, the earlier purchases serve as the security for new purchases.

false

True or false? Purchasers of automobile liability insurance can reduce their premium costs by agreeing to a deductible.

liquid assets

Assets that are easily convertible to cash, such as those in savings accounts, stocks, and US savings bonds.

higher interest rates

A tight money policy followed by the Federal Reserve would most likely result in:

renewable term life insurance

Best for short-term life insurance. Policies that start out with low premiums, but increases each time the term is renewed. Policyholders are guaranteed renewal for succeeding terms even if they have a serious illness.

Truth in Lending Act

Lenders are required to disclose the true costs of credit to borrowers, including the total amount of interest charged over the life of a loan and the amounts of monthly payments by this federal law:

escrow

When real estate agents have the bank collect money from buyers and put it into the seller's account, they are using the bank's _____ services.

municipal bonds

Bonds issued by a local government, or its agencies. Most likely would have the lowest interest rate.

balance sheet

A financial statement that shows the firm's assets and liabilities.

property damage liability

Insurance coverage that pays for the damages to the car and possessions (including stationery objects such as trees/mailboxes) of the other party in an accident that is your fault.

comprehensive physical damage

Insurance coverage that covers the cost of damages to your car caused by natural disasters, fire, robbery, theft, vandalism, and more.

personal injury protection

Insurance coverage that covers medical expenses, although it depends based on plan/provider, usually it covers most medical costs, hospital costs, Income continuation, lost wages and funeral costs.

price-to-earnings ratio

Ratios that relate a stock's price to the firm's profits, thus allowing investors to evaluate stock prices.

mutual company

A type of insurance company that returns part of the profits of the company to its policyholders.

independent agency

Created by Congress to address concerns that go beyond the scope of ordinary legislation.

passbook accounts

Another way of saying "savings accounts."

credit unions

Depositors are the owners of ______.

prime rate

Interest rate charged by banks to their best corporate borrowers.

whole life insurance

Life insurance policy that remains in force for the insured's whole life. Advantage = cash values can build up that policy holders can borrow against later.

teller

An entry-level position at a financial institution.

euro

A new currency used by members of the European union.

commercial bank

Primary lending function is to help business owners who want to expand.

suitability

An important element in determining proper business practices. Financial professionals recommend financial products based on the client's financial, social, and emotional circumstances.

defensive stocks

Those likely to have share prices that are more volatile that those of growth stocks. Most popular when economic outlook is not very positive.

trust department

This part of a bank would be most likely to manage money for a 12-year-old who received an inheritance.

cashier's check

A check drawn on the bank's own funds, often requested by seller to be assured of payment.

M1

The narrowest definition of the money supply. Includes currency, travelers' checks, and balances in checking accounts.

fractional reserve banking

A certain percentage of any deposit that is placed in the vault while the remainder is lent out/invested by the bank.

junk bonds

A colloquial term for a high-yield or non-investment grade bond. Junk bonds are fixed-income instruments so called because of their higher risk. However, they have speculative appeal because they offer much higher yields than safer bonds. Companies that issue junk bonds typically have less-than-stellar credit ratings, and investors demand these higher yields as compensation for the risk of investing in them. A junk bond issued from a company that manages to have its credit rating upgraded will generally have a substantial price appreciation.

bond rating

A grade given to bonds that indicates their credit quality. Private independent rating services such as Standard & Poor's, Moody's and Fitch provide these evaluations of a bond issuer's financial strength, or its the ability to pay a bond's principal and interest in a timely fashion.

AAA and AA

Highest bond rating; high credit-quality investment grade.

AA and BBB

Medium credit-quality investment grade

BB, B, CCC, CC, C

Low credit-quality (non-investment grade), or "junk bonds."

D

Bonds in default for non-payment of principal and/or interest

Fair Credit Reporting Act

US Federal law that protects and regulates the collection, dissemination, and use of consumer information, including consumer credit information that credit bureaus may collect.

Fair Debt Collection Practices Act

Which prohibits debt collectors from using abusive, unfair, or deceptive practices to collect from you. It covers personal, family, and household debts, including money you owe on a personal credit card account, an auto loan, a medical bill, and your mortgage. Does not cover debts you incurred to run a business.

trust department

Department of a bank whose purpose is to handle the administration of trust funds, provide estate planning support, and in some cases see to the disposition of the estate of a deceased customer.

treasury bonds

A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Makes interest payments semi-annually and the income that holders receive is only taxed at the federal level. Issued with a minimum denomination of $1,000.

investment banking

Financial activities that involve underwriting new security issues and providing advice on mergers and acquisitions.

underwriter

One who purchases new issues of securities and resells them to investors for a profit. Usually investment banks that guarantee/select the risks an insurance company agrees to accept.

IPO

Initial Public Offering. First time a firm sells stock to the public.

syndicate

Group of investment banks that jointly underwrite a security issue.

investment institution

Financial firm, such as a mutual fund or a hedge fund, that raises funds to invest in loans and securities.

mutual fund

Financial intermediary that raises funds by selling shares to individual savers and invests the funds in a portfolio of stocks, bonds, mortgages, and money market securities.

money market mutual fund

Mutual fund that invests exclusively in short-term assets, such as: treasury bills, negotiable certificates of deposit, and commercial paper.

hedge fund

Financial firms organized as a partnership of wealthy investors that make relatively high-risk, speculative investments.

finance company

Non-bank financial intermediary that raises money through sales of commercial paper and other securities and uses the funds to make small loans to households and firms.

contractual saving institution

Financial intermediary such as a pension fund or an insurance company that receives payments from individuals as a result of a contract and uses the funds to make investments.

pension fund

Financial intermediary that invests contributions of workers and firms in stocks, bonds, and mortgages to provide for pension benefit payments during workers' retirements.

insurance company

NON DEPOSITORY intermediary that specializes in writing contracts to protect policy-holders from the risk of financial loss associated with particular events.

systemic risk

Risk to the entire financial system rather than to individual firms or investors.

cash flow statement

One of the quarterly financial reports any publicly traded company is required to disclose to the SEC and the public. Provides aggregate data regarding all cash inflows a company receives from both its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given quarter.

income statement

AKA "profit and loss statement" or "statement of revenue and expense." A financial statement that measures a company's financial performance over a specific accounting period. Also shows the net profit or loss incurred over a specific accounting period, typically over a fiscal quarter or year.

Form 10-K

A comprehensive summary report of a company's performance that must be submitted annually to the Securities and Exchange Commission. Typically contains much more detail than the annual report. It includes information such as company history, organizational structure, equity, holdings, earnings per share, subsidiaries, etc.

stock company

A company or corporation whose capital is divided into shares.

joint-stock company

A joint-stock company is a business entity which is owned by shareholders.

demand deposit

Funds held in an account from which deposited funds can be withdrawn at any time without any advance notice to the depository institution. Can be "demanded" by an account holder at any time. Accessible by the account holder through a variety of banking options, including teller, ATM and online banking.

term deposit

A type of account which cannot be accessed for a predetermined period (typically the loan's term).

currency swap

A swap that involves the exchange of principal and interest in one currency for the same in another currency. It is considered to be a foreign exchange transaction and is not required by law to be shown on a company's balance sheet.

long position

The buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value. Stock market investors are in this position when they hold stocks purchased with case or on margin.

short position

The sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value.

buying on margin

The practice of using borrowed money to purchase securities.

coinsurance clause

Insurance policy stipulation that a building must be insured for at least a certain percentage (usually 80 percent) of its insurable value (appraised or market value of the property less value of land) in order to collect the full amount of a partial-loss claim on it.

acceleration clause

Most often found in mortgage/real estate loans, this outlines the reasons that the lender can demand loan repayment. If the borrower does not make payments on time, the entire unpaid principal balance can be declared immediately due and payable.

balloon payment

A large, final payment on the loan. These clauses usually call for the final payment to be made in 5, 10, 15 years, etc., from the original sale date.

prepayment clause

A clause in a mortgage contract that says if the mortgage is prepaid within a certain time period, a penalty will be assessed. The penalty is usually based on percentage of the remaining mortgage balance or a certain number of months worth of interest.

Rule of 78

For a 12 month loan, 12/78s of the finance charge is assessed as the first month's portion of the finance charge, 11/78s of the finance charge is assessed as the second month's portion of the finance charge and so on until the 12th month at which time 1/78s of the finance charge is assessed as that month's portion of the finance charge.

market capitalization

The total dollar market value of all of a company's outstanding shares. Calculated by multiplying a company's outstanding shares by the current price of one share.

depository intermediary

Bank, building society, credit union, or other financial institution that solicits and accepts savings of the general public as demand deposits or time deposits, and pays a fixed or variable rate of interest.

financial institution

An establishment that focuses on dealing with financial transactions, such as investments, loans and deposits.

commercial bank

An institution which accepts deposits, makes business loans, and offers related services. Also allow for a variety of deposit accounts, such as checking, savings, and time deposit. Primarily concerned with receiving deposits and lending to businesses.

gift tax

Paid by giver on a gift of money/property.

front-end load

A commission or sales charge applied at the time of the initial purchase for an investment, usually mutual funds and insurance policies. It is deducted from the investment amount and, as a result, it lowers the size of the investment.

back-end load

A fee that investors pay when selling mutual fund shares within a specified number (usually 5-10) of years. The fee amounts to a percentage of the value of the share being sold.

uninsured/underinsured motorist coverage

Purpose of this type of insurance is to compensate another driver when the insured did not purchase enough liability insurance to cover medical expense or losses to another's property.

title insurance

This type of insurance protects the insured from losses arising from an event that occurred before the policy was purchased.

smart cards

These have embedded microchips, and can be reused as value can be stored, used, and restored by banks/merchants.

FTSE 100

The British (London Stock Exchange) equivalent of the Dow Jones 30 Industrial Average.

qualified endorsement

Endorsement that adds certain words which limit, qualify, or restrain the endorser's liability. For example, adding the term 'without recourse.'

payor

The person who makes payment to another; the person who pays. AKA drawer.

payable

This word, when written on a balance sheet, indicates an amount owed.

without recourse

This phrase is a type of qualified endorsement, which limits the liability of the person endorsing the check.

check safekeeping

Common practice whereby the bank does not return canceled checks but allows customers to request photocopies if proof of payment is required.

finance companies

These companies often charge higher interest rates on loans because people who borrow from them usually have had past credit trouble or don't otherwise qualify for loans from lower interest sources.

common size analysis

Comparison of different-sized firms in the same industry when analyzing a firm's financial statements.

FDIC

Federal Deposit Insurance Corporation. Responsibilities include enforcing regulations ensuring that banks operate in a sound manner.

reserve requirement

When the Federal Reserve increases this, banks must retain more of each dollar deposited, reducing the amount they can lend. This does not change very often.

federal funds rate

Interest rate that the Federal Reserve suggests that member banks charge each other on short-term borrowing.

premium

The amount by which a bond or stock sells above its par value.

no load fund

A mutual fund which doesn't impose a sales or redemption charge, selling and redeeming its shares at net asset value.

load fund

A mutual fund that comes with a sales charge or commission.

Microsoft and Intel

First two NASDAQ stocks to be included in the Dow Jones Industrial Average in 1999.

maturity value

The amount that will be received at the time a security is redeemed at its maturity. For most securities, maturity value equals par value.