Financial Environment and Financial Planning - Vocabulary

Flashcards for reviewing key vocabulary from a Financial Environment and Financial Planning lecture.

Finance

The study of how individuals, institutions, governments, and businesses acquire, spend, and manage money and other financial assets.

Economics

Use supply and demand to explain how prices and quantities of goods and services are determined in the market.

Accounting

Provide record‐keeping mechanisms of organizations that produce goods and services.

Financial System (FS)

A network of financial institutions and markets that help facilitate the movement of funds (credit, capital, money) from savers to borrowers.

Functions of the Financial System

Ensure liquidity, facilitate smooth financial transactions, monitor corporate governance, provide risk management, and enable economic activities and growth.

Three Components of the Financial System

Financial Institutions / Intermediaries, Financial Markets, and Economic Units.

Financial Intermediaries (FIs)

Financial institutions that help the financial system operate efficiently.

Depository Institutions

Commercial banks, savings and loan associations, savings banks, and credit unions.

Contractual Savings Organizations

Insurance companies and pension funds.

Securities Firms

Investment companies, investment banking firms, and brokerage firms.

Finance Firms

Finance companies and mortgage banking firms.

Thrift Institutions

Non-commercial bank depository institutions that accumulate individual savings and lend primarily to other individuals.

Depository Institutions (DI)

Financial institutions that accept deposits from individuals and then lend these pooled savings to businesses, governments, and individuals or invest in securities.

Checking Accounts or Current Accounts

Checks are liquid assets and money is available on demand by writing a check; owners must have an account and money in the account.

Savings Accounts

Money is available on demand, passbook is given, but no checks; interest is earned.

Fixed-Rate Accounts (Fixed Deposit/Time Deposit/Certificate of Deposit: CD)

Depositors deposit equal amount of money for a certain period of time .

Expansion

Economic upswing where GDP is increasing.

Contraction

Period of economic decline where GDP is decreasing.

Deposit Protection Agency (DPA)

Your deposits are guaranteed under this agency in Thailand.

Mortgage Loan

A loan to buy real property, such as a house or land.

Secured Loans

Borrowers use that real property as collateral

Collateral

Something used to guarantee for the loan.

Credit Unions

Cooperative, non-profit organizations organized by individuals who possess common bonds of association

Contractual Savings Organizations

Organizations in the form of insurance companies and pension funds.

Life Insurance

Provides economic security for dependents for premature death of insured individual.

Health Insurance

Provides protection against possible catastrophic medical expenses when an insured individual becomes ill or has an accident.

Property Insurance

Protects a policyholder against financial loss from fire, theft, and other insured perils.

Liability Insurance

Protects a policyholder against financial loss from a claim of negligence charged by another individual.

Pension Funds

Funds that provide pension benefits for employees at retirement.

Provident Fund (PVD)

Employers and employees voluntarily contribute to the fund.

Social Security (SS) Plan

Plan funded by currently working individuals paying taxes to provide minimum retirement benefits.

Security Firms

Financial institutions that deal with securities and investment

Investment Companies

Combine small amounts of money from small savers and invest in securities.

Mutual Funds

Sell shares to investors, who then own shares in the investment portfolio based on their purchase.

MMMF

Money market Mutual Funds that invest in money market instruments only

Fund Fact Sheet

A mutual fund's summary, which provides key information such as investment policy, risk level, and historical performance.

Net Asset Value (NAV)

The current market value of a mutual fund's assets, less any liabilities, divided by the number of shares outstanding.

Advantages of Mutual Funds

Investment objectives and risk Diversification

Investment Banking Firms (IB)

FIs that provide advice to businesses and help firms to raise capital.

Initial Public Offering (IPO)

Initial sale of a firm’s equity to the public for the first time.

Public Offering (PO)

A sale of securities to the public

Private Placement (PP)

A sale of securities to a small group of private investors.

Due Diligence

A detailed study of the firm (issuer) that an IB performs.

Prospectus

Information which details the issuer's finances and other performances required by SEC

Underwriting Agreement

IBs buy all securities from an issuer at a predetermined price.

Best-Effort Agreement

IBs help to sell securities at their best effort, receiving fees (commissions) for securities they sell.

Tombstones

Announcement of securities offerings in newspapers and other publications, restricted in wording and not soliciting sales.

Lead Bankers

IB chosen to originate and handle a flotation (initial sale of newly issued debt + equity securities).

Syndicates

Several IBs as a group, formed for large issues to help in underwriting and distribution.

Brokerage Firms

Customer’s agent that assists individuals who want to buy or sell securities.

Churning

Practice of excessively trading assets in a client's account to generate commissions

Dealers

What satisfies investors' trades by buying and selling securities from own inventory

Spread

Difference between price they pay to buy securities (Bid) and price they sell (Ask) securities

Finance Firms

FIs that make loans to households and businesses

Sales Finance Companies:

Associated with large corporations helping to increase the sales of their products make installment loan purchases of automobiles and other durable goods

Consumer Finance Companies

Provide small loans to individuals and HH

Commercial Finance Companies

Provide loans to businesses that are unable to obtain financing from commercial banks

Factoring

A firm (that needs money) can sell A/R before maturity Factors buy A/R before maturity at a discount price

Leasing

A contractual arrangement b/w Leasing company (lessor) and customer (lessee) to use equipment

Misleading advertising

FIs use to attract customers. FIs use misleading language or hide important information in the fine print

Ponzi schemes

Fraudulent investment schemes that promise high returns to investors. The returns are paid using the investments of new investors, not profits earned by the scheme

Predatory lending

Takes advantage of vulnerable borrowers by offering them loans with high-interest rates and hidden fees

Conflict of interest

Prioritize own interests over those of its clients, violating the duty of care that financial institutions owe to their clients