Chapter 10 and 9 Test

Chapter 9

1. Identify the various financial institutions.  commercial banks, savings banks, credit unions, savings and loans, and brokerage firms. 

2. What do you call a check that has not yet cleared your bank? outstanding check

3. What is a cashier’s check? a check that is issued and guaranteed by a bank- you provide funds to the bank to cover the check from your bank account.

4. What is relationship banking? is an ongoing group of services provided by a bank that involves assessing what a business has to offer to the bank and determining services and fees that can be provided to the business. It is used to attract and keep a bank’s business accounts 

5. What are the features of a savings account? a savings account is a safe place to store your money but typically earns a low rate of interest 

6. What are some benefits of saving? helps you be prepared for emergencies, gives you flexibility so that you can make better buying decisions, and allows you to accumulate money for large purchases, setting aside money today is the first step towards financial security 

7. What are the features of debit cards? is a card similar to an ATM card used to make point-of-sale (POS) purchases at businesses; the amount of the purchase is deducted from your account when the purchase is made

8. What is the advantage of compound interest?  is interest that continues to accumulate in both principal and interest, causing money in an account to grow at a more rapid rate. 

9. What is a bounced check? NSF fees are charged when a check is written that has insufficient funds (NSF) to cover the amount of the check.

10. What is the cost of borrowing money? Interest

Chapter 10

11. What is impulse buying? occurs when you buy something on the spot, without thinking about it.

12. Identify the 5 steps in a buying plan.
Step 1 – define your goal
Step 2 – set a spending limit
Step 3 – research your options
Step 4 – evaluate your options
Step 5 – make the purchase decision (will you use cash or credit?)

13. What are the benefits of credit? credit increases your standard of living, credit is convenient, credit is safer than carrying cash, using credit builds your credit history, credit increases your financing options 

14. What are the dangers of credit? credit can lead to overspending, credit may reduce comparison shopping, credit is expensive, credit ties up future income, credit can be dangerous during economic times

15. What are some examples of installment loans?  include home mortgage or car loan

16. What are some examples of revolving credit? credit cards, PLOCs and HELOC

17. What is a secured loan? is a loan where collateral serves as security for payment of the loan

18. How can a person improve their credit score? pay your debts on or before the due date, pay more than the minimum payment, reduce your outstanding credit (compared to credit available) , do not apply for more than one new account or card at a time, keep balances paid down, avoid interest, when possible, pay off cards with higher interest rates first, switch to lower-interest rate cards when possible 

19. Why do production loans generally have lower interest rates than consumer loans? A production loan is a loan that gives the business tools to create more money, and actively gives them revenue for loans and personal.

20. Who can see your credit report?  banks, creditors, student loan providers, utility companies, insurance companies, landlords, employers, government agencies, and someone with a court order.

21. What is the basis of most credit scores? is a numeric rating that is compiled on a point system by the credit bureaus

22. What is unused credit?  Unused credit is the difference between your credit limit and your credit balance on each account. 

23. What is a creditor? Creditors are individuals or entities that have lent money to another individual or entity.

24. What is collateral?  something of value that can be repossessed if the borrower fails to pay the loan as agreed. 

25. Which type of bankruptcy is also referred to as straight bankruptcy or liquidation bankruptcy? Chapter 7 bankruptcy

26. Which type of bankruptcy is also referred to as business reorganization? Chapter 11 bankruptcy

27. What are the benefits of bankruptcy? debtor has an automatic stay meaning that no further action may be taken by creditors, including collection of debts after someone has filed for bankruptcy, most debts are erased, and debtors are allowed to keep some of their property - a bankruptcy exemption is a property that the debtor does not have to forfeit to pay creditors

28. What are the costs of bankruptcy? bankruptcy damages your credit rating- stays on your credit file for 10 years, may make it difficult to get credit, buy a home, get life insurance, and sometimes a job, some debts are not discharged by bankruptcy, such as student loans and spousal or child support.

29. What is the 20/10 rule? An acceptable debt load requires that installment debt (other than a house payment) should not exceed 20% of the yearly take-home pay and that credit card (revolving credit) payments should be no more than 10% of your monthly take-home payment  to help maintain financial stability and avoid excessive debt accumulation.