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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.

par value

The nominal dollar amount assigned to a security by the issuer. Same thing as face value.

secondary market

A market in which an investor purchases a security from another investor rather than the issuer, subsequent to the original issuance in the primary market. AKA aftermarket.

guaranteed insurability

An insurance policy in which the insurer is required to renew the policy for a specified amount of time regardless of changes to the health of the insured.
Most important to individuals wishing to purchase health insurance.

online/electronic account access

Creditors are encouraging this for the following reasons: Bad debt collection costs are decreased; postage expenses are reduced; and material costs associated w/ producing paper statements are reduced.

common stock

A security that represents ownership in a corporation.
Most of the shares of stock traded on the major stock exchanges are this type of stock:

preferred stock

A class of ownership in a corporation that has a higher claim on the company's assets and earnings than common stock. This type of stock has a dividend that must be paid out before dividends to common stockholders (in the event of a bankruptcy, paying these shareholders takes precedence before common stockholders). However, the shares usually do not have voting rights.

stock dividend

A dividend paid as additional shares of stock rather than as cash. Stock dividends, unlike cash, are non-taxable.

finance charge

Any fee representing the cost of credit, or the cost of borrowing.

auction market

One of 2 main types of US stock markets. A market in which buyers enter competitive bids and sellers enter competitive offers at the same time. A stock's price = highest price that a buyer is willing to pay and lowest price that a seller is willing to sell at. (EX: NYSE)

dealer market

One of 2 main types of US stock markets. A market where dealers are assigned for specific securities. The dealers create liquid markets by purchasing and selling against personal inventory.

convertible preferred stock

Preferred stock that can be converted into a specified amount of common stock at the holder's option.

cumulative preferred stock

Preferred stock on which dividends accrue in the event that the issuer does not make timely dividend payments. Most preferred stock is this kind.

non-cumulative preferred stock

Preferred stock for which unpaid dividends do not accrue.

participating preferred stock

A preferred stock which, in addition to a regular dividend, also pays an additional dividend (the participating dividend) when common stock dividends exceed a specified amount.

callable preferred stock

A preferred stock that allows the issuer to repurchase the issued stock at a predetermined price. The right to repurchase is usually exercised when market rates fall below the preferred stock rate at time of issue. A firm issues this type of stock to protect itself from obligations to pay guaranteed dividends in the future.

prospectus

A condensed version of a registration statement containing essential info about the amount offered, the price, and the plans for the funds raised made available to potential investors.

annual report

Required document made available to shareholders of mutual funds on a fiscal year basis. It discloses certain aspects of a fund's operations and financial conditions.

IAR

Investment Advisory Representative. Responsibility is to provide investment related advice to clients for a fee.

insider

A director or senior officer of a company, as well as any person or entity that owns > 10% of a company's voting shares. Must comply with strict disclosure requirements with regard to the sale/purchase of their company's shares.

insider trading

Any trade of a company's shares based on material non-public knowledge.

debenture

An unsecured corporate bond.

Fair Credit Billing Act

Requires that creditors must investigate a debtor's written complaints about the accuracy of a bill or statement and respond within 30 days.

call option

An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period. Used by securities investors to gain control of a stock at a price below the market price.

yield

_____ on a stock is similar to the interest rate on a savings account. Otherwise known as the income return on an investment.

DRIP

In the securities industry, a Dividend Reinvestment Plan is offered by a corporation to allow investors to reinvest their cash dividends by purchasing additional shares or fractional shares on the dividend payment date.

S&P 500

An index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. Designed to be a leading indicator of U.S. equities. Investing success is usually measured by comparing an investor's percentage gain or loss to this.

reduce the risk of inflation

The Federal Reserve might sell Treasury bonds and raise the discount rate in order to:

discount broker

An individual/firm that carries out buy and sell orders at a reduced commission compared to a full-service broker, but provides no investment advice.
Ex: E-Trade, Ameritrade, Charles-Schwab

broker

An individual or firm that charges a fee or commission for executing buy and sell orders submitted by an investor.

full-service broker

A broker that provides a large variety of services to its clients, including research and advice, retirement planning, tax tips, and much more. Commissions much higher than those at discount brokers.

Keogh Plan

A tax deferred pension plan available to self-employed individuals or unincorporated businesses for retirement purposes. Can be set up as either a defined-benefit or defined-contribution plan, although most plans are defined contribution.

IRA

Individual Retirement Account. A tax-deferred retirement account for an individual that permits individuals to set aside money each year, with earnings tax-deferred until withdrawals begin at age 59 1/2 or later (or earlier, with a 10% penalty). Can be established at a bank, mutual fund, or brokerage.

Roth IRA

Type of IRA where taxes are paid on contributions, but withdrawals are not taxed at all. Does not require you to start making withdrawals at a certain age, and allows an individual to make a qualified withdrawal up to $10,000 for a first time home purchase.

Traditional IRA

Type of IRA where contributions are tax-deductible at the time they are deposited and both the principal and the income earned in the account are taxed as regular income when they are withdrawn as distributions.

SIMPLE IRA

Savings Incentive Match Plan for Employees
A retirement plan sponsored by companies with fewer than 100 employees; though it may be structured as a 401(K), it avoids some of the administrative fees and paperwork of those plans.

SEP-IRA

A retirement plan created to benefit self-employed persons and small business owners. Contributions to a SEP IRA are typically 100% tax deductible and earnings grow tax deferred.

tax-sheltered annuity

A type of annuity that allows an employee to make contributions from his or her income into a retirement plan. Contributions are deducted from the employee's income and are not taxed until withdrawal.

401(K)

A qualified plan established by employers to which eligible employees may make tax-deferred contributions (often matched by the company) to a trust.

fidelity bonds

Used to protect the firm against dishonesty of employees/agents. Covers various forms of losses, including fraudulent trading, theft and forgery.

discount loan

With this type of loan, borrowers receive less than the full amount of the loan and repay the full amount at maturity.

bull market

Good times, prices are rising or are expected to rise. Characterized by optimism, investor confidence and expectations that strong results will continue.

bear market

Bad times, prices are falling, and widespread pessimism causes the negative sentiment to be self-sustaining.

equation of exchange

(M V = P Q)
M = money supply
V = velocity of money
P = average price level of goods
Q = index of expenditures
Explains relationship between money and prices.

defined contribution plan

A retirement plan in which a certain amount or percentage of money is set aside each year by a company for the benefit of the employee. There are restrictions as to when and how you can withdraw these funds without penalties.

defined benefit plan

A company retirement plan, such as a pension plan, in which a retired employee receives a specific amount based on salary history and years of service, and in which the employer bears the investment risk. Contributions may be made by the employee, the employer, or both.

integrated pension plan

Plan that is tied to a person's payments into Social Security. This amount will be used in calculating the total benefit that the individual will receive upon retirement.

pension plan

A qualified retirement plan set up by a corporation, labor union, government, or other organization for its employees.

share draft

A check written on an account at a credit union.

NOW

Negotiable Order of Withdrawal. An interest-bearing checking account at a bank or savings and loan.

credit check

The process of evaluating an applicant's loan request or a corporation's debt issue in order to determine the likelihood that the borrower will live up to his/her obligations. AKA credit analysis.

F

T/F? All banks are organized as corporations.

banks

These institutions are essential to maintaining the economy and distribute the medium of exchange.

chartered

Banks may be ____ by either federal or state govn't.

government

In the US, banks and the _____ work together to form the banking system and to ensure the money supply is adequate, appropriate, and trustworthy.

income

Investments, loan payments, and fees for services are all considered sources of _____ for banks.

deposits

These are considered liabilities for a bank.

non-depository intermediaries

Government or private organization that serves as an intermediary between savers and borrowers, but does not accept deposits.

coins

Most common medium of exchange in colonial America.

Civil War

This in America brought monetary issues to a crisis point b/c rampant inflation threatened the entire economic system.

Federal Reserve

Functions include: conducting bank examinations, handling the the govn't central banking function, determining whether banks can borrow money from the govn't.

Emergency Banking Act of 1933

This act separated commercial banking from investment banking to protect assets.

$100,000

The FDIC guarantees bank deposits against bank failures for amounts up to _____.

too much money

What is a possible cause for rising prices/inflation? _____ moving in the economy.

factors in money creation

The Federal Reserve's supply/control of money, banks' use of money, the demand for money.

reserve requirement

Money on deposit, minus the _____, can be loaned by banks to customers.

discount rate

Interest rate that the Federal Reserve charges for short-term loans to member banks.

checking account

Most common form of a transaction account.

M1

Category of the money supply to which transaction accounts belong.

M2

One measure of the money supply that includes M1, plus savings and small time deposits, overnight repos at commercial banks, and non-institutional money market accounts. Used to forecast inflation.

M3

One measure of the money supply that includes M2, plus large time deposits, repos of maturity greater than one day at commercial banks, and institutional money market accounts.

MZM

Money Zero Maturity
Measuring of an economy's liquid money supply. Shows the money that is available within a particular economy that may be used for consumption and spending. Includes all of the money in M2, minus time deposits, and plus money market funds.

time deposit

Savings account or CD held in a financial institution, usually a bank, for a fixed term or with the understanding that the customer can withdraw only by giving advanced notice.
Ex: savings account, money market account, certificate of deposit.

compound interest

Adding interest to the principal and paying interest on the new total is called _____.

deposit rate schedules

Governing document listing interest rates in effect at the time for various types of accounts.

stale check

A check that is dated 6+ months before it is presented for payment/deposit is called _____.

payee

Receiver of funds (on a check).

negotiability

Characteristic of a document that allows it to be legally/freely assignable, saleable, or transferable. Elements include a signature, it must be written, and must state the amount to be paid.

blank endorsement

Least secure type of endorsement b/c it carries only the signature of the endorser and does not specify in whose favor it is made. Thus, it can be claimed by any party.

restrictive endorsement

Endorsement which limits further negotiability of a negotiable instrument. Ex: Words like "For Deposit Only" on the back of a check block its cashing over the counter.

installment loan

Consumer or business loan in which the principal and interest are repaid in equal installments at fixed intervals. Ex: automobile loans, home equity loans, education loans.

lien

Legal claim a lender has on property to secure a debt.

open-end loans

Line of credit that allows you to borrow money when you need it and leaves you with available funds when you don't.
With these, the longer you use the money, the more you pay.

payment history

Element of the FICO credit-scoring system that carries the most weight.

7

How many years does documentation of most credit problems stay in a consumer's file?

false

T/F? Credit bureaus may not report info more than 1 year old.

true

T/F? A creditor may not use receipt of public assistance as a factor in determining creditworthiness.

true

T/F? If there is a billing dispute, creditors may not take adverse action until the dispute is resolved.

true

T/F? Bill collectors may not call debtors at odd hours.

fixed rate mortgage

With this type of mortgage, payments on the loan, the interest rate, and terms all remain constant for the entirety of the loan.

index

The rate to which a lender's interest rate is tied.

reverse mortgage

This type of mortgage is repaid when the borrower dies.

25-28%

Generally speaking, housing costs should not exceed _____ of gross monthly income.

Home Mortgage Disclosure Act

This requires banks to record/report data on home lending in order to ID possible discriminatory patterns.

construction loan

Type of short-term business loan meant to cover the cost of land development and building construction. Often packaged w/ a real estate loan.

no

Would a business probably finance increasing their inventory using a term loan?

debt ratio

Debt divided by Income.

DSCR

Debt Service Coverage Ratio
Measurement of a property's ability to generate enough revenue to cover the cost of its mortgage payments. It is calculated by dividing the net operating income by the total debt service.

high DSCR

What would indicate that a company has a good bit of operating income available for debt service?

small wholesale business

As defined by the Small Business Admin., a _____ is one with 100 or less employees.

letter of credit

An instrument given by a bank on behalf of a buyer to pay back the bank of the seller a given sum in a given time.

Gramm-Leach-Bliley Act

One provision of this states that financial service companies are required to have and provide to customers a written privacy policy.

workers' compensation

The type of business insurance that pays for medical care/physical rehab of workers injured on the job.

lockbox service

Bank collection service that allows accounts receivable payments to be sent directly to the bank.

factoring

Practice of buying debt at a discount. A form of asset-based lending that advances cash to a business in exchange for its receivables.

donor

Person who creates a trust.

commercial bank

Privately owned financial institution that accepts demand/time deposits, makes loans, and provides various services. Accounts for about 60% of the US deposit/loan business.

National Currency Act of 1863

This act established standards for currency, taxed state bank notes, and made the printing of state bank notes unprofitable.

fiat money

Money with no intrinsic value and cannot be redeemed for commodities, but is made legal tender through govn't decree. Ex: US currency

secondary reserve

Bank assets invested in high grade short-term marketable securities (such as treasury bills) which serve as a source of liquidity supplemental to primary reserves. Ex: securities purchased from Federal govn't.

Federal Reserve

Influences the federal funds rate by buying/selling govn't securities.

passbook savings account

You are least likely to find this type of account at a modern bank.

drawer

Person who signs a draft.

negotiation

This term, as it applies to a negotiable instrument, means the ability of the holder to obtain its value.

debit card

Directly transfers money from a person's account to the account of a retailer.

fraud

Largest cause of loss to banks.

true

T/F? Consumers should endorse all checks in the presence of a bank teller.

true

T/F? Consumers should shred account statements and canceled checks rather than simply throwing them in the trash.

true

T/F? Consumers are advised not to leave spaces on checks.

false

T/F? Consumers should always have their SSN printed on checks to aid identification.

sum-of-digits method

This finance charge method takes the total finance charge, divides it by the # of months in the loan term, and assigns a higher ratio of interest to the early payments.

point

Value equal to 1 percent of a mortgage loan.

HOEPA loan

Consumer protection legislation designed to shield homeowners from abusive loan practices. Stated that lenders must make disclosures 3 days before closing, may not require balloon payments in less that 5 years on most loans, and also may not make loans that do not adequately consider the borrower's ability to repay.

false

T/F? HOEPA prohibits lenders from charging an APR that is 10 points higher than a rate on a Treasury Bill.

68%

What is the current home ownership rate in the US?

true

T/F? Equipment loans are often tied to the equipment itself, the financial position of the borrower, and the business's overall cash flow.

false

T/F? Equipment loans are often tied to the redevelopment of the business's real estate.

25%

What percentage of US commercial bank assets is held by foreign banking organizations?

currency risk

Risk posed by variations in exchange rates between countries.

collateral

Something of value given by a borrower to a lender to back up the borrower's promise to repay the loan.

Medicare/Medicaid

Examples of social insurance programs overseen by the Dept. of Health/Human Services.

major medical

This insurance is intended to cover the costs of surgery, hospitalization, and other large expenses arising from injuries and lengthy illnesses.

sponsor

People wanting to sell stocks and bonds must have a _____ before they can take licensing exams.

judgment

A court order that places a lien on a debtor's property as security for a debt owed to a creditor.

decreasing term

This type of life insurance policy is unique b/c the death benefits decrease on a scheduled basis. Most commonly used to cover a mortgage or other type of loan.

savings and loan association

Type of financial institution created for the purpose of promoting home ownership and which must make a majority of its loans for housing-related purposes.

listing agreement

Document allowing a real estate broker's firm to market a property to be sold.

street name

When a brokerage holds its clients' stock certificates, the stock is said to be held in _____.

divisible

Characteristic of money that makes it possible for recipients to give money back.

bond indenture

A legal contract between the borrower/creditor bondholders with details about the bond issue and any security involved.

prepayment clause

In a mortgage loan agreement, this would enable the borrower to pay off the principal balance of the loan without paying a penalty.

bear market

Condition of the stock market characterized by substantial and prolonged overall decline in major market averages.

derivatives

A financial instrument whose characteristics and value depend upon the characteristics and value of an underlier, typically a commodity, bond, equity or currency. Ex: corn futures contracts, put options, and forward agreements.

deed

Tangible evidence of ownership in real property.

mortgagee

Person who lends money to a real estate purchaser.

Securities and Exchange Commission

This board is composed of 9 commissioners, selected by the Federal Reserve Bank chairman, and approved by the US House of Representatives.

personal injury

This type of automobile insurance coverage is designed to protect both the insured and any passengers in the insured's car.

renewability

An option sometimes found in term life insurance policies that allows insured to continue purchasing the same policy without having to demonstrate that they are still insurable.

portfolio

A collection of stocks held by an individual or group.

Health Insurance Portability and Accountability Act

This act permits employees to take their health insurance eligibility with them when they change jobs.

credit unions

Where do you find share draft accounts?

Truth in Savings Act

This law requires banks to disclose, in writing, such consumer bank account terms as interest rate info, balance requirements, and the circumstances under which fees are charged.

Electronic Funds Transfer Act

This act describes the rights/liabilities/responsibilities of customers who use automated funds transfer services.

national banks

Banks that receive their charters from the US Dept. of the Treasury.

tax credits

Taxes owed are reduced dollar-for-dollar on a personal/corporate income tax return by _____.

tax liability

The item on a personal/business income tax return that taxpayers should pay the greatest amount of attention to and work hardest to reduce.

independent contractor agents

Used by some insurance companies to sell their products. These agents are usually compensated through commissions rather than salary.

Series E Bond

Savings bonds issued by the United States government between 1941 and 1979. Any interest that is accrued on these bonds is exempt from state and federal taxes. Accrues interest monthly, compound interest semiannually.

Series EE Bond

Savings Bond issued at a discount from par par with a fixed rate of interest, set at the time of purchase. All interest on the bonds is calculated semi-annually, but paid at maturity and exempt from state and local taxes. Accrues interest monthly, compound interest semiannually.

Series HH Bond

Series HH bonds are sold in amounts from $500 to $10,000. They may be redeemed after only six months, and their interest is exempt from state and local taxes.

false

T/F? It is illegal for banks to charge higher interest rates for loans than they pay depositors.

true

T/F? Interest on home-equity loans is tax-deductible for consumers.

false

T/F? A loan company is not a financial intermediary b/c it does not receive deposits.

true

T/F? Money is a medium of exchange for people to use to trade things of value.

false

T/F? A check is an example bank currency.

false

T/F? There was no form of paper currency in colonial America.

false

T/F? The National Banking Act of 1864 founded an adaptable, flexible system of central banking for the US.

true

T/F? An increase in money supply and incomes often causes prices to go up as well.

false

T/F? By law, every bank in the US must be part of the Federal Reserve System.

false

T/F? MZM is sometimes referred to as the "base" money supply.

false

T/F? The agreed-upon value of money in the US today is based on the govn't supply of gold at Fort Knox, Kentucky.

true

T/F? Most large money transactions involve ledger entries rather than the movement of physical currency.

false

T/F? A dollar bill represents an obligation of the govn't to provide a commodity of value to you.

false

T/F? Basic checking accounts pay interest on the balance deposited in the account.

true

T/F? Banks may require up to a seven-day notice from a depositor who wants to withdraw money from a time deposit.

false

T/F? Principal is the price paid for using money.

true

T/F? Money doesn't just mean currency, but also checks, ledger transfers, and even credit.

false

T/F? In the US, the govn't plays the greatest role in determining how money is moving.

true

T/F? Banks are free to change governing doc., but they must give customers written notice of changes.

true

T/F? Check use in the US is beginning to decline.

false

T/F? A check must be written on paper in order to be legal.

false

T/F? You must pay off your credit card account in full at the end of every month.

true

T/F? Personal loans do not require that specific purpose be stated.

false

T/F? The amount a borrower pays to use the principal of a loan is called a fee.

true

T/F? A balloon payment is a single large payment due at the end of a loan.

true

T/F? Subprime rates are higher-than-normal interest rates offered to a less-than-perfect credit applicant.

false

T/F? If a credit applicant has opened many new accounts recently, that is a sign that the applicant is very creditworthy.

true

T/F? Paying off a loan early saves the consumer no money if the sum-of-digits method has been used to figure finance charges.

false

T/F? High consumer debt is good for banks, b/c banks make most of their money from the interest paid on loans.

false

T/F? The Truth in Lending Act prohibits bill collectors from using deceptive or abusive tactics.

false

T/F? A borrower cannot use mortgaged property until the debt is paid in full.

false

T/F? Interest rates are usually lower for fixed rate mortgages than for other types.

false

T/F? A shared application mortgage is another form of consumer loan tied to the appreciated value of a property.

true

T/F? The Gramm-Leach-Bliley Act requires that financial institutions protect the privacy of consumers.

true

T/F? Qualifying veterans may get govn't-backed mortgage loans with low down payments through the Dept. of Veteran's Affairs.

true

T/F? Almost no business can exist without financing debt.

true

T/F? Contract financing is secured by the value of a specific contract.

false

T/F? Lenders for residential mortgages tend to be more conservative than for residential ones.

true

T/F? It is more difficult for lenders to evaluate business loan applications than it is consumer loan applications.

true

T/F? Unlike consumer lending, most commercial lending is regulated only by the terms of the loan agreement and some state laws.

true

T/F? The overwhelming majority of businesses in the US can be classified as small businesses.

false

T/F? Foreign bank branches operating in the US can accept deposits from US citizens only less than $100,000.

false

T/F? The Small Business Admin. is barred by law from assisting businesses that engage in international trade.

true

T/F? Every business, no matter how large or small, needs to disburse and collect cash to complete business transactions.

true

T/F? Credit card processing primarily occurs electronically.

true

T/F? A trust is an arrangement by which one party holds property on behalf of another property for certain defined purposes.

true

T/F? Probate is a court proceeding that settles an estate's final debts and formally passes legal title to property from the decedent to his or her heirs.

false

T/F? Banks are nonprofit organizations.

true

T/F? Credit cards issued by banks are a form of lending.

false

T/F? Generally speaking, banks offer customers fewer services today than they did 20 years ago.

true

T/F? Credit unions are nonprofit organizations.

false

T/F? A check is an example of bank currency.

false

T/F? The first Bank of the US was a govn't institution.

true

T/F? In the absence of a national banking system, state banks grew in number/influence in the early years of the US.

false

T/F? The National Banking Act of 1864 spelled the end of state banking systems in the US.

true

T/F? One of the main functions of the Federal Reserve is to serve as a bank for other banks.

true

T/F? Banks can loan customers the money it has on deposit, minus the reserve requirement.

false

T/F? A bank may not use excess reserves to give depositors their money back if they demand it.

true

T/F? The prime rate is usually the same among major banks.

true

T/F? A transaction account allows transactions to occur at any time and in any number.

false

T/F? You cannot get your money from a certificate of deposit before the maturity date.

false

T/F? Compound interest uses the same principal amount every time it is calculated.

true

T/F? Money doesn't just mean currency, but also checks, ledger transfers, and even credit.

true

T/F? The fastest-growing segment of banking security issues involves safeguarding the technology that makes doing business possible.

true

T/F? Fraud prevention occupies more resources of the banking industry than any other activity except routine processing.

true

T/F? A mortgage is the longest/largest debt most people will ever incur.

false

IT/F? nterest rates are usually lower for fixed rate mortgages than for other types.

true

T/F? A larger down payment on a home lowers the cost of the monthly payment.

false

T/F? Private mortgage insurance protects the lender against loan default; it is not typically required for borrowers whose down payment is 10 percent or greater.

false

T/F? First step in the mortgage approval process is documentation.

true

T/F? Commercial lending can apply to individuals as well as businesses.

true

T/F? Contract financing is secured by the value of a specific contract.

false

T/F? The govn't lends billions of dollars each year to American businesses through the Small Business Admin.

true

T/F? Charitable organizations are not eligible for SBA loan guarantees.

false

T/F? The number of banks that are helping companies conduct business overseas is declining.

true

T/F? The most common type of trade financing involves a letter of credit.

false

T/F? A capital investment is more liquid than stocks or bonds.