Chapter 2 Financial Institutions

share draft account

A checking account at a credit union.

derivative

A contract designed to manage risk and make money.

depositor

A customer who makes a deposit.

savings account

A deposit account at a depository institution that earns interest and provides a safe place to store money.

commission

A fee, such as the kind charged by a stockbroker for placing an order.

commercial bank

A financial institution owned by investors that focuses on business customers, providing bank accounts along with specialized services such as foreign exchange, investment services, and capital loans; some also provide limited customer-oriented services such as personal checking and savings accounts.

credit union

A financial institution that provides many of the same services as banks and S&Ls, but owned by its members and run on a nonprofit basis.

investment bank

A financial institution that provides services for business, such as raising capital through the stock market.

insurance company

A for-profit business that primarily sells insurance.

money market account

A savings account that pays a high interest rate and requires a higher minimum balance than a traditional savings account.

stock

A security that gives the purchaser part ownership in the company, know as equity.

securities firm

A type of financial institution involved in the trading of securities in financial markets; also called a brokerage firm, stockbroker or bondbroker.

non-depository institution

A type of financial institution that does not accept deposits but accepts money from customers for the purpose of investing in business deals in order to spread risk and provide a means of investment.

savings and loan association (S & L)

A type of financial institution that helped customers save money by allowing small deposits and home loans; also known as a savings association or thrift institution.

full-service brokerage firm

Advises customers on which securities to buy and helps manage investments.

Federal Deposit Insurance Cooperation (FDIC)

An independent federal agencey established in 1993 that provides deposit insurance up to $250,000 for depositors in insured banks and thrifts in the case of a bank failure.

financial institution

Any organization or business that provides services related to money.

deposit insurance fund (DIF)

Arranges for depositors to maintain their insured funds in the case of bank failure. Depository institutions pay premiums to this fund in order to pool their money and share risk.

securities

Financial instruments that pay interest or give the investor part ownership of the company; issued by investment banks.

captive finance company

Formed by a manufacturer to provide loans so the manufacturer can easily sell its goods.

not-for-profit

Instead of paying profits to shareholders, money made by not-for-profit credit unions is returned to members in the form of high interest rates on savings accounts and lower interest rates on loans.

finance company

Issues loans to both individuals and businesses in order to make a profit, also known as a loan company.

consumer finance company

Provides high-interest personal loans to individuals who have poor credit.

payday lender

Provides short-term, high-interest loans designed to cover expenses until the borrower's next payday.

discount broker

Stockbroker who places orders for customers at commissions lower than full-service brokers and may offer only limited services.

insured

The person or thing covered by an insurance policy.

premium

Periodic payments made to purchase an insurance policy.

business finance company

Provides loans for businesses, such as retail stores.

bond

Represents money a government or company has borrowed from the bondholder.

transaction account

A bank account that allows the owner to use it to pay a third party, such as a checking account.

cooperative

A business or organization that is owned by its members to cooperate to run the organization.

dividend

A payment.

share account

A savings account at a credit union.

National Credit Union Share Insurance Fund (NCUSIF)

Established in 1970 to insure credit union deposits up to $250,000.

deposit insurance

Insurance that covers the deposits of customers in the case of a bank failure.

stockholder

An investor who expects to make a return from his or her investments in stock.

deposit

Money placed or transferred into a bank account.