FBLA Banking and Financial Systems

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.

2-for-1 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.

3-for-2 stock split

Medium credit-quality investment grade

AA and BBB

Highest bond rating; high credit-quality investment grade.

AAA and AA

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

BB, B, CCC, CC, C

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

D

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

FDIC

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

FTSE 100

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 Credit Reporting 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.

Fair Debt Collection Practices Act

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.

Form 10-K

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

IPO

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

M1

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

Microsoft and Intel

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.

Rule of 78

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.

Securities Investor Protection Corporation

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:

Truth in Lending Act

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.

acceleration 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.

add-on clause

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.

back-end load

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

balance sheet

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.

balloon payment

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

banking

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.

bond rating

The practice of using borrowed money to purchase securities.

buying on margin

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.

cash flow statement

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

cashier's check

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

check safekeeping

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.

coinsurance clause

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.

commercial bank

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

commercial bank

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

common size analysis

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

comprehensive physical damage

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.

contractual saving institution

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.

credit card

Depositors are the owners of ______.

credit unions

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.

currency swap

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.

debit card

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

defensive stocks

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.

demand deposit

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.

depository intermediary

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.

escrow

A new currency used by members of the European union.

euro

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

false

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

federal funds rate

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.

finance companies

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.

finance company

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

financial institution

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

fractional reserve banking

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.

front-end load

Paid by giver on a gift of money/property.

gift tax

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

hedge fund

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

higher interest rates

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.

income statement

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

independent agency

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

insurance company

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

investment banking

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

investment institution

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

joint-stock company

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.

junk bonds

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

liquid assets

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

load fund

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.

long position

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.

market capitalization

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

maturity value

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

money market mutual fund

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

municipal bonds

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

mutual company

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.

mutual fund

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

no load fund

Another way of saying "savings accounts."

passbook accounts

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

payable

The person who writes a check.

payer

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

payor

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

pension fund

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.

personal injury protection

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

premium

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.

prepayment clause

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

price-to-earnings ratio

Interest rate charged by banks to their best corporate borrowers.

prime rate

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.

property damage liability

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

qualified endorsement

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.

renewable term life insurance

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.

reserve requirement

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

short position

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

smart cards

A company or corporation whose capital is divided into shares.

stock company

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

suitability

Group of investment banks that jointly underwrite a security issue.

syndicate

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

systemic risk

An entry-level position at a financial institution.

teller

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

term deposit

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

title insurance

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.

treasury bonds

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.

trust department

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

trust department

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.

underwriter

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.

uninsured/underinsured motorist coverage

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.

whole life insurance

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

without recourse