chapter 5
travelers check
a check that is written on behalf of an individual and will be charged against a large well-known financial institution or credit card sponsor's account
money order
a check that is written on behalf on a person and will be charged against a non financial institutions account
your great aunt mary passed away and left you and inheritance of $5,000. since you don't have a need for the money in the near future, which of the following would be the best place to put the $5,000?
a five-year CD paying 4.38% annually
risk-free rate
a return on an investment that is guaranteed for a specified period
You have $3,000 that you may need any day to replace the furnace in your house. which of the following would be the best place to put the $3,000?
a savings account earning 2%
securities firms are firms that
accept and invest individual savings and also facilitate the sale and transfer of securities between investors
check 21
act that allows the conversion of a paper check to an electronic image that can be processed quickly
bank fees for an ATM...
are usually a large consideration in choosing a bank with which to do business
to join a credit union you need to
be a member of a group with a common bond
you are closing on the purchase of a new home and your closing costs including down payment are $10,500. to process the loan and be assured of funding, the title company would request your payment as a
cashier's check
secured check alternatives
cashier's checks, money orders, and traveler's checks
cashiers check
check written on behalf of a person to a specific payee and will be charged against a financial institutions account
depository instituions examples
commercial bank savings institution credit union
primary considerations in choosing a financial institution for your needs
convenience, deposit rates and insurance, and fees
A financial conglomerate offers a diverse set of services that include
credit cards personal loans brokerage subsidiary
not a service depository institution might offer
credit counseling
not a fee financial institutions charge
depository insurance
federal deposit insurance corporation
deposits at commercial banks are insured by this government owned insurance agency
interest rates rise
deposits earn higher rate of interest pay a higher rate to borrow funds
advantage of using ATM cards
easy and convenient to withdraw access to your account any time of day bank at remote locations all over the world
If you have $10,000 that you do not currently need for expenses and you wish to put it somewhere so that it will earn a return, which of the following financial institutions would you not choose
finance company
you will be charged the highest rate of loan at a
finance company
finance companies
financial institution specializes in making personal loans to people who are perceived to have a higher risk of default
depository institutions
financial institutions that accept deposits
depository instituions
financial institutions that accept deposits (that are insured up to a maximum level) from individuals and provide loans
depository institution are
financial institutions that accept deposits (that are insured up to a maximum level) from individuals or firms and provide loans
nondepository institutions
financial institutions that provide various financial services, but their deposits are not federally insured
depository institution examples
first national bank of chicago american 1 federal credit union new england savings bank
disadvantages of using ATM card
forgetting to record transactions fees from your bank and other banks for for using out-of-network machines increased fees if you make too many transactions per period
financial institutions loan funds at a
higher interest rate than they pay depositors
finance companies are more selective in choosing their lender they serve and therefore charge
higher interest rates than banks or credit unions
higher risk
higher rate
NOT an example of a depository financial institution
insurance company
common characteristic between commercial banks and credit unions
insurance up to $250,000
a mutual fund is means by which
investors with only a small amount of money can invest in a portfolio of securities
when the federal reserve wishes to reduce interest rates
it increases the amount of funds at commercial banks
does not vary at a commercial bank
limit on FDIC insurance on accounts
true regarding CD's
longer the term, higher interest early withdrawals of money are subject to a penalty the investment of large amounts will pay higher interest than lower amounts
occupy wallstreet
movement that began in september 2011 to protect against large banks that are believed to receive excessive support from the government
investment company
mutual fund or combination of investments
securities firm
non depository institutions that facilitate the purchase or sale of securities by providing investment banking and brokerage services
insurance companies
non depository institutions that provide insurance to protect individuals or firms against possible adverse events
securities firms
non depository institutions that sell and purchase securities
investment companies
non depository institutions that sell shares to individuals and use the proceeds to invest in securities to create mutual funds
credit unions are
nonprofit depository institutions that serve members who have a common affiliation(such as the same employer or same community)
financial conglomerates
organizations that offer a diverse set of financial services to individuals and firms
web-based financial institutions
pay higher interest rate sin deposits
CD's with shorter maturity rates
pay lower interest rates
relationship between risk and return
positive
insurance company
protection against adverse effects
not change checking account balance
purchases using credit card
can change interest rates
shift in savings by investors shift in monetary policy of the fed shift in business demand for funds
government borrows funds
shift in the demand for funds
finance copany
specializes in personal loans
risk-free rate determined by
supply and demand
savings institutions differ from commercial banks in that they..
tend to focus less on providing commercial loans
risk premium
the amount of interest you might receive over and above the risk-free return insured by the federal government
commercial banks are
the financial institution used the most by business customers wishing to borrow money
term structure of interest rates is the relationship between
the maturities of risk-free debt securities and the annualized yields offered on those securities
another name for saving institutions that accept deposits and provide mortgage and personal loans to individuals
thrift institutions
credit cards allow you
to pay for a purchase later when the bill arrives
interest rate changes are affected by the relationship of the
total supply of funds provided by all investors and the total demand for funds by all borrowers
term structure based on rates of return or yields offered by
treasury securities which are debt securities issued by the US treasury with different maturities
Bank ATM charges may be substantial if you make many transactions monthly and use out-of-network machines.
true
interest rates decline, maximize earnings by putting savings in a
two year certificate of deposit
increase in spending by US government
upward pressure on interest rates increase in demand for funds increase in issuance of treasury securities
yield curve is typically
upward sloping
when interest rates are rising
use long-term loans to take advantage of current low rates
open market operations
what the fed uses to buy or sell securities
term structure of interest rates is measured by a
yield curve
deposits in commercial banks which are members of the FDIC, are insured up to a maximum of..
$250,000
introductory high interest rates paid by financial institutions for new accounts
BAD deal