Personal Finance chapters 5 and 6

safety deposit box

a box where a customer can store documents, jewelry, or other valuables

debit card

a card that is used to make purchases that are charged against a checking account

money order

a check that is written on behalf of a person for a fixed amount that is paid in advance

cashiers check

a check that is written on behalf of a person to a specific payee and will be charged against a financial institutions account - useful when the payee is concerned that a personal check may bounce

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 sponsors account ( no payee is designated on the check)

ATM

a machine where individuals can deposit and withdraw funds any time of the day

risk-free rate

a return on an investment that is guaranteed for a specified period

savings institutions (thrift institutions)

accept deposits and provide mortgage and personal loans to individuals

risk premium

an additional return beyond the risk-free rate that can be earned from a deposit guaranteed by the government

certificates of deposit (CDs)

an instrument that is issued by a depository institution and specifies a minimum investment , an interest rate, and a maturity date

examples of financial conglomerates

citigroup and bank of america

the interest rate charged on loans _____ the interest rate paid on deposits

exceeds

brokerage services

facilitate the trading of existing securities

depository institutions

financial institutions that accept deposits (which are ensured up to a maximum level) and offer traditional checking and savings accounts for individuals or firms and also provide loans; they pay interest on savings deposits and charge interest on loans

commercial banks

financial institutions that accept deposits in checking and savings accounts and use the funds to provide commercial and personal loans ; the checking accounts normally do not pay interest; the savings accounts pay interest

financial conglomerates

financial institutions that offer a diverse set of financial services to individuals or firms; may accept deposits and provide personal loans, as well as offer credit cards, provide brokerage services, offers mutual funds, provides insurance services

does a non-depository institution offer banking services?

no

securities firms

non-depository institutions that facilitate the purchase or sale of securities by firms or individuals by providing investment banking services and brokerage services

insurance companies

non-depository institutions that provide insurance to protect individuals or firms from the financial consequences of possible adverse events

investment companies

non-depository institutions that sell shares to individuals and use the proceeds to invest in securities to create mutual funds

credit unions

nonprofit depository institutions that serve members who have a common affiliation; provide mortgage and personal loans to their members

non depository institutions

provide various financial services but do not receive federal insurance for their deposits

finance companies

specialize in providing personal loans to individuals; tend to charge relatively high rates on loans because they lend to individuals who they perceive to have higher risk of defaulting on the loans

float

the time from when you write a check until your checking account glance is reduced

how do savings institutions differ from commercial banks

they tend to focus less on providing commercial loans

banking services

1) checking services -debit cards. mobile banking, paying bills on time, checking account fees, monitoring your account balance, reconciling your account balance 2) check float 3) savings accounts 4) credit card financing 5)safety deposit boxes 6) ATMS 7) cahsiers checks 8) money orders 9) travelors checks

three types of depository institutions

1) commercial banks 2) savings institutions 3) credit unions

Criteria used to select a financial institution

1) convenience 2) ability to pay bills online 3) deposit rates and insurance 4) fees

main types of non depository institutions that serve individuals are

1) finance companies 2) securities firms 3) insurance companies 4) investment companies

investment banking services include

1) placing securities that are issued by firms 2) advising firms regarding the sale of securities 3) advising firms that are considering mergers about the valuation of a firm, the potential benefits, and the financing necessary

the minimum amount an individual can invest in a mutual fund is typically between

$500 and $3,000

risk premium formula

RP = R- Rf