Unit 2 Exam study
True/ False: In addition to the Consumer Credit Counseling Service, universities, credit unions, military bases, and state and federal housing authorities sometimes provide credit counseling services.
True
True/ False: One way to gather information about a product is to use an independent testing organization like Consumers Union.
True
True/ False: Parents or family members are often the source of the least expensive loans.
True
True/ False: Several federal government agencies publish materials to assist consumers with buying decisions and financial planning.
True
True/ False: The Consumer Credit Counseling Service counseling is usually free.
True
True/ False: The Federal Deposit Insurance Corporation provides deposit insurance for your money in a bank.
True
True/ False: The best way to maintain your credit rating is repay your debts on time.
True
True/ False: The credit bureau cannot charge you a disclosure fee if you ask to see your file within 60 days of being notified of a denial based on a credit report.
True
True/ False: The fairest method of calculating interest is the average daily balance method.
True
True/ False: The finance charge is the total dollar amount you pay to use credit.
True
True/ False: The first phase in the buying process involves information gathering.
True
True/ False: The major criticism of service contracts is high costs and a low chance of need.
True
True/ False: The money market fund offered by investment companies is a relatively liquid financial service.
True
True/ False: The process of resolving consumer complaints with the use of a third party who suggests a solution through discussion and negotiation is mediation.
True
True/ False: Unit pricing uses a standard unit of measurement to compare prices of packages of different sizes.
True
True/ False: When interest rates are rising, a person would be best served by short-term savings instruments.
True
True/ False: Your debt-to-equity ratio is calculated by dividing total liabilities by net worth.
True
Debit Card
a plastic access card used in computerized banking transactions; also called a cash card
Revolving check credit
a prearranged loan from a bank for a specified amount; also called a bank line of credit
Compounding
a process that calculates interest based on previously earned interest
money market account
a savings account that requires a minimum balance and earns interest that varies from month to month
Certificate of Deposit (CD)
a savings plan requiring that a certain amount be left on deposit for a stated time period to earn a specified interest rate (Time deposits - share certificates)
Overdraft protection
an automatic loan made to checking account customers to cover the amount of checks written in excess of the available balance in the checking account
Share draft account
an interest-bearing checking account at a credit union (share draft against their account balance)
Closed-end credit
one-time loans that the borrower pays back in a specified period of time and in payments of equal amounts
Disadvantages of Credit
overspending, higher cost, impulse buying, fail to pay load
Certified check
personal check with guaranteed payment
Asset management account
provides a complete financial services program for a single fee (Cash management account/ wealth management account)
Advantages of credit
purchasing power, emergency funds, convenience, deferred billing, proof of purchase, safety
Truth in Savings Law
states that financial institutions have to inform you of fees on deposits, interest rates, annual percentage yield, and terms & conditions of savings plans
Line of credit
the maximum amount of money a creditor will allow a credit user to borrow
Rate of return
the percentage of increase in the value of your savings from earned interest (yield)
Consumer Credit
the use of credit for personal needs (except home mortgage)
Regular savings account
A savings Plan with a low or zero minimum balance. (Share accounts)
Deposit Ticket
Add funds into checking account
"Loading"
Adding funds to
Credit
An arrangement to receive cash, goods, or services now and pay for them in the future.
True/ False: You may be denied credit because you receive Social Security or public assistance. No, but you may not have enough income to qualify)
False
Definition: Trust
Legal agreement that provides for the management and control of assets by one party for the benefit of another
True/ False: If someone has stolen your identity, the Federal Trade Commission recommends that you contact the fraud departments of each of the three major credit bureaus.
True
True/ False: If you default on your car loan, no advance notice is required before repossession.
True
True/ False: If you have declared personal bankruptcy, that fact may be reported to credit bureaus for 10 years.
True
True/ False: If you want to reduce your borrowing costs, you may need to accept conditions that lower the risk for your lender.
True
True/ False: If you want to take advantage of the interest-free period on your credit card, you must pay your bill in full every month.
True
Debt to Equity Ratio
total liabilities/total equity
True/ False: The Consumer Credit Counseling Service will refinance all of your existing debts.
False
True/ False: The borrower's attitude toward his or her credit obligations is called collateral.
False
True/ False: The least expensive loans are available from finance companies and retailers.
False
True/ False: The more frequent the compounding, the less a person will earn on a savings account.
False
True/ False: When you cosign a loan, you do not have to guarantee this debt.
False
Types of endorsements
- Blank (signature) - Restrictive (For deposit only) - Special (pay to the order of) - Remote (mobile)
Reasons to use a credit card
- Delay payment for purchase - Credit history - Online or major purchases - Reward points
Common trade-offs for financial services
- Higher returns for long-term will be at the cost of low liquidity - ATM with service fees - "no fee" checking account requires non-interest-earning of $500
Other Financial Institutions
- Life insurance companies - Investment companies (mutual funds, money market fund: earning based on investments in various short term financial instruments and not FDI) - Finance companies (loans with higher rates) - Mortgage companies (loans to buy a house) - Credit Card companies (short term funding - Brokerage Firms (middle man and earnings from commission and fees)
Reasons to use debit card
- Limit spending - Avoid bills - Avoid interest - Better protection
Common mistakes of manage current cash needs
- Overspending by impulse buying/ credit - Insufficient liquid Assets - Use saving/ borrow money for current needs - No unneeded funds in saving account
Types of CDs
- Rising rate or bump-up (Higher rates) - Liquid (withdraw without penalty with 1+ year in account) -Zero-coupon (discount with no interest payments $5000) - Indexed (Stock market) - Callable (Higher rate and maturities) - Promotional
Types of financial services and their definition
- Saving (Time deposit): Money in saving account with plan based on interest rate earned, liquidity, safety, convenience - Cash Availability (Checking account - demand deposits) Transfers money - Borrowing - Investment and other financial services
Benefit of consolidated financial services account
- Track of finances in one location - fewer monthly/ quarterly statements - lower fees for one institution - Simplified tax report - Ease of communicating information to family
Types of checking accounts
- regular (monthly service charge) - activity (fee for writing checks) - interest-earning (minimum balance)
Types of deposit institutions
1) Commercial Banks (full range of financial services) 2) Savings and Loan Associations (saving and home mortgages) 3) Mutual Savings Banks (By depositors and up northeast that have saving and mortgage, higher rates on saving) 4) Credit Unions (non-profit, common bond, full range of financial services)
Automatic Teller Machine (ATM)
A computer terminal used to conduct banking transactions; also called a cash machine
Major force in American economy
Consumer Credit
True/ False: A limited warranty covers all aspects of the product and does not require the buyer to incur any of the costs for shipping and repairs.
False
True/ False: A regular savings account usually offers a higher rate of return to savers than other savings plans.
False
True/ False: An implied warranty is usually in written form.
False
True/ False: Buying on credit is almost always cheaper than paying cash.
False
True/ False: Cooperative action is the settlement of a difference by a third party whose decision is legally binding.
False
True/ False: Credit unions frequently offer higher loan rates than other financial institutions.
False
True/ False: Higher returns on savings will usually result in greater liquidity.
False
True/ False: If you declare a Chapter 7 bankruptcy, you do not have to pay alimony, child support, or educational loans.
False
True/ False: Inflation increases the purchasing power of money.
False
True/ False: Most of the information in your credit file may be reported for only 3 years.
False
True/ False: Open dating information provides consumers with information about online dating.
False
True/ False: Service contracts are usually included in the cost of appliances and other high-priced items.
False
Annual percentage yield
The percentage rate expressing the total amount of interest that would be received on a $100 deposit based on the annual rate and frequency of compounding for a 365-day period.
True/ False: A "free" checking account with a minimum balance of $500 has an opportunity cost of lost interest.
True
True/ False: A 32-ounce package selling for $1.60 would have a unit price of 5¢ an ounce.
True
True/ False: A certificate of deposit usually has limited liquidity.
True
True/ False: A checking account would be considered more liquid than most other bank accounts.
True
True/ False: A class action suit allows many people with the same complaint to take action as a group.
True
True/ False: A debit card takes money from your account at the moment you buy goods or services.
True
True/ False: A government agency designed to provide consumer information and assist with consumer complaints is the Federal Trade Commission.
True
True/ False: A rate of return is the percentage increase in the value of your account or investment from earned interest.
True
True/ False: A restrictive endorsement will usually include the words "for deposit only."
True
True/ False: A social factor that would influence a consumer's buying decision would be the hobbies and interests they have.
True
True/ False: After receiving a phone call from a debt collector, they must send you a written notice within 5 days.
True
True/ False: An asset management account combines several financial services for a single fee.
True
True/ False: College students and young adults are very likely to misuse credit.
True
True/ False: Compounding refers to interest gained on your account or investment's previously earned interest.
True
True/ False: Consumer credit is based on trust in people's ability and willingness to pay bills when due.
True
True/ False: Credit is an arrangement to receive cash, goods, or services now and pay for them in the future.
True
True/ False: Debt payments-to-income ratio is calculated by dividing monthly debt payments (not including house payments) by net monthly income.
True
True/ False: Experts suggest that you spend no more than 20 percent of your net income on credit purchases.
True
True/ False: For some debtors, bankruptcy has become an acceptable tool of credit management.
True
True/ False: If friends or family use your name for credit without your permission, they are committing a crime.
True
Open-end credit
a line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payment
interest
a periodic charge for the use of credit
Debt payments to income ratio
monthly debt payments/net monthly income (doesn't include mortgage) 15-20%