Business Chapter 6

Trust

A legal arrangement in which money or other property is turned over to the financial institution for safekeeping and to be managed for a purpose stated in the trust.

Certified Checks

A personal check for which a bank has guaranteed payment. A bank officer will immediately deduct the amount of the check from your checking account, stamp the certificate on the face of the check, and sign or initial it. Charges a small fee

Debt Repayment Plan

A plan where payments are reduced in size and dept paid off over a longer period of time.

Mutual Savings Bank

A savings bank is owned by, and operated for the benefit of its depositors. There are no stock holders. The profits are distributed in proportion to the amount of business the participants do with the bank. While mutual savings banks provide a variety of services, they are organized mainly for savings and home loans.

Debtor

Anyone who buys on credit or receives a loan.

Safe - Deposit Boxes

A secure place where you can store valuables. They are rented for a nominal fee. It can only be opened by the renter of the box or someone who has been given the right to open the box by the renter.

Certificate of Deposit

A special kind of savings account that requires deposits to be kept in the bank for a specified period of time. Pay higher interest rates than regular savings accounts.

How are near-banks divided?

Banks and near-banks can be divided into two groups: deposit institutions and non deposit institutions.

Credit Counselor

Can suggest actions that can be taken to reduce spending and eliminate difficulties with credit.

Sales Credit

Charging a purchase at the time you buy the good or service. Sales credit is offered by most retail and wholesale businesses. It involves customers using charge accounts and credit cards.

Telegraphic Money Order

Directs another telegraph office to pay a sum of money to a certain person or business. The amount of the money order is deposited with the sending office. These are used mainly in an emergency when money must be delivered quickly.

What is a charter?

Granted Rights either by a state or the federal government to run

Consumer Credit Reporting Reform Act

Increases consumer protection against unfair, adverser decisions based on credit reports. Establishes stronger regulations of credit reporting agencies in order to minimize the reporting of false and inaccurate information.

Discount Rate

Interest that the Fed charges member banks on money borrowed. The interest rate member banks pay to the Fed is added to the interest they charge consumers to earn a profit.

How does a bank earn income?

Interest they charge on loans, businesses and governments and interest by investing part of the money customers deposit in savings accounts

Express Money Order

Issued by various organizations, including supermarkets, pharmacies, and convenience stores.

deposit institution

It accepts deposits from customers and provides a range of banking services.

How does the FDIC run?

It is a government agency but banks provide money for its operation. Almost 99% of all banks are FDIC members.

Pawnshops

Loan based on the value of tangible possessions, such as jewelry, watches, or musical instruments. Customers are given a certain length of time to repay the loan and reclaim the property they pawned. Charge higher fees because they provide a service needed by a consumer who are unable to get loans elsewhere.

What regulates a Credit Union?

National Credit Union Association (NCUA), a federal agency similar to the FDIC. Insures depositors' funds for up to $250,000

Fair Debt Collections Act

Prevents threats and other inappropriate actions by debt collectors.

The 3 Factors Involved in Calculating the Cost of Interest

Principal- the amount of the loan Interest Rate- the percentage of interest that is charged and applied to your loan, expressed as a fraction or decimal. Time- the length of time for which interest will be charged, in years

Equal Oppurtunity Act

Prohibits creditors from denying credit because of age, sex, race, or marital status. Upon request, a creditor must be given a written statement of the reasons for rejection to any person who has been denied credit.

Mortgage Companies

Provides loans for buying a home or other real estate.

Interest

The amount banks pay you for the use of your money. Banks hold some of the money on deposit in reserve and lend out or invest the remainder.

Drawee

The bank or other financial institution that pays the amount of the check.

Credit Agreement

The debtor promises to pay and the creditor trusts the that the debtor will pay the amount owed.

Credit

The privilege of using someone else's money for a period of time.

What does FDIC insurance cover?

all deposit accounts, including checking and savings accounts, money market accounts, and certificates of deposit. The standard insurance amount is $250,000 per depositor.

Credit References

A business or individual from whom you have received credit in the past and who is able and willing to provide information about your credit worthiness - whether you pay your bills on time.

What is a bank?

A business that sells services such as checking accounts, savings accounts, and loans in order to earn a profit.

Cashier's Check

A check that a bank draws on its own funds. It costs the amount of the check plus a service fee. After receiving a payment, a bank officer makes out the check to the payee you specify. Cashier's checks are more acceptable than personal checks from unknown individuals.

Consumer Finance Companies

A company that specializes in making loans for long-lasting or durable goods, such as cars and appliances, and for financial emergencies. Often considered high-risk and carry higher interest rates.

Money Order

A form of payment that orders the issuing agency to pay the amount printed on the form to a specified payee. The amount paid for the money order covers the amount of the money order plus a fee.

Credit Application

A form on which you provide information needed by a lender to make a decision about granting credit.

Cooling Off Period

A grace period of 3 business days in which purchasers can change their mind about a credit agreement that is made in their home or in a place that is not the seller's permanent place of business.

Stop Payment Order

A written notice from the drawer telling the bank not to pay a certain check. This order includes the date, check number, amount, payee, and the drawer's signature. Banks charges high fee

Saving Services

Accepting money from customers for safe keeping. Money deposited in a savings account not only provides security, it also allows you to earn interest on the money you deposit.

Federal Reserve Activities

Conducts Monetary Policy- the Fed can buy and sell government bonds to increase or decrease the amount of money in circulation. Accepts Deposits and Provides Services- lends money to member banks Holds Reserves- the Fed requires banks to keep a certain amount of customer's money on deposit with a Federal Reserve Bank. As a result, a bank lends only a certain percentage of deposited funds and keeps the rest in reserve. Clearing Checks- refers to the paying of checks among different banks in different locations.

Consumer Benefits of Credit

Convenience, Immediate Possession, Savings, Credit Rating, Useful in Emergencies

Business Benefits of Credit

Customers who buy on credit tend to purchase more, and the business then earns increased profit. If the business buy its merchandise using trade credit, the merchandise can be paid for after the business has received income from the sale of the merchandise.

Trust Companies

Financial Institutions that specialize in the handling of trusts.

Investment Companies

For people pursuing long-term growth of their money, they can buy investments through investment companies. Many investors own shares of mutual funds, which are investment funds containing a mixture of stocks and/or bonds, made available and managed by an investment company.

Check-Cashing Outing

For people who do not have banking accounts. Used to cash paychecks, social security checks, and other checks. May also offer other financial services. Usually more expensive

Bank Money Order

For when you do not have a checking account at a bank. Bank money orders sold by banks state the amount of money to be paid to the person or the business named on the form. The amount is on deposit in the bank, thus assuring payment.

financial supermarket

Full service branch offices in shopping centers and supermarkets. Branch offices offer everything from automated teller machines (ATMs) to loans and personal services.

Fair Credit Reporting Act

Gives consumers the right to know what specific information credit bureaus are providing to potential creditors, employers, and insurers.

Installment Interest

Loans that are repaid in partial payments. Each payment is an installment. The borrower is often given a payment schedule to show the amount due each month. May entail paying the same amount each month or paying decreasing payments as the loan amount decreases.

Postal Money Order

May be purchased from the U.S. Postal Service. It contains the payee's name, your name and address, and the purpose of the money order and can be cashed only after it is signed by the payee. Safer to mail and a claim can be made to the post office if lost or stolen.

commercial bank

Often called a full-service, offers a wide range of financial services that could include the following: checking and savings accounts, loans to individuals and businesses, international business services, including currency exchange, investment services, including certificates of deposit Safe-deposit boxes fro storing valuables Electronic banking services, including online banking

Simple Interest

On simple-payment loans where the amount borrowed is repaid on one lump sum. Is based on the time in years.

Concerns of Credit

Overbuying, Careless Buying, High Prices, Overuse of Credit

Life Insurance Company

People buy life insurance to provide financial security for their dependents or beneficiaries. Companies also offer investment services. Some of these investments, such as annuities and trust accounts, are sheltered from income taxes. Insurance Companies often help expand business opportunities in the economy by carefully investing in new and existing companies.

Capacity

Refers to your ability to pay a debt when it is due, and whether you have enough income to pay your bills. This compares to your level of income to the amount of debt to be incurred.

Character

Refers to your honesty and willingness to pay a debt when it is due. It is your history of paying bills on time, showing creditors that you are a good credit risk.

What is the Federal Deposit Insurance Corporation (FDIC)?

Regulates banks and other financial institutions. It protects depositor's money in case of a failure of a bank or other financial institution it regulates.

Installments

Repaying of a loan in specified amounts over a period of time. Used often for the purchase of large appliances and furniture.

Fair Credit Billing Act

Requires prompt correction of billing mistakes when they are brought to the attention of a business in a specific manner. You must notify you creditor within 60 days.

Savings and Loans Associations

S&Ls Specialize in offering savings accounts and making loans for home mortgages.

Investments

Savings put to work to earn money, such as savings or money market accounts that earn interest.

Nondeposit Institution

Similar to banks but do not accept deposits. They provide a variety of financial and near-banking services.

near-bank

Some organizations perform some of the functions of a bank, but technically are not banks. They are referred to as "near-banks."

Federal Reserve System

Supervises and regulates member banks and help banks serve the public efficiently. All National banks are required to join and state banks may join. Banks that join are called member banks.

Creditor

The one who sells on credit or who grants a loan.

Drawer

The owner of the checking account and the person who signs the check.

Annual Percentage Rate (APR)

The percentage cost of credit stated on a yearly basis. The APR makes it easier to compare costs of credit from various lenders.

Payee

The person to whom the check is written.

Finance Charge

The total dollar cost of credit. - Interest, service fees for the time and money it takes a creditor to investigate your credit history, process your credit application, and keep records of your payments and balances. May also charge for credit insurance, which repays the balance of the amount owed if the borrower dies or becomes disabled.

Electronic Funds Transfer (EFT)

The use of computers and other technology to move funds electronically from one account to another. Includes the use of automated teller machines (ATMs), debit cards, point-of-sale transactions, direct deposits, and automatic bill payments.

Capital

The value of the borrower's possessions, including money and property owned.

Federal Reserve Banks

They are part of the Federal Reserve System and serve as a bank for bankers. Individuals cannot do business with them. The U.S. is divided into 12 districts.

Truth in Lending Act

You must be told the cost of credit before you sign a credit agreement. The law requires the lender to clearly state the annual percentage rate (APR) and the total finance charge.

Credit Union

User-owned, nonprofit, cooperative financial institutions commonly formed by people in the same company, government agency, labor union, profession, church, or community. Serves members and accept savings deposits and make loans for a variety of purposes.

The Credit System

Uses forms and legal documents to make the credit transaction sound and understood by all parties. It is an enforceable contract and also depends on trust that the creditor believes the debtor will pay back.

Trade Credit

When a business receives goods from a wholesaler and pays for them over a specified period of time.

3 Cs of Credit

When deciding whether or not to grant credit, businesses consider three main factor: character, capacity, and capital

Loan Credit

When you borrow money to be used for some special purpose. Usually involves a written contract.