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