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Intro to Business > 17.1 Banks and Other Financial Institutions > Flashcards

17.1 Banks and Other Financial Institutions Flashcards

1
Q

Describe pawn shops.

A
  • make loans based on the value of some tangible object, such as jewelry or other valuable items
  • commonly charge higher fees than other financial institutions
  • these places should be avoided
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2
Q

Describe check-cashing outlets (CCO).

A
  • people who do not have bank accounts may use these places to cash paychecks and to obtain other financial services
  • offer a wide range of services such as electronic tax filing, money orders, private postal boxes, utility bill payment, the sale of bus and subway tokens
  • these services are more expensive here than at other businesses
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3
Q

How are deposits made to banks put to work?

A
  • deposits do not remain idle in bank vaults
  • they are put to work
  • when people deposit money in a bank, you are helping to create jobs and economic growth that benefit your community and your society
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4
Q

Banks operate as a business, what do banks sell?

A

they sell services such as checking and payment accounts, savings accounts, loans and investments

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5
Q

What are some types of non-deposit institutions?

A
  • life insurance companies
  • investment companies
  • consumer finance companies
  • mortgage companies
  • check cashing outlets
  • pawnshops
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6
Q

the _____ you and others deposit make banking services possible

A

the savings you and others deposit make banking services possible

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7
Q

the process of paying checks and other payments among different banks

A

clearing

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8
Q

Describe what it means that one service provided by the Fed is the holding of reserves.

just read

A
  • banks are not allowed to lend all the money they receive from customers
  • they are required to keep part of the money deposited by customers on deposit with the Federal Reserve System
  • the Fed holds these deposits in case the banks need additional funds to meet the daily customer demand
  • because of this a bank will only lend a certain percentage of deposited funds and keeps the rest in reserve
  • this rule helps the economy operate efficiently and protects the customer’s deposits
  • example - let’s say you deposit $1000 into the bank and the bank then lends all that money to someone else. you decide to go into the bank to withdraw your $1000 but they don’t have it anymore because they lent everything. that would cause a big problem and you wouldn’t have your money.
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9
Q

what is the most common way for a bank to be organized?

A

as a commercial bank

aka full service bank

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10
Q

Describe what it means that another service of the Fed is clearing checks for member banks.

just read

A
  • clearing refers to the process of paying checks and other payments among different banks
  • the fed electronically processes millions of payments each day, making sure that the correct amounts are added to and subtracted from the appropriate account
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11
Q

What Federal Reserve District is Pennsylvania in?

A

federal #3

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12
Q

Describe life insurance companies.

A
  • place to buy life insurance
  • also offer financial services such as investments
  • through careful investing in new and existing companies, these companies help to expand business in the economy
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13
Q

What are the primary differences between a bank and credit union?

A
  • credit unions serve members only, are not for profit, and user owned
  • banks make profits
  • have to be part of a group for credit unions but not for a bank
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14
Q

Describe investment companies.

A
  • people choose investment opportunities for long term growth of their money through investment companies
  • investors own shares of one of the more than 60,000 mutual funds available
  • these companies make the mutual funds available
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15
Q

What should you think about when comparison shopping for your financial services dollar?

A
  • services offered
  • safety
  • convenience
  • fees and charges
  • restrictions
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16
Q

What are some types of deposit institutions?

A
  • commercial banks
  • savings and loan associations
  • mutual savings banks
  • credit unions
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17
Q

a business that specializes in making loans for long lasting or durable goods, such as cars and refrigerators, and for financial emergencies

A

consumer finance companies

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18
Q

Describe consumer finance companies.

A
  • a business that specializes in making loans for long lasting or durable goods, such as cars and refrigerators, and for financial emergencies
  • because they make loans, they are part of the financial services industry
  • unlike banks and other financial institutions, consumer finance companies do not accept savings deposits
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19
Q

What are the 5 Federal Reserve activities?

A
  1. the holding of reserves
  2. clearing of checks
  3. control amount of currency made and destroyed - if we have too much of a certain dollar then Fed will destroy some currency
  4. distribute currency to various districts
  5. set prime rate and interest rates - this stimulates economic growth
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20
Q

Is a bank considered a business?

A

yes, it sells services, it’s goal is to make a profit

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21
Q

Why was the first bank created?

A

was created to relieve the war debt of the US Revolutionary War, to develop national currency and to dispose of the western territories

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22
Q

Why did the federal government set up the Federal Reserve System (Fed)?

A

to supervise and regulate member banks and to help banks serve the public efficiently

23
Q

Describe credit unions.

A
  • a user owned, not for profit, cooperative financial instituion
  • people in the same company, government agency, labor union or profession often form credit unions
  • serve members only - people become a member when they deposit money in the credit union because deposits are considered partial ownership in the credit union
  • offer a wide range of financial services
24
Q

the federal agency that helps to regulate banks and other financial institutions

A

Federal Deposit Insurance Corporation (FDIC)

25
Q

do not take or hold deposits, they earn their money selling specific services or policies

A

non-deposit institutions

aka non-depository intermediaries

26
Q

How has the banking industry changed since the first bank?

A

offer a much wider range or products

27
Q

What kinds of serivces do commerical banks offer?

A

offer:

  • checking accounts
  • provide savings accounts
  • make loans to individuals and businesses
  • also called full service banks because they offer a wide range of financial services
  • in large banks different departments handle the different services
    • have a loan department
    • have a trust department
    • a real estate department
    • an investment department
28
Q

What is the largest denomination of currency currenty in circulation?

A

$100

29
Q

can an individual open an account at the Federal Reserve Bank?

A

no because it’s a bank for banks

30
Q

What are some activities that individuals, businesses and governments use banking services?

A
  • borrow money to build roads
  • borrow money to buy seeds for crops
  • deposit cash from business operations
  • finance a college education
  • invest for retirement
  • obtain a mortgage
  • process credit card transactions
  • save for a vacation
31
Q

Describe a mutual savings bank.

A
  • a savings bank that is owned by, and operated for the benefit of, its depositors
  • the profits are distributed in proportion to the amount of business each participant does with the company
  • provides a variety of services but is mainly for savings and home loans
  • these kinds of banks are located mainly in the northeastern US
32
Q

Who is the National Credit Union Administration (NCUA)?

A

a federal agency that regulates credit unions

33
Q

The United States is divided into ____ Federal Reserve districts, with a central Federal Reserve Bank in each district

A

The US is dividied into 12 Federal Reserve districts, with a central Federal Reserve Bank in each district

34
Q

What does the National Credit Union Administration (NCUA)?

A
  • it regulates credit unions
  • it insures a depositor’s funds through the National Credit Union Share Insurance Fund
35
Q

Why are banks regulated more strictly than most other businesses?

A

because if another business fails only some people lose money but if a bank fails then thousands of people lose money or are affected

36
Q

If deposit insurance is most important to you when selecting a financial institution, you are most concerned with

  • safety
  • convenience
  • services
  • fees
A

safety

37
Q

What are the 4 basic types of banking services you will use?

A
  1. savings accounts
  2. checking and payments accounts
  3. loans and other credit plans
  4. other services, such as safe deposit boxes and investment advice
38
Q

What are the 4 things you should look for when selecting a bank? Describe each.

A
  • Safety:
    • is it FDIC or NCUA insured?
  • Convenience:
    • does it have online banking, branch offices near you?
    • sometimes convenience means higher costs
    • in recent years online banking has resulted in lower costs for many consumers
  • Fees and Charges:
    • financial services have costs
    • do they charge ATM fees, a fee for checking acounts?
  • Restrictions:
    • might have to keep a certain balance in your account to get ‘free’ checking
    • do you have to have your money in your account for a certain time before earning interest?
39
Q

Who began the first bank? Where? When?

A

Alexander Hamilton in 1791 in Philadelphia

What called the First Bank and modeled after the Bank of England

40
Q

accept deposits from people and businesses and use them to finance their business

A

deposit institutions

aka depository intermediaries

41
Q

What are the two major categories of fianancial institutions?

A
  1. deposit institutions
  2. non deposit institutions
42
Q

What are banks that join the Fed known as?

A

member banks

43
Q

provide loans for buying a home or other real estate

A

mortgage companies

44
Q

What is the largest denomination of currency ever printed?

A

$100,000

45
Q

All _____ banks are required to join the Federal Reserve System

A

all national banks are required to join the Federal Reserve System

46
Q

What is the most popular type of financial institute?

A

commercial bank

47
Q

Who heads the Fed?

A
  • Janet Yellen is the current Chair of the Board of Governors of the Federal Reserve System
  • she is considered one of the most powerful people in the world because she controls inflation / deflation and controls interest rates, which controls economy
48
Q

Describe a savings and loan association (S&L).

A
  • before the 1980s they specialized in savings accounts and making loans for home mortgages only
  • after the 1980s they were allowed to offer other services and are more like banks
  • many use the words ‘savings bank’ in their name
49
Q

The financial institution most likely to charge the highest rate for a loan would be a:

  • bank
  • pawnshop
  • credit union
  • mortgage company
A

pawnshop

50
Q

What does the Federal Deposit Insurance Corporation (FDIC) do?

A
  • it protects depositors’ money in case of the failure of a bank or financial institution that it regulates
  • it insures all accounts in the same name at each bank up to $250,000
  • is a government agency but banks provide the money for its operation
  • almost 99% of all banks are FDIC members
  • most banks and financial institutions have federal deposit insurance but not all do so do not assume they do - make sure the institution where you keep your savings is insured
51
Q

makes loans based on the value of some tangible object, like jewelry or other valuable items

A

pawnshops

52
Q

federal government agency set up to supervise and regulate member banks and to help banks serve the public efficiently

A

Federal Reserve System (Fed)

53
Q

the most common way for a bank to be organized, offer a wide range of financial services

A

commercial bank

54
Q

a user owned, not for profit, cooperative financial institution

A

credit union

Intro to Business (41 decks)

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