6.0 Assets, Markets, and Planning Flashcards
*anything of value or resource of value that can be converted into cash.
ASSETS
*one of many varieties of systems, institutions, procedures, social relations, and infrastructures whereby parties engage in exchange.
MARKETS
*a comprehensive evaluation of individual current pay and future financial state by using current known variables to predict future income, asset values, and withdrawal plans.
PLANNING
*type of financial institution that accepts deposits, offers checking account services; makes business, personal and mortgage loans; and offers basic financial products like certificates of deposit (CDs) and savings accounts and other services.
COMMERCIAL BANKS
*an institution that accepts savings at interest and lends money to savers chiefly for home mortgage loans and may offer checking accounts and other services
SAVINGS & LOANS
*financial insitution owned by its members rather than shareholders. Members of credit union pool their deposits and provide loans and other financial services to each other.
CREDIT UNIONS
*process of investing in multiple investments
VALUE OF DIVERSIFICATION
*concept that money available at present time is worth more than identical sum in future due to its potential earning capacity.
TIME VALUE OF MONEY
*investment that earns interest that is then added to principle balance and interest is paid on original principle plus accumulated interest. In other words, compound interest payments get larger over time.
COMPOUND GROWTH/ACCRUED INTEREST
*relationship between amount of return gainers on investment and amount of risk undertaken in investment.
RISK & RETURN
*simple way to determine how long investment will take to double given a fixed annual rate of return, investors obtain rough estimate of how many years it will take for initial investment to duplicate itself.
RULE OF 72
*a way to save for retirement that gives you tax advantages. Contributions you make to traditional IRA may be fully/partially deductable, depending.
TRADITIONAL IRA
*similar to traditional IRA, but contributions are not tax deductable. Earnings are never taxed, even after withdrawal.
ROTH IRA
*tax-advantaged savings plan designed to encourage saving for future education costs. 529 plans, known as “qualified tuition plans” are sponsored by states, state agencies, or educational institutions and are authorized by section 529 of the international revenue code.
EDUCATIONAL SAVINGS (529) ACCOUNT
*offers employees the ability to save for retirement through payroll deductions sometimes matched by employers.
401K & 403 B (FOR NONPROFIT EMPLOYERS)
*4 SPENDING COMPONENTS
1) consumer
2) business
3) government
4) foreign
- Depositor receives a booklet in which deposits, withdrawals, and interest are recorded.
- Average interest rate is lower at banks and savings and loans than at credit unions.
- Funds are easily accessible
Passbook Account
- Basically the same as a passbook account, except depositor receives monthly statements instead of passbook
- Accounts are usually accessible through 24-hour automated teller machines (ATMs).
- Interest rates are the same as passbook account
- Funds are easily accessible
Statement Account
- Combines benefits of checking and savings
- Depositor earns interest on any unused money in his/her account
Interest-earning checking account
- Checkings/savings account
- Interest rate paid built on a complex structure that varies with size of balance and current level of market interest rates
- Can access your money from ATM, teller, or by writing up to 3 checks a month
- immediate access to money
Money-market Deposit Accounts
- bank pays a fixed amount of interest for fixed amount of money during fixed amount of time.
Certificates of Deposit (CDs)
(CD) with higher rates at various intervals, such as every 6 months.
Rising-rate CDs
(CD) with earnings based on the stock market
Stock-indexed CDs
(CD) with higher rates and long-term maturities, as high as 10-15 years. However, the bank may “call” the account after a stipulated period, such as one or two years, if interest rates drop.
Callable CDs
(CD) combine higher interest with a hedge on future changes in the dollar compared to other currencies
Global CDs
(CD) attempt to attract savers with gifts or special rates
Promotional CDs
Requires financial institutions to disclose the following info on savings account plans they offer:
- Fees on deposit accounts
- The interest rate
- Other terms and conditions
- APY
The truth in Savings Act (Federal Reserve Regulation DD)
An “IOU” certifying that you loaned money to a government or corporation and outlining the terms of repayment
Bonds
(Bond) Sold by private companies to raise money
- If company goes bankrupt, bondholders have first claim to the assets, before stockholders
Corporate
(Bond)
- Issued by any non-federal government
- Interest paid comes from taxes or from revenues from special projects. Earned interest is exempt from federal income tax
Municipal
(Bond) The safest investment you can make. Even if US government goes bankrupt, it is obligated to repay bonds
Federal Government
Professionally managed portfolios made up of stocks, bonds, and other investments.
Mutual Funds
(mutual fund)
includes variety of stocks and bonds
Balanced Fund
(mutual fund)
- has corporate bonds of companies from around the world
Global Bond Fund
(mutual fund)
- has stocks from companies in many parts of the world
Global Stock Fund
(mutual fund)
- emphasizes companies that are expected to increase in value; also has higher risk
Growth Fund
(mutual fund)
features stock and bonds with high dividends and interest
Income Fund
(mutual fund)
- invests in stocks of companies in a signle industry (such as tech, health care, banking)
Industry Fund
(mutual fund)
features debt instruments of state and local governments
Municipal Bond Fund
involves stocks of companies from one goegraphic region of the world (such as Asia or Latin America)
Regional Stock Fund
Stock represents ownership of a corporation. Stockholders own a share of the company and are entitled to a share of the profits as well as a vote in how the company is run.
Stocks
Profits from the sale of a capital asset….
Capital Gains
(retirement plans)
- allows a person to contribute up to $5000 of pre-tax earnings per year. Contributions can be made in installments or in a lump sum.
Individual Retirement Account (IRA)
(retirement plans)
While the 5000 annual contribution to this plan is not tax-deductable, the earnings on the account are tax-free after five years. The funds from the Roth IRA may be withdrawn after age 59, if the account owner is disabled, for educational expenses, or for the purchase of a first home.
Roth IRA
(retirement plans)
Allows person to contribute to savings plan from his or her pre-tax earnings, reducing the amount of tax that must be paid. Employer matches contributions up to a certain level.
401K
(retirement plans)
Allows self-employed person to set aside up to 15% of income (but not more than $35,000 per year)
Keogh Plan
The act of providing a person with money or other things of economic value in exchange for their goods, labor, or to provide costs of injuries that they have inccurred.
Compensation
Section of the financial market where highly liquid, short term debt securities is created, bought, and sold
Money Markets
The part of financial system concerned with raising capital by dealing in shares, bonds, and long-term investments
Capital Markets
Entity that acts as middleman between two parties in financial transaction such as commercial bank, investment bank, mutual fund, or pension fund
Intermediary
A financial institution formed primarily to accept consumer deposits and make home mortgages
Thrift Institutions
Bank organized to hold funds or individual depositors in interest-bearing accounts and to make long-term investments.
Savings Banks
Financial institution typically owned and overseen by its customers or shareholders.
Savings and Loan Association
Chartered by local or regional governments and do not offer capital stock, but rather the bank is owned by its members, and any profits are shared among its members.
Mutual Savings Banks
A nonprofit institution that’s owned by the people who use its financial products
Credit Unions
An independent agency created by the congress to maintain stability and public confidence in the nation’s financial system
FDIC
An independent federal agnecy that insures deposits at federally insured credit unions, protects the members who own credit unions..
National Credit Union Agency (NCUA)
~ A type of mutual fund that invests in high-quality, short-term debt instruments, cash, and cash equivalents.
MMMF (Money Market Mutual Funds
~short-dated government security, yielding no interest but issued at a discount on its redemption price.
Treasury Bill
~the amount due and owed to satisfy the payoff of an underlying obligation, sans interest or other charges.
Principal Balance
~the interest associated with a bank account, loan, or investment increases exponentially–rather than linearly– over time.
Compound Interest
~a percentage that represents the actual yearly cost of funds over the term of a loan or income earned on an investment.
Annual Percentage Rate (APR)
adding earnings to an initial investment that also earns money
compound
