Banking vocabulary

Question 1

529 plan

Answer 1

qualified tuition plan that provides families a federal tax-free way to save money for college.

Question 2

APR

Answer 2

this stands for annual percentage rate/ which is a number calculated by taking into account the total cost of the loan/ including what the borrower will pay in interest. this makes it easier to compare different loan offers

Question 3

asset transformation

Answer 3

process of risk sharing through which risky assets are turned into safer assets for investors

Question 4

adverse selection

Answer 4

A high-risk person benefits more from insurance/ so is more likely to purchase it.

Question 5

moral hazard

Answer 5

the loss to an insurance company resulting from possible lack of prudence or honesty on the part of policyholders

Question 6

credit rationing

Answer 6

the restricting of credit by lenders such that borrowers cannot obtain the funds they desire at the given interest rate

Question 7

installment loans

Answer 7

loans repaid in regular payments over a period of time

Question 8

secured loan

Answer 8

a loan backed by something valuable/ such as property

Question 9

collateral

Answer 9

a security pledged for the repayment of a loan

Question 10

lien

Answer 10

the right to take another’s property if an obligation is not discharged

Question 11

unsecured loan

Answer 11

A loan made on the signature and credit of the borrower/ not secured by collateral. Credit card. (Debenture)

Question 12

open-end loan

Answer 12

A mortgage loan that is expandable by increments up a maximum dollar amount/ the full loan being secured by the same original mortgage

Question 13

grace period

Answer 13

a time period during which no finance charges will be added to your account

Question 14

capital gain

Answer 14

the amount by which the selling price of an asset exceeds the purchase price

Question 15

capital loss

Answer 15

the amount by which the purchase price of an asset exceeds the selling price

Question 16

cash flow

Answer 16

the excess of cash revenues over cash outlays in a give period of time (not including non-cash expenses)

Question 17

annual fee

Answer 17

An amount that credit card companies can charge for the use of a credit card.

Question 18

annual percentage rate

Answer 18

the total cost of credit expressed as a yearly percentage

Question 19

bad credit

Answer 19

a situation in which lenders believe that/ due to a borrowers poor history of repaying his or her debts/ further loans to this person would be especially risky.

Question 20

bankruptcy

Answer 20

a legal process intended to insure equality among the creditors of a corporation declared in bankruptcy

Question 21

capacity

Answer 21

the maximum production possible

Question 22

capital

Answer 22

wealth in the form of money or property owned by a person or business and human resources of economic value

Question 23

cardholder agreement

Answer 23

a written contract that sets forth the terms that apply to a credit or charge card account/ including the interest rate charged/ the method of calculating interest and any annual or transaction fees

Question 24

character

Answer 24

the inherent complex of attributes that determine a persons moral and ethical actions and reactions

Question 25

collateral

Answer 25

a security pledged for the repayment of a loan

Question 26

collection agency

Answer 26

An organization that obtains or arranges for payment of money owed to a third party

Question 27

conditions

Answer 27

Circumstances that affect a situation

Question 28

credit

Answer 28

an accounting entry acknowledging income or capital items

Question 29

credit report

Answer 29

a report on a person’s creditworthiness that includes identifying information/ credit cards/ late payments/ bankruptcies/ and savings balances

Question 30

equal credit opportunity

Answer 30

unlawful to discriminate because of sex or marital status

Question 31

foreclosure rescue

Answer 31

try to make people sign off on their foreclosed homes

Question 32

establishing credit

Answer 32

Even if one spouse has good credit established/ then it’s still important for the other spouse to establish credit in their own name.

Question 33

fees

Answer 33

Service fees for use of the checking account/ built into the service agreement.

Question 34

finance charge

Answer 34

is the total dollar amount you pay to use credit.

Question 35

good credit

Answer 35

a situation in which lenders are willing to make loans to an individual/ due to his or her good history of repaying debts.

Question 36

guarantee

Answer 36

a written assurance that some product or service will be provided or will meet certain specifications

Question 37

installment credit

Answer 37

a loan repaid with interest in equal periodic payments

Question 38

installment loan

Answer 38

a loan repaid with interest in equal periodic payments

Question 39

late fees

Answer 39

Additional fees that can be added to a credit card bill if the card holder fails to make at least the minimum payment by the due date.

Question 40

lender

Answer 40

someone who lends money or gives credit in business matters

Question 41

net worth

Answer 41

total assets minus total liabilities

Question 42

required payment

Answer 42

least amount of money needed to be paid for loans

Question 43

revolving credit

Answer 43

a consumer credit line that can be used up to a certain limit or paid down at any time

Question 44

secured credit card

Answer 44

a credit card that requires you to make a deposit to the card issuer/ credit limit is typically the amount of your deposit/ often $500

Question 45

spending limit

Answer 45

refund of the purchase price of an item.

Question 46

term

Answer 46

a limited period of time

Question 47

unpaid balance

Answer 47

the amount of a loan that has not yet been paid