Chapter 13 + 14 Deck Flashcards
The fact that people are willing to save money for future purposes describes which function of money ( ).
store of value
An ( ) is the process of taking a privately held company public by selling stock for the first time.
initial public offering (IPO)
Your ( ) schedule is the schedule by which you’ll reduce the balance of your debt.
amortization
The Fed performs all of the following functions except:
regulating state banks.
As founder and CEO of a growing public company, you are considering issuing shares of stock to finance an expansion. All of the following statements about stock are true except:
if you issue stock to the public, your percentage ownership of the company will not change.
When Pete Peterson took out a small business loan, the bank asked for security in the form of ( ).
collateral
The ( ) is the amount by which an initial bank deposit will expand the money supply.
money multiplier
The process of raising capital through the sale of a company’s stock is called ( ) financing.
equity
( ) stock gives its owner the option of exchanging it for common stock.
convertible preferred
( ) is the risk that poor management of an organization with which you’re dealing may adversely affect your personal-finances planning, while ( ) is the risk associated with a product that you’ve chosen to buy.
management risk/business risk
Examples of personal liabilities include the following except:
tuition
You are more likely to qualify for a loan if you ( ).
have a history of borrowing
Monetary or liquid assets include all of the following except ( ).
cars
When there is a difference between an amount in the “budget” column and the corresponding amount in the “actual” column, the difference, whether plus or minus, is recorded as a(n) ( ).
variance
A ( ) is a document that itemizes expected sources of income and expenditures for the coming year, along with the relevant money amounts for each.
budget
In addition to the itemized lists of inflows and outflows, there are three other columns in a budget. They are ( ).
budget, actual, and variance
In 2006 and 2007, largely because of ( ) , banks and other institutions that made mortgage loans began losing huge sums of money.
mortgage loan defaults
In compiling your credit score, the credit bureaus considers all of the following except ( ).
income
Your ( ) is the difference between your assets and your liabilities.
net worth
Money serves three functions:
- a medium of exchange
- a measure of value
- a store of value
In a ( ) system, goods and services are traded directly for one another.
bartered
Because of ( ) you can use it to buy the goods and services you want, everyone’s willing to trade things for money.
medium of exchange
( ) simplifies the exchange process because it’s a means of indicating how much something costs.
measure of value
( ) makes it so people are willing to hold onto it because they’re confident that it will keep its value over time.
store of value
The government uses two measures to track the money supply: ( ) includes the most liquid forms of money, such as cash and checking-account funds. ( ) includes everything in M-1 plus near-cash items, such as savings accounts and time deposits below $100,000.
M-1/M-2
Most common types of depository institutions:
banks that accept deposits, including commercial banks, savings banks, and credit unions
( ) provide financial services but don’t accept deposits They include finance companies, insurance companies, brokerage firms, and pension funds.
nondepository institutions
A bank holds onto only a fraction of the money that it takes in—an amount called its ( ).
reserves
A ( ) invests money from a pool of investors in stocks, bonds, and other securities.
mutual fund
Most large banks are members of the central banking system called the ( ).
Federal Reserve System (the Fed)
The Fed has three goals:
- Price stability
- Sustain economic growth
- Full employment
The Fed can raise or lower ( ) —the percentage of its funds that banks must set aside and can’t lend out;
reserve requirements
The Fed can conduct ( ) —buying or selling government securities on the open market.
open market operations
Loan officers determine the interest rate through something called the ( )— the rate that banks charge their very best customers.
prime rate
A ( ) is a document that shows the amount of capital that it needs for a specified period, how and where it will get it, and how and when it will pay it back.
financial plan
Financial institutions offer business loans with different ( ). A ( ) matures in less than a year, an ( ) in one to five years, and a ( ) after five years or more.
maturities/short-term loan/intermediate loan/long-tern loan
Banks also issue ( ) that allow companies to borrow up to a specified amount as the need arises.
line of credit
( ) are wealthy individuals who are willing to invest in ventures that they believe will succeed.
Angels
( ) , though willing to invest larger sums of money, often want to cash out more quickly than angels.
venture capitalists
Successful companies looking for additional capital might decide to go public, offering an initial sale of stock called an ( ).
initial public offering (IPO)
A ( ) deals in new financial assets.
primary market
A ( ) is a market in which investors buy previously issued securities from other investors.
secondary market
In ( ), securities are traded among dealers over computer networks or by phone.
over-the-counter (OTC) markets
Stock market trends are measured by ( ).
market indexes
When the stock market is enjoying a period of large increases in prices, it’s said to be in a ( ). When prices are declining, it’s often called a ( ).
bull market/bear market
( ) —a written offer to sell securities that describes the business and operations of the issuer, lists its officers, provides financial information, discloses any pending litigation, and states the proposed use of funds from the sale.
prospectus
Companies can raise funds through ( ) —selling stock—or through ( ) —issuing bonds (debt securities).
equity financing/debt financing
If you sell stock to increase your expansion, it’ll increase your ( )— the amount invested in the business by its owners. Which is the same thing as owner’s equity.
stockholders’ equity
( ) are distributed earnings.
dividends
( ) is safer than common stock but it doesn’t have the upside potential—namely, the possibility that shareholders will benefit greatly if a company performs very well.
preferred stock
Unlike ( ), however, whose dividends vary according to a company’s profitability, holders of preferred stock receive annual fixed dividends.
common stockholders
A ( ) is a preferred stock that requires a corporation to pay all current and missed preferred dividends before it can pay common dividends.
cumulative preferred stock
A ( ) is a preferred stock that gives its owner the option of exchanging it for common stock.
convertible preferred stock
( ) is thus the application of financial principles to the monetary decisions that you make, either for your individual benefit or for that of your family.
Personal finance
( ) is the ongoing process of managing your personal finances to meet goals that you’ve set for yourself or your family.
Financial planning
The ( ) cycle divides an individual’s life into three stages, each of which is characterized by different life events.
financial life cycle
What are the three stages of the financial life cycle?
- Building wealth
- Preserving and increasing wealth one has accumulated
- Living on one’s saved wealth
( ) plans vary greatly in coverage and cost to the employee.
Employer-sponsored health insurance
( ) pays an income to an insured person when he or she is unable to work for an extended period of time.
disability insurance
There are two main types of retirement plans: a ( ), which provides a set amount of money each month to retirees based on the number of years they worked and the income they earned, and a ( ), which is a form of savings plan into which both the employee and employer contribute. A well-known defined contribution plan is a 401(k).
defined benefit plan/defined contribution plan
( ) refers to the effect of earning interest on your interest.
compound interest
( ) is the principle whereby a dollar received in the present is worth more than a dollar received in the future. It also states that a dollar received today starts earning interest sooner than one received tomorrow.
time value of money
Your ( ) is the difference between your assets and your liabilities.
net worth
A ( ) statement shows where your money has come from and where it’s slated to go.
cash flow or income
If you’re ( ), it’s because you’re spending more than you’re earning.
insolvent
The difference between the actual amount and the budgeted amount is recorded as a ( ) in a budget.
variance
A document that itemizes the sources of income and expenditures for a future period (often a year) is a ( ).
budget
An ( ) occurs when actual income is higher than budgeted income (or vice versa).
income variance
An ( ) occurs when the actual amount of an expenditure is higher than the budgeted amount (or vice versa).
expense variance
( ) are made to borrowers who don’t qualify for market-set interest rates because of one or more risk factors—income level, employment status, credit history, ability to make only a very low down payment.
subprime mortgage loan
( ) —one that’s pegged to the increase or decrease of certain interest rates that the lender has to pay.
adjustable-rate mortgage (ARM)
( ) —one on which the interest rate remains the same regardless of changes in market interest rates
fixed-rate mortgages
In the years between 2001 and 2005, lenders made billions of dollars in ( ) ARM loans to American home buyers.
subprime
( ) is the possibility that cash flows will be variable.
risk
( ) is the risk that poor management of an organization with which you’re dealing may adversely affect the outcome of your personal-finances planning.
management risk
( ) is the risk associated with a product that you’ve chosen to buy.
business risk
( ) refers to the risk that comes from ill-considered indebtedness.
financial risk
