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Family Financial Analysis exam 1 > Chapter 4 > Flashcards

Chapter 4 Flashcards

1
Q

__ in __ Americans have a US savings bond

A

1 in 4

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2
Q

Cash Management

A

ROUTINE, DAILY administration of cash and near-cash to take care of an individual’s or family’s needs

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3
Q

3 steps of Cash Management

A
  1. Awareness: individuals realize that money needs to be managed
  2. Analysis: “What do I spend money on?” “What is really important to me?”
  3. Action: individual takes action. (set up regular savings routine). make necessary adjustments
    - move money to bank with better rate of return
    - reduce debt, pay off credit cards
    - spend less than your earn (MOST DIFFICULT)
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4
Q

Foreign currency

A 
US Dollar: 75% made of cotton
Euro: 28 countries in Europe
Pound: UK
Canadian Dollar
Yen: Japan
Real: Brazil
Yuan: China
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5
Q

4 most important driving companies

A

US, China, Germany, Japan

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6
Q

Interest

rate is determined by:

A

interest: cost of using money

- rate determined by SUPPLY (amount lenders are willing too lend) and DEMAND (amount borrower is willing to pay)

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7
Q

Certificate of Deposit (CD)

A

fixed- time deposit: money is lent to a bank for a predetermined period of time and lender provides bank a fixed rate of return.

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8
Q

basic financial principle that applies to interest and how they are all related

A

all interest rates move together

when one part of the market adjusts interest rates, the other parts respond.

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9
Q

Mortgage rate

Tiered rate

A

Mortgage rate: 3.01% as of January 26th
- done DAILY
Tiered rate: tied to specific balance level
- larger amounts of money, longer time input

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10
Q

How much should be kept in a Checking and savings?

A

matter of preference

  • based on risk of tolerance (how low you like to keep your balance)
  • penalty fees may exist
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11
Q

keeping abreast of your expenditures

A 
maintain balanced checkbook
pay bills promptly
establish ongoing savings program
avoid large balances in low interest accounts
have cash for small immediate needs
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12
Q 
why are savings important?
how much saved for EMERGENCY FUND?
Savings rates
- suggested 
- actual
A

savings are important as a cushion against financial emergencies
3-6 months worth of after tax income EMERGENCY FUND
savings rate:
- suggested to save 10-15% of income each year
- americans save on average of less than 5% of their incomes each year

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13
Q

basic liquidity ratio

A

number of months an individual or a household can meet expenses based on monetary assets
monetary assets/monthly expenses

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14
Q

savings grow based on:

A

amount put in
interest rate
frequency that interest is compounded
policies regarding deposits and withdrawals

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15
Q

compound interest

A

the frequency that earned interest is added to the principal (original value) so that the interest is earned on that amount as well as the principal.
- more frequently interest is compounded, the higher the future value

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16
Q

nominal rate of interest

effective interest

A

nominal rate: stated annual rate of interest

effective: actual rate taking into consideration how often it is compounded

17
Q

continuous compounding

Annual percentage rate (APR)

A

compounding of interest continuously during the day

APR: amount of interest earned on a yearly basis expressed as a percentage

18
Q

Truth in Savings Act

A

federal law requiring that financial institutions tell customers the important terms of their account
- APY, interest rate, fees charged, required minimum balance

19
Q

deregulation

how the Depository Institutions Deregulation and Monetary Control Act of 1980 affects the monetary system and consumers

A

deregulation: fewer controls, opening up of competition
- many savings and loans closed
- more competition between remaining institutions
- mergers occurred
- development of nonbanks
- consumers benefit: more options

20
Q

Time deposits

A

accounts with time limits

- not generally allowed to withdraw funds without penalty

21
Q

Financial institutions

- benefits

A

businesses with services such as checking and savings accounts, loans, mortgages, credit cards, investment guidance, retirement counseling

  • safety: protected from theft, loss and fire
  • convenience
  • cost savings
  • security: federally insured institutions
22
Q

FDIC

A

Federal Deposit Insurance Corporation insures banks and savings and loan companies

  • came about after Depression
  • Federal Govt will bail bank out
  • up to $250,000 insured
23
Q

NCUA

A

National Credit Union Administration (NCUA): insures credit unions

24
Q

Various Financial Institutions

A

Commercial Banks: largest, full-service banks
Savings and Loan Associations: difficulty competing with commercial banks
- usually pay slightly higher interest rates
- cannot offer non-interest paying checking accounts
Credit Union: non profit cooperatives owned by their members
Brokerage firms: easy transfer of money from one account to another
- simplified record keeping

25
Q

Various Deposit Accounts

A

Checking: demand deposit, typically no interest, some now offer interest
- NOW account may provide greater interest
Money Market Deposit Account: offer higher rate of interest
- higher balances required, able to write checks
Savings Accounts: collect interest, do not have checks, able to withdraw

26
Q

different types of savings accounts

A

passbook savings: passbook that you bring to record deposits and withdrawals
- may pay slightly higher interest rates
statement savings account: bank sends you a statement

27
Q

certificate of deposit

A

certificate of deposit: period of time, higher interest paid

  • have up to $100,000 insured
  • more money put in more annual percentage yield
28
Q

CD’s
maturation
principal
roll over

A

maturation: the decided period of time before withdrawal
principal: initial deposit
roll over: continuing the CD for another term

29
Q

Joint Accounts

A

Or: either holder can empty the account
And: both signatures are required to take out large amounts of money

30
Q

Savings Bonds:

A

Series EE: starts at $25 doubles in 15 years

Series I: changes in value with inflation $50-$10,000 denominations

31
Q

Top 5% of US has net worth:

Top 1% of US has net worth:

A

top 5% > $1 mill

Top 1% > $5 mill

32
Q

Furlough

A

temporary leave from work WITHOUT pay

33
Q

how much should you spend on housing?

A

no more than 35% of take- home pay

Family Financial Analysis exam 1 (5 decks)

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