Chapter 5 Flashcards
What is a cashier’s check?
A check from a bank or other financial institutions that can be purchased buy paying the amount of the check plus a service fee.
What is a certified check?
A personal check issued by a bank that guarantees that the amount will be paid, the bank typically charges a fee for this type of check
What is a money order?
A prepaid check purchased from a bank, credit union or convenience/grocery store
What is a traveler’s check?
A prepaid check purchased from a credit card company, bank or credit union that must be signed before it can be cashed.
What is FDIC insurance?
A protection of all deposits up to at least $250,000 in the case the bank fails or goes out of business.
What is collateral
The item of value, pledged by the debtor, that can be sold by the lender in the event that loan payments are not made by the borrower.
What does it mean to have wages garnished?
A court order to have an employer pay an employee’s wages directly to a creditor.
How is your credit score determined?
Using 5 inputs: payment history, amount of credit, length of credit history, new credit and types of credit.
How long can negative events stay on your credit report?
What is revolving credit?
A loan that may be accessed, repaid, and used again indefinitely. Example: credit cards
What is installment credit?
student loans, mortgages, personal loans and car loans
What is the responsibility of a co-signer on a loan?
What is grace period?
Grace period is the amount of time allowed to pay a bill without incurring interest
What are examples of alternative financial systems?
check cashers, money order providers, pawn shops, payday lenders, auto title loan lenders, and rent-to-own retailers,
What are alternative financial systems?
A growing lending industry of lenders that tend to be convenient to use but much more expensive.
What is a secured loan?
one that is backed by collateral
What is an unsecured loan/ signature loan?
A loan with no collateral involved
What are examples of secured loans?
Vehicle loans
Mortgage loans
Car title loans
Pawnshop loans
What are examples of unsecured loans?
Lines of credit, credit cards, student loans, payday loans
What is the best practice for determining loan repayment period for different types of assets?
a best practice is to make sure that the loan repayment period is shorter than the expected useful life of the asset.
Who funds federal student loans?
The federal government
When do you start paying federal student loans back?
6 months after graduation or when students move to less than half time.
What is a subsidized loan?
interest on these loans is paid by the federal government, making these loans the best value if you have to borrow.
What is an unsubsidized loan?
Interest on these loans is added to the loan balance until payments begin–which is usually 6 months after graduation. The annual amount a student can borrow is capped. Students do not need to show a financial need.
What is the typical cost of renters insureance?
$125 annually
What are loan origination fees?
An expense paid to lender for providing a loan
What are loan points?
A fee paid to reduce a mortgage interest rate; if borrowers want a lower interest rate on their mortgage, they sometimes have to option of paying a large up-front fee in exchange for a lower interest rate
What are appraisal fees?
Costs for a written document describing the value of property
What is inflation risk?
The danger that rising prices in the economy will erode purchasing power
What is business risk?
The possibility that a company in which you invest will be forced to close
What is interest risk?
the chance that general interest rates will increase, which will reduce the value of most investments
What is liquidity risk?
this occurs when you cannot sell something you own because of a weak market
What is marketability risk?
The threat that an investor may not be able to sell an asset quickly and receive cash in a timely manner
What is systematic risk?
The risk that the markets can go down; associated with the economic environment in general
_____________ reduces nominal returns.
Higher inflation
How to calculate emergency fund ratio?
Monetary Assets/Monthly Living Expenses
