Chapter 6 (Managing your money) Flashcards
a series of decisions made over a short term period regarding cash inflows and outflows
money management
your ability to cover any cash deficiencies that you may experience
liquidity
- interest rate usually high
- maintaining adequate liquid assets allows you to avoid using credit cards and paying hight finance charges
using credit cards for liquidity
- very liquid investment
- overdraft protection
checking account
an arrangement that protects a customer who writes a check for an amount that exceeds the checking account balance; it is a short term loan from the depository institution where the checking account is maintained
overdraft protection
a financial institution’s notice that it will not honor a check if someone tries to cash it; usually occurs in response to a request by the writer or the check
stop payment
paychecks go directly to your financial institution
direct deposit
a type of deposit offered by depository institutions that provides checking services and pays interest
NOW (negotiable order of withdrawal) account
- requires a minimum balance, lowering liquidity
- retail CDs
- return: pay higher interest rates than savings deposits
- liquidity: penalties are imposed for early withdrawal
- choice among CD maturities
CD (certificate of deposit)
certificates of deposits that have small denominations
retailed CDs
a deposit offered by a depository institution that requires a minimum balance, has no maturity date, pays interest, and allows a limited number of checks to be written each month
Money market deposit account (MMDA)
- less liquid than checking, but pays a higher interest rate
- many people keep a checking or NOW account for day-to-day and a money market for other funds
money market deposit account (MMDA)
debt securities issued by the U.S. treasury
treasury securities
treasury securities with maturities of one year or less
Treasury bills (T-Bills)
- return: purchased at a discount; result in capital gains
- secondary market
- quotations: prices online and in financial news publications
treasury bills
a market where existing securities such as treasury bills can be purchased or sold
secondary market
accounts that pool money from individuals and invest in securities that have a short term maturity
money market funds (MMFs)
- typically less than 90 days
- commercial paper
- quotations: found in financial newspapers and online
Money market funds
short term debt securities issued by large corporations that typically offer a slightly higher return than treasury bills
commercial paper
an account that combines deposit accounts with a brokerage account and provides a single consolidated statement
asset management account
an asset management account that sweeps any unused balance in the brokerage account into a money market investment at the end of each business day
sweep account
the risk that a borrower may not repay on a timely basis
credit risk (default risk)
the risk that the value of an investment could decline as a result of a change in interest rates
interest rate risk
the potential loss that could occur as a result of converting an investment into cash
liquidity risk
