General Principles: Chapter 5 Flashcards
What is the function of a bank?
Perform financial transactions such as receiving, investing and lending money
What is the purpose of a bank?
To be a financial intermediary. They accept deposits (paying interest on them). They then make loans from unused deposits to receive interest from borrowers
Who regulates federally or nationally chartered banks?
Comptroller of the currency, the Federal Reserve and the FDIC
Who regulates state chartered banks?
The regulatory authority of that state, the Federal Reserve and the FDIC
What is the function and purpose of Savings and Loan (S&L)?
They acquire funds through time deposits, these funds are then used to make mortgage loans.
Who regulates S&L’s?
May be state or federally regulated, they are regulated by a branch of the FDIC and the Federal Home Bank Board
What are the insurance limitations on Bank and S&L accounts?
The standard insurance amount is $250,000 per depositor (owner), per insured bank for each ownership category. However only certain types of products are insurable.
What types of products are insurabale and which are not?
Insurable: Checking & savings accounts, money market deposit accounts, certificate of
deposit accounts
Non-insurable: Stocks, bonds, mutual funds (including money market MF’s) and
treasuries
What are the ownership categories and their amounts of insurance?
- Individual Account: $250k
- Joint Account: $250k per owner (make sure to include that when doing total insured)
aggregate across the category and accounts are split evenly - Revocable Trust: $250k per beneficiary named in a revocable living trust
- IRA and Keoghs: $250k insured separately from any non-retirement funds
What is a credit union, their purpose and who regulates them?
A non-profit financial organization serving members with a common affiliation (ie employment unions). They are state and federally regulated and allow for people to save and borrow at a reasonable rate.
Loans are often used for new/used vehicles, first or second mortgages, home equity, personal signature, student loans or consolidating of loans.
What is the role of a broker-dealer?
Dealer: Individual or firm acting as principal in a securities transaction. Principals trade
for their own account and risk. They buy from sellers and sell to buyers. When
buying from a firm acting as a dealer, the customer receives securities from the
firm’s inventory. When floor specialists trade for their own accounts they act as
dealers
Broker: When firms match buyers to sellers they act as brokers, since most firms
operate as brokers and principals they are known as broker dealers.
What is the purpose of a broker dealer?
Act as agents in executing order to buy and sell securities on various stock exchanges and off exchange trading
Who regulates the broker-dealers?
The SEC through FINRA.
What is insider trading?
A person with key information before it is made available to the public, trades on that information. Often directors, officers, key employees and relatives
What is the function and purpose of insurance companies?
Help clients protect their assets and income against a variety of risks. They provide a mechanism for risk sharing and risk transfer.
What functions do insurance companies engage in?
Underwriting policies, rate making, reinsurance, investing assets and claims adjusting.
Who regulates the insurance companies at the federal level?
COBRA and HIPAA
Who regulates the insurance industry at the state level?
All three branches of the government.
Legislative: Passes insurance laws, Courts: Interpret laws, Executive: enforces laws.
The goals of regulation are maintaining solvency of insurers, protecting policyholders against mistreatments by insurers, maintaining fair competition and helping assure coverage will be available to all who want and need it.
What is the function and purpose of a mutual fund?
Operated by an investment company that raises money from shareholders and invests the money in stocks, bonds, options, commodities or money markets.
The fund offers advantages of diversification and professional management.
Who regulates mutual funds?
SEC
What is the securities act of 1933?
Requires that purchasers of new issues be provided with a detailed prospectus before the transaction
What is the securities act of 1934?
regulates the secondary market (trading of issued securities), also created the SEC to create and enforce securities laws
What is the investment company act of 1940?
Authorized the SEC to regulate unit investment trusts, managed investment companies (closed end and open-end funds), and the separate accounts in variable life insurance or annuities
What is the investment advisors act of 1940?
Defines the roles and responsibilities of an investment advisor. Authorized SEC to monitor what specifies as investment advice and who must register with state or fed regulators in order to dispense it
What is the securities investors protection act of 1970?
Established the SIPC to supervise securities firms that get into financial difficulties. The SIPC insures investors against losses arising from the failure of the brokerage firm, not bad investing.
What are trust companies?
An organization usually associated with a commercial bank, engaged as a trustee, fiduciary or agent for individuals and organizations. They typically engage in fiduciary investment management and estate planning. They are regulated by state law
