Module 5: Personal Finance Flashcards
What are three common types of deposit?
Demand deposit, savings deposit, time deposits/fixed deposits
What is demand deposit?
A demand deposit (current) account is a deposit account held at a bank, in which the funds deposited are payable on demand. The primary purpose of this deposit is to facilitate cashless payments (usually of big amounts) by means of cheque. A demand deposit in Hong Kong is non-interest bearing.
What is savings deposit?
Savings deposit are accounts that pay interest maintained by commercial banks serving the general public. Depositors can withdraw their money with their passbook at the bank counter or at ATM machines with their ATM card. With the use of electronic platforms like EPS and PPS, savings account holders can directly settle payments using their savings deposits.
What are time deposits?
Time deposits/fixed deposits carry a fixed deposit period, called the maturity period. Interest rates vary with deposit amount and maturity periods. Depositors are normally not allowed to withdraw their money before maturity; sometimes the maturity period can be pre-terminated subject to penalty fees.
What are the returns to deposit holders?
The returns of bank deposits mainly come from interest. In general, the larger the deposit and the longer the maturity, the higher the interest rate. There are two interest payment methods, simple and compound interest. Holding other factors constant, the compound interest payment method usually leads to a higher investment return because the interest earned will generate new interest.
What is stock market?
Stock market is a market where shares and other investment instruments such as bonds/debentures and traded. Investing in stock can give investors profitable returns, but they may also suffer from capital losses if the shares decline in value. Therefore, it is essential for new investors to learn about what the stock market is.
What do people buy from the stock market?
Investors buy shares (stocks) and bonds (debentures) in the stock market through stockbrokers.
Where do the trading of shares and bonds take place?
An exchange market: the Hong Kong Exchanges and Clearing Limited (HKEx) is the only corporation that enables the trading of stocks in Hong Kong.
What are shares?
When people buy shares, they are buying a portion of a listed company; they are buying ownership of a firm and become it shareholders. A shareholder is an owner of a listed company, owning a portion of it.
Do shareholders enjoy management right to the company and a fixed rate of dividends?
- no: most companies have management and ownership separated. While a limited company is owned by shareholders, it is managed by a board of directors, who make important decisions for the company. Shareholders enjoy voting rights to vote on the election of board directors.
- no: shareholders may receive dividends which are the portion of the company’s profits distributed to shareholders. The amount depends on the profitability of the company.
Do all listed companies give out dividends to shareholders?
no: companies who make a loss or choose to retain the profits for future use may not give out dividends.
What are returns to shareholders?
The shareholder can obtain dividends and earn money from the change in share prices (capital gain/loss).
What are bonds?
Governments and companies can raise fund through issuing debentures/bonds. These are long-term debts of the issuers.
What are bond holders?
Bond holders are the creditors of the issuer who do not have the ownership of the company. They receive fixed rate of interest from the issuers regardless of their profitability. At the date of maturity, bond holders can get back the principal from the issuers. In case of liquidation, bond holders can get back their investment amounts easier than the stock holders.
What are the returns to bond holders?
Bong holders can earn money from interest and the change in bond prices (capital gain/loss).
