quizlet words Flashcards
banking
The issuing, exchanging, loaning, and custody of money and the extension of credit.
payer
The person who writes a check.
2-for-1 stock split
When each stockholder receives an additional share for each share held, but the value of each share is reduced by half: two shares now equal the original value of one share before the split.
3-for-2 stock split
When each stockholder receives an additional share for every two shares held, but the value of each share is reduced by 2/3: three shares now equal the original value of two shares before the split.
NOW
Negotiable Order of Withdrawal. An interest-bearing checking account at a bank or savings and loan.
share draft
A check written on an account at a credit union.
pension plan
A qualified retirement plan set up by a corporation, labor union, government, or other organization for its employees.
integrated pension plan
Plan that is tied to a person’s payments into Social Security. This amount will be used in calculating the total benefit that the individual will receive upon retirement.
defined benefit plan
A company retirement plan, such as a pension plan, in which a retired employee receives a specific amount based on salary history and years of service, and in which the employer bears the investment risk. Contributions may be made by the employee, the employer, or both.
defined contribution plan
A retirement plan in which a certain amount or percentage of money is set aside each year by a company for the benefit of the employee. There are restrictions as to when and how you can withdraw these funds without penalties.
equation of exchange
(M V = P Q) M = money supply V = velocity of money P = average price level of goods Q = index of expenditures Explains relationship between money and prices.
bear market
Bad times, prices are falling, and widespread pessimism causes the negative sentiment to be self-sustaining.
bull market
Good times, prices are rising or are expected to rise. Characterized by optimism, investor confidence and expectations that strong results will continue.
discount loan
With this type of loan, borrowers receive less than the full amount of the loan and repay the full amount at maturity.
fidelity bonds
Used to protect the firm against dishonesty of employees/agents. Covers various forms of losses, including fraudulent trading, theft and forgery.
401(K)
A qualified plan established by employers to which eligible employees may make tax-deferred contributions (often matched by the company) to a trust.
tax-sheltered annuity
A type of annuity that allows an employee to make contributions from his or her income into a retirement plan. Contributions are deducted from the employee’s income and are not taxed until withdrawal.
SEP-IRA
A retirement plan created to benefit self-employed persons and small business owners. Contributions to a SEP IRA are typically 100% tax deductible and earnings grow tax deferred.
SIMPLE IRA
Savings Incentive Match Plan for Employees
A retirement plan sponsored by companies with fewer than 100 employees; though it may be structured as a 401(K), it avoids some of the administrative fees and paperwork of those plans.
Traditional IRA
Type of IRA where contributions are tax-deductible at the time they are deposited and both the principal and the income earned in the account are taxed as regular income when they are withdrawn as distributions.
Roth IRA
Type of IRA where taxes are paid on contributions, but withdrawals are not taxed at all. Does not require you to start making withdrawals at a certain age, and allows an individual to make a qualified withdrawal up to $10,000 for a first time home purchase.
IRA
Individual Retirement Account. A tax-deferred retirement account for an individual that permits individuals to set aside money each year, with earnings tax-deferred until withdrawals begin at age 59 1/2 or later (or earlier, with a 10% penalty). Can be established at a bank, mutual fund, or brokerage.
credit card
A card issued by a financial company giving the holder an option to borrow funds, usually at point of sale. They have higher interest rates (around 19% per year) and are primarily used for short-term financing. Interest usually begins one month after a purchase is made and borrowing limits are pre-set according to the individual’s credit rating.
One of the most popular and widely accepted forms of payment for consumer goods and services in the U.S.
debit card
An electronic card issued by a bank which allows bank clients access to their account to withdraw cash or pay for goods and services. This form of payment also removes the need for checks as it immediately transfers money from the client’s account to the business account.
The major benefits to this type of card are convenience and security.
Securities Investor Protection Corporation
Insures investors accounts for up to $500,000 (including $100,00 in cash), in the event of fraud or the bankruptcy of a member securities brokerage.
add-on clause
Provision contained in an installment contract. An add-on clause creates a security interest in the earlier goods until full payment is made on the new goods. By this clause, the earlier purchases serve as the security for new purchases.
True or false? Purchasers of automobile liability insurance can reduce their premium costs by agreeing to a deductible.
false
liquid assets
Assets that are easily convertible to cash, such as those in savings accounts, stocks, and US savings bonds.
A tight money policy followed by the Federal Reserve would most likely result in:
higher interest rates
renewable term life insurance
Best for short-term life insurance. Policies that start out with low premiums, but increases each time the term is renewed. Policyholders are guaranteed renewal for succeeding terms even if they have a serious illness.
Lenders are required to disclose the true costs of credit to borrowers, including the total amount of interest charged over the life of a loan and the amounts of monthly payments by this federal law:
Truth in Lending Act
When real estate agents have the bank collect money from buyers and put it into the seller’s account, they are using the bank’s _____ services.
escrow
municipal bonds
Bonds issued by a local government, or its agencies. Most likely would have the lowest interest rate.
balance sheet
A financial statement that shows the firm’s assets and liabilities.
property damage liability
Insurance coverage that pays for the damages to the car and possessions (including stationery objects such as trees/mailboxes) of the other party in an accident that is your fault.
comprehensive physical damage
Insurance coverage that covers the cost of damages to your car caused by natural disasters, fire, robbery, theft, vandalism, and more.
personal injury protection
Insurance coverage that covers medical expenses, although it depends based on plan/provider, usually it covers most medical costs, hospital costs, Income continuation, lost wages and funeral costs.
price-to-earnings ratio
Ratios that relate a stock’s price to the firm’s profits, thus allowing investors to evaluate stock prices.
mutual company
A type of insurance company that returns part of the profits of the company to its policyholders.
independent agency
Created by Congress to address concerns that go beyond the scope of ordinary legislation.
passbook accounts
Another way of saying “savings accounts.”
Depositors are the owners of ______.
credit unions
prime rate
Interest rate charged by banks to their best corporate borrowers.
whole life insurance
Life insurance policy that remains in force for the insured’s whole life. Advantage = cash values can build up that policy holders can borrow against later.
teller
An entry-level position at a financial institution.
euro
A new currency used by members of the European union.
commercial bank
Primary lending function is to help business owners who want to expand.
suitability
An important element in determining proper business practices. Financial professionals recommend financial products based on the client’s financial, social, and emotional circumstances
defensive stocks
Those likely to have share prices that are more volatile that those of growth stocks. Most popular when economic outlook is not very positive.
trust department
This part of a bank would be most likely to manage money for a 12-year-old who received an inheritance.
cashier’s check
A check drawn on the bank’s own funds, often requested by seller to be assured of payment.
M1
The narrowest definition of the money supply. Includes currency, travelers’ checks, and balances in checking accounts.
fractional reserve banking
A certain percentage of any deposit that is placed in the vault while the remainder is lent out/invested by the bank.
junk bonds
A colloquial term for a high-yield or non-investment grade bond. Junk bonds are fixed-income instruments so called because of their higher risk. However, they have speculative appeal because they offer much higher yields than safer bonds. Companies that issue junk bonds typically have less-than-stellar credit ratings, and investors demand these higher yields as compensation for the risk of investing in them. A junk bond issued from a company that manages to have its credit rating upgraded will generally have a substantial price appreciation.
bond rating
A grade given to bonds that indicates their credit quality. Private independent rating services such as Standard & Poor’s, Moody’s and Fitch provide these evaluations of a bond issuer’s financial strength, or its the ability to pay a bond’s principal and interest in a timely fashion.
AAA and AA
Highest bond rating; high credit-quality investment grade.
AA and BBB
Medium credit-quality investment grade
BB, B, CCC, CC, C
Low credit-quality (non-investment grade), or “junk bonds.”
D
Bonds in default for non-payment of principal and/or interest
Fair Credit Reporting Act
US Federal law that protects and regulates the collection, dissemination, and use of consumer information, including consumer credit information that credit bureaus may collect.
Fair Debt Collection Practices Act
Which prohibits debt collectors from using abusive, unfair, or deceptive practices to collect from you. It covers personal, family, and household debts, including money you owe on a personal credit card account, an auto loan, a medical bill, and your mortgage. Does not cover debts you incurred to run a business.
trust department
Department of a bank whose purpose is to handle the administration of trust funds, provide estate planning support, and in some cases see to the disposition of the estate of a deceased customer.
treasury bonds
A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Makes interest payments semi-annually and the income that holders receive is only taxed at the federal level. Issued with a minimum denomination of $1,000.
investment banking
Financial activities that involve underwriting new security issues and providing advice on mergers and acquisitions.
underwriter
One who purchases new issues of securities and resells them to investors for a profit. Usually investment banks that guarantee/select the risks an insurance company agrees to accept.
IPO
Initial Public Offering. First time a firm sells stock to the public.
syndicate
Group of investment banks that jointly underwrite a security issue.
investment institution
Financial firm, such as a mutual fund or a hedge fund, that raises funds to invest in loans and securities.
mutual fund
Financial intermediary that raises funds by selling shares to individual savers and invests the funds in a portfolio of stocks, bonds, mortgages, and money market securities.
money market mutual fund
Mutual fund that invests exclusively in short-term assets, such as: treasury bills, negotiable certificates of deposit, and commercial paper.
hedge fund
Financial firms organized as a partnership of wealthy investors that make relatively high-risk, speculative investments.
finance company
Non-bank financial intermediary that raises money through sales of commercial paper and other securities and uses the funds to make small loans to households and firms.
contractual saving institution
Financial intermediary such as a pension fund or an insurance company that receives payments from individuals as a result of a contract and uses the funds to make investments.
pension fund
Financial intermediary that invests contributions of workers and firms in stocks, bonds, and mortgages to provide for pension benefit payments during workers’ retirements
insurance company
NON DEPOSITORY intermediary that specializes in writing contracts to protect policy-holders from the risk of financial loss associated with particular events.
systemic risk
Risk to the entire financial system rather than to individual firms or investors.
cash flow statement
One of the quarterly financial reports any publicly traded company is required to disclose to the SEC and the public. Provides aggregate data regarding all cash inflows a company receives from both its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given quarter.
income statement
AKA “profit and loss statement” or “statement of revenue and expense.” A financial statement that measures a company’s financial performance over a specific accounting period. Also shows the net profit or loss incurred over a specific accounting period, typically over a fiscal quarter or year.
Form 10-K
A comprehensive summary report of a company’s performance that must be submitted annually to the Securities and Exchange Commission. Typically contains much more detail than the annual report. It includes information such as company history, organizational structure, equity, holdings, earnings per share, subsidiaries, etc.
stock company
A company or corporation whose capital is divided into shares.
joint-stock company
A joint-stock company is a business entity which is owned by shareholders.
demand deposit
Funds held in an account from which deposited funds can be withdrawn at any time without any advance notice to the depository institution. Can be “demanded” by an account holder at any time. Accessible by the account holder through a variety of banking options, including teller, ATM and online banking.
term deposit
A type of account which cannot be accessed for a predetermined period (typically the loan’s term).
currency swap
A swap that involves the exchange of principal and interest in one currency for the same in another currency. It is considered to be a foreign exchange transaction and is not required by law to be shown on a company’s balance sheet.long position
long position
The buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value. Stock market investors are in this position when they hold stocks purchased with case or on margin.
short position
The sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value.
buying on margin
The practice of using borrowed money to purchase securities.
coinsurance clause
Insurance policy stipulation that a building must be insured for at least a certain percentage (usually 80 percent) of its insurable value (appraised or market value of the property less value of land) in order to collect the full amount of a partial-loss claim on it.
acceleration clause
Most often found in mortgage/real estate loans, this outlines the reasons that the lender can demand loan repayment. If the borrower does not make payments on time, the entire unpaid principal balance can be declared immediately due and payable.
balloon payment
A clause in a mortgage contract that says if the mortgage is prepaid within a certain time period, a penalty will be assessed. The penalty is usually based on percentage of the remaining mortgage balance or a certain number of months worth of interest.
Rule of 78
For a 12 month loan, 12/78s of the finance charge is assessed as the first month’s portion of the finance charge, 11/78s of the finance charge is assessed as the second month’s portion of the finance charge and so on until the 12th month at which time 1/78s of the finance charge is assessed as that month’s portion of the finance charge.
market capitalization
The total dollar market value of all of a company’s outstanding shares. Calculated by multiplying a company’s outstanding shares by the current price of one share.
depository intermediary
Bank, building society, credit union, or other financial institution that solicits and accepts savings of the general public as demand deposits or time deposits, and pays a fixed or variable rate of interest.
financial institution
An establishment that focuses on dealing with financial transactions, such as investments, loans and deposits.
commercial bank
An institution which accepts deposits, makes business loans, and offers related services. Also allow for a variety of deposit accounts, such as checking, savings, and time deposit. Primarily concerned with receiving deposits and lending to businesses
gift tax
Paid by giver on a gift of money/property.
front-end load
A commission or sales charge applied at the time of the initial purchase for an investment, usually mutual funds and insurance policies. It is deducted from the investment amount and, as a result, it lowers the size of the investment
back-end load
back-end load A fee that investors pay when selling mutual fund shares within a specified number (usually 5-10) of years. The fee amounts to a percentage of the value of the share being sold
uninsured/underinsured motorist coverage
Purpose of this type of insurance is to compensate another driver when the insured did not purchase enough liability insurance to cover medical expense or losses to another’s property.
title insurance
This type of insurance protects the insured from losses arising from an event that occurred before the policy was purchased.
smart cards
These have embedded microchips, and can be reused as value can be stored, used, and restored by banks/merchants.
FTSE 100
The British (London Stock Exchange) equivalent of the Dow Jones 30 Industrial Average.
qualified endorsement
Endorsement that adds certain words which limit, qualify, or restrain the endorser’s liability. For example, adding the term ‘without recourse.’
payor
The person who makes payment to another; the person who pays. AKA drawer.
payable
This word, when written on a balance sheet, indicates an amount owed.
without recourse
This phrase is a type of qualified endorsement, which limits the liability of the person endorsing the check.
check safekeeping
Common practice whereby the bank does not return canceled checks but allows customers to request photocopies if proof of payment is required.
finance companies
These companies often charge higher interest rates on loans because people who borrow from them usually have had past credit trouble or don’t otherwise qualify for loans from lower interest sources
common size analysis
Comparison of different-sized firms in the same industry when analyzing a firm’s financial statements.
FDIC
Federal Deposit Insurance Corporation. Responsibilities include enforcing regulations ensuring that banks operate in a sound manner
reserve requirement
When the Federal Reserve increases this, banks must retain more of each dollar deposited, reducing the amount they can lend. This does not change very often.
federal funds rate
Interest rate that the Federal Reserve suggests that member banks charge each other on short-term borrowing.
premium
The amount by which a bond or stock sells above its par value.
no load fund
A mutual fund which doesn’t impose a sales or redemption charge, selling and redeeming its shares at net asset value.
load fund
A mutual fund that comes with a sales charge or commission.
Microsoft and Intel
First two NASDAQ stocks to be included in the Dow Jones Industrial Average in 1999
maturity value
The amount that will be received at the time a security is redeemed at its maturity. For most securities, maturity value equals par value
par value
The nominal dollar amount assigned to a security by the issuer. Same thing as face value.
secondary market
A market in which an investor purchases a security from another investor rather than the issuer, subsequent to the original issuance in the primary market. AKA aftermarket.
guaranteed insurability
An insurance policy in which the insurer is required to renew the policy for a specified amount of time regardless of changes to the health of the insured.
Most important to individuals wishing to purchase health insurance
online/electronic account access
Creditors are encouraging this for the following reasons: Bad debt collection costs are decreased; postage expenses are reduced; and material costs associated w/ producing paper statements are reduced.
A security that represents ownership in a corporation.
Most of the shares of stock traded on the major stock exchanges are this type of stock:
common stock
preferred stock
A class of ownership in a corporation that has a higher claim on the company’s assets and earnings than common stock. This type of stock has a dividend that must be paid out before dividends to common stockholders (in the event of a bankruptcy, paying these shareholders takes precedence before common stockholders). However, the shares usually do not have voting rights.
stock dividend
A dividend paid as additional shares of stock rather than as cash. Stock dividends, unlike cash, are non-taxable.
finance charge
Any fee representing the cost of credit, or the cost of borrowing.
auction market
One of 2 main types of US stock markets. A market in which buyers enter competitive bids and sellers enter competitive offers at the same time. A stock’s price = highest price that a buyer is willing to pay and lowest price that a seller is willing to sell at. (EX: NYSE)
dealer market
One of 2 main types of US stock markets. A market where dealers are assigned for specific securities. The dealers create liquid markets by purchasing and selling against personal inventory.
convertible preferred stock
Preferred stock that can be converted into a specified amount of common stock at the holder’s option.
cumulative preferred stock
Preferred stock on which dividends accrue in the event that the issuer does not make timely dividend payments. Most preferred stock is this kind.
non-cumulative preferred stock
Preferred stock for which unpaid dividends do not accrue.
participating preferred stock
A preferred stock which, in addition to a regular dividend, also pays an additional dividend (the participating dividend) when common stock dividends exceed a specified amount.
callable preferred stock
A preferred stock that allows the issuer to repurchase the issued stock at a predetermined price. The right to repurchase is usually exercised when market rates fall below the preferred stock rate at time of issue. A firm issues this type of stock to protect itself from obligations to pay guaranteed dividends in the future.
prospectus
A condensed version of a registration statement containing essential info about the amount offered, the price, and the plans for the funds raised made available to potential investors.
annual report
Required document made available to shareholders of mutual funds on a fiscal year basis. It discloses certain aspects of a fund’s operations and financial conditions.
IAR
Investment Advisory Representative. Responsibility is to provide investment related advice to clients for a fee.
insider
A director or senior officer of a company, as well as any person or entity that owns > 10% of a company’s voting shares. Must comply with strict disclosure requirements with regard to the sale/purchase of their company’s shares.
insider trading
Any trade of a company’s shares based on material non-public knowledge.
debenture
An unsecured corporate bond
Fair Credit Billing Act
Requires that creditors must investigate a debtor’s written complaints about the accuracy of a bill or statement and respond within 30 days.
call option
An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period. Used by securities investors to gain control of a stock at a price below the market price.
_____ on a stock is similar to the interest rate on a savings account. Otherwise known as the income return on an investment.
yield
DRIP
In the securities industry, a Dividend Reinvestment Plan is offered by a corporation to allow investors to reinvest their cash dividends by purchasing additional shares or fractional shares on the dividend payment date.
S&P 500
An index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. Designed to be a leading indicator of U.S. equities. Investing success is usually measured by comparing an investor’s percentage gain or loss to this.
The Federal Reserve might sell Treasury bonds and raise the discount rate in order to:
reduce the risk of inflation
discount broker
An individual/firm that carries out buy and sell orders at a reduced commission compared to a full-service broker, but provides no investment advice.
Ex: E-Trade, Ameritrade, Charles-Schwab
broker
An individual or firm that charges a fee or commission for executing buy and sell orders submitted by an investor
full-service broker
A broker that provides a large variety of services to its clients, including research and advice, retirement planning, tax tips, and much more. Commissions much higher than those at discount brokers.
Keogh Plan
A tax deferred pension plan available to self-employed individuals or unincorporated businesses for retirement purposes. Can be set up as either a defined-benefit or defined-contribution plan, although most plans are defined contribution.
