Session5 - Overview of (the need of) consumer protection in the finance industry Flashcards
What is the key principle of time value of money
1000 € today is not equal to 1000€ in the future.
How do you calculate the Present Value (PV) of a coupon?
PV = C / r
PV = present Value C = coupon rate r = Exepcted return
What is an annuity?
Annuity - An asset offering us an fixed amount of cash flow for a period of time
What is the general formula for PV of Cash Flows in the future?
PV = C/r - ( C / r*(1+r)^T)
What is a Bullet Loan?
Bullet loan = A loan with a fixed amount to be payed in the end
How do you calculate the Effective Annual Interest rate?
(1 + r/n)^n
How do we go from the Effective Annual Interest rate to the monthly interest rate?
(1 + r)^months = Annual rate –> ln ( r ) = ln (Annual rate) / months
what is the estimated formula for the real interest rate?
Real Interest rate = Nominal Interest rate - inflation rate
What is the difference between the real interest rate and the nominal interest rate?
The real interest rate tells us how the purchasing power is affected while the nominal interest rate is the one we receive from the bank when making an investment.
What was the idea with the Consumer Credit Directive (CCD)?
The idea was to protect the consumers
what are the CCD contractual rights?
PRE-rights:
1. The creditor has to disclose the total cost of credit to the consumer
- these costs and rates have to include all credit costs and additional mandatory fees.
- All marketing information as to be clear and given in a standard form.
- There a certain information concerns.
POST-rights:
5. Consumers has the possibility do withdraw from a credit agreement without explanation within 14 days of signing
- Consumers have the right to make early payments at any time, as long as the compensation to the creditor is fair.
