Personal Finance Chapter 5 & 6 – Flashcards
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What is an opportunity cost of a "free" checking account with a min. balance of $500?
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Lost interest
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Why is an asset management account useful?
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It combines several financial services for a single fee.
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Savers should always attempt to obtain an interest rate that is...
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...higher than the inflation rate.
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Borrowers should attempt to obtain an interest rate that is...
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...less than the inflation rate.
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What institution offers the widest variety of financial services?
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Commercial banks.
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What do savings and loan associations specialize in?
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Mortgages and loans
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Why are Credit Unions different than other institutions?
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The offer lower loan rates.
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The money market fund offered by investment companies is a relatively liquid financial service. (T/F)
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True.
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What do consumer finance companies specialize in?
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Short-term loans.
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The convenience of using a financial institution with 24-hour banking usually requires a trade off with...
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...service fees, and personal service.
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If the interest rates are declining, what should you do?
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Take out short-term loans and create long-term savings.
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An advantage credit unions may have over other financial institutions is...
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...lower fees.
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The major services offered by investment companies are...
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...money market funds and mutual funds.
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What institution specializes in helping people save money in a manner that provides high liquidity?
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Investment companies
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What is a savings account called at a credit union?
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A share account.
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A CD usually has...
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...higher earnings and low liquidity.
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A saver will usually earn the highest rate with which type of savings plans?
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CD's
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Which savings plans are NOT covered by federal deposit insurance?
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Investment company accounts, life insurance, and finance and mortgage company accounts.
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Some advantages of a US savings bonds are...
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...guaranteed to get money back, and interest is deferred.
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An account at a commercial bank designed for people who want to earn a higher savings rate is a...
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...money market account.
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The rate that commercial banks charge large corporations for loans is the...
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...prime rate.
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The rate that the Fed. Reserve charges banks for loans is the...
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...discount rate.
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The yield on a long term bond issued by the federal government is the...
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...treasury bond rate.
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What are types of deposit institutions?
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Commercial banks and credit unions
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What are NOT types of deposit institutions?
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life insurance comps., investment comps., finance comps., mortgage comps.
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What is a drawback of a money market fund from an investment company?
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not covered by the FDIC
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A CD that offers a higher rate for every six months you invest in it is...
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...a rising rate or bump up CD
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A CD that has earnings based on the stock market is...
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...indexed CD
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A CD that starts with a higher rate and has a long time to maturity but which can be retired by the bank after a set time period is...
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...callable CD
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Which type of institution does not provide home mortgages?
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Finance companies
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What is the use of credit for personal needs (except a home mortgage) by individuals called?
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Consumer credit
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What is consumer credit based on?
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Trust in people's ability and willingness to pay bills when due.
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What are the 3 types of closed-end credit?
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Installment sales credit, installment cash credit, and single lump-sum credit
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What is a loan that allows you to receive high-priced items?
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Installment sales credit
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What is a direct loan of money for personal purposes, home improvements, or vacation expenses?
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Installment cash credit
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What is an example of closed-end credit?
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using a credit card, such as Visa or Master Card
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Many retailers use what type of credit?
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Open-end
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The credit cardholders who pay off their balances in full each month are known as...
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...convenience users.
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The linking of a credit card with a business trade name offering points towards the purchase of a product or service is...
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...co-branding
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Where is a good place to obtain your first credit card?
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Department stores and gas companies
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A home equity loan is usually set up as a revolving line or credit, typically with a variable interest rate. (T/F)
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True
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Borrowings are permitted up to a specified limit and for a stated period in a...
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...revolving line of credit.
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The smaller the debt-to-equity ratio...
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...the less risky the situation is for lenders and borrowers.
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What regulates the use of credit reports, requires deletion of obsolete info., and gives consumers access to their files?
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Fair Credit Reporting Act
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Can a credit ignore your retirement income in rating your application?
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No
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Can you be denied credit because you receive Social Security or public assistance?
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No
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What sets the procedures for promptly correcting billing errors?
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Fair Credit Billing Act
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Another name for closed-end credit is...
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...installment credit
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An example of closed end-credit is...
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...mortgage loan
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Another name for open-end credit is...
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...revolving credit
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The max amount of credit you are allowed by a creditor is called a...
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...line of credit
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An example of open-end credit is...
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...the use of a bank credit card to make a purchase
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Installment credit is...
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...a direct loan of money for personal purposes
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A credit arrangement that has no extra costs and no specific repayment plan is called...
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...incidental credit
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What would be the limit for an individual's debt-to-equity ratio, excluding the home mortgage?
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1.00
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What can be included in your credit report?
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Marital status
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What federal credit law sets the procedure for promptly correcting billing mistakes and protects you against an unauthorized use of your credit card?
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Fair Credit Billing Act
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What federal consumer credit law provides specific cost disclosure requirements for the annual percentage rate and the finance charge as a dollar amount, regulates the advertising of credit terms, prohibits credit card issuers from sending un-requested cards, and limits a cardholder's liability for unauthorized use of a card to $50?
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Truth in Lending Act
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Information in your credit report is most likely used to...
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...calculate you FICO credit score
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What is an example of a credit bureau?
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Experian
