Chapter 4 finance – Flashcards
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verifying the accuracy of your checking account balance in relation to the bank's records as reflecting in the bank statement, his is an itemized listing of all transactions in the checking account
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account reconciliation
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a comprehensive deposit account; offered primarily by brokerage houses and mutual funds
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asset management account (AMA)
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a remote computer terminal that customers of depository institutions can use to make basic transactions 24 hours a day, 7 days a week
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automated teller machine (ATM)
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a check payable to a third party that is drawn by a bank on itself in exhchange for the amount specified plus, in most cases, a service fee (of about $5)
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cashier's check
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the routine, day-to-day administration of cash and near-cash resources, also known as liquid assure, by an individual or family.
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cash management
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a type of savings instrument issued by certain financial institutions change for a deposit; typically requires a minimum deposit and has a maturity ranging from 7 days to as long as 7 of more years.
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certificate of deposit (CD)
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a personal check that is guaranteed *for a fee of $10 to $15 or more( by the bank on which it is drawn
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certified check
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a booklet, provided with a supply of checks, used to maintain accurate records of all checking account transactions
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checkbook ledger
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when interest earned in each subsequent period is determined by applying the nominal (stated) rate of interest to the same of the initial deposit and the interest earned in each prior period.
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compound interest
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specially coded plastic cards used to transfer funds from a customer's bank account to the recipient's account to pay for goods or services
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debit cards
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an account held at a financial institution from which funds can be withdrawn on demand by the account holder; same as a checking account.
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demand deposit
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a type of insurance that protects funds on deposit against failure of the institution; can be insured by the FDIC and the NCUA
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deposit insurance
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the annual rate of return that is actually earned (or charged) during the period the funds are held (or borrowed)
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effective rate of interest
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systems using the latest telecommunications and computer technology to electronically transfer funds into and out of customer's accounts.
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electronic funds transfer systems (EFTs)
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an online commercial bank
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internet bank
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a savings bond issued at face value by the U.S. Treasury; its practically fixed rates provides some inflation protection
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I Savings bond
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a federally insured savings account, offered by banks and other depository institutions, that competes with money market mutual funds
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money market deposit account (MMDA)
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a mutual fund that pools the funds of many small investors and purchases high-return, short-term marketable securities
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money market mutual funds (MMMF)
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a checking account on which the financial institution pays interest; ___ have no legal minimum balance
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negotiable order of withdrawal (NOW) account
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the promised rate of interest paid on a savings deposit or charged on a loan
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nominal (stated) rate of interest
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the result of writing a check for an amount greater than the current account balance
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overdraft
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an arrangement between the account holder and the depository institution wherein the institution automatically pays a check that overdraws the account
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overdraft protection
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a savings bond issued in various denominations by the U.S. treasury
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Series EE bond
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an account offered by credit unions that is similar to interest-paying checking accounts offered by other financial institutions
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share draft account
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interest that is paid only on the initial around of the deposit
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simple interest
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an order made by an account holder instructing the depository institution to refuse payment on an already issued check
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stop payment
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a savings deposit at a financial institution; remains on a deposit for a longer time than a demand deposit
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time deposit
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a check sold (for a fee of about 1.5%) by many large financial institutions, typically in denominations ranging from $20 to $100, that can be used for making purchases and exchanged for local currencies in most parts of the world
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traveler's check
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a short-term (3-, 6-, or 12-month maturity) debt instrument issued at a discount by the U.S. treasury in its ongoing process of funding the national debt
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U.S. Treasury bill (T-bill)
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Cash management
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routine, day-to-day use of liquid assets
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Liquid assets
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cash and other assets that can be converted easily into cash with little or no loss in value
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examples of liquid assets
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cash, checking accounts, savings accounts, money market deposit accounts, money market mutual funds, certificates of deposits (CD) U.S. treasury bills (t-bills) and u.s. savings bonds (EEs)
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aa lot of savings invested in liquid assets is saving cushion against emergency to have
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a way to accumulate funds to meet financial goals
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to ensure adequate funds for household to have efficient cash management use and effective
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savings account
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today's financial services marketplace comprised of institution for
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financial products and financial services
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financial products
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checking and savings accounts, credit cards, loans and mortgages, insurance and mutual funds
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financial services
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financial planning, tax preparation, securities brokerage, real estate, trusts and estate planning
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types of financial institutions
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depository and non depository
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vast majority of financial transactions
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depository
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examples of depository institutions
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commercial banks, savings and loans, savings banks, credit unions, brick and mortar banks and internet banks
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examples of non depository institutions
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stock brokerage firm, mutual funds, life insurance companies, finance companies
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non depository are like banking services, but not like traditional banks, example:
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credit card issued by stock brokerage firms or mutual funds that let you write limited number of checks against account
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largest type of traditional financial institutions
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commercial banks
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commercial banks offer a full array of
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financial services; most popular checking and savings institution
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What is the only financial institution to offer non interest paying checking accounts (demand deposits)
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commercial banks
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SAvings and loan associations (S;Ls) offer services similar to
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commercial banks
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compared to commercial banks, savings and loan associations pay ___ interest on savings deposits
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more
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savings and loan associations
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channel depositors' savings into mortgage loans
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savings banks are located primarily in
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new england states
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savings banks offer ___ accounts
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interest-paying checking
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savings banks offer rates
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similar to savings and loans association
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credit unions
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provide financial products and services to people with a common tie (members)
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Credit unions are
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nonprofit, member-owned financial cooperatives
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Credit unions have ___ interest rates than other institutions
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higher
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credit unions offer interest paying checking accounts which is
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share draft accounts
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Credit unions offer ___ interest rates on loans a variety of savings and lending programs
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lower
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protects depositors from financial institution failure
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FDIC
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insures accounts at banks, savings banks and S&Ls
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Federal deposit insurance corporation (FDIC)
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insures accounts at credit unions
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National Credit Union Administration (NCUA)
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increased maximum deposit insurance from $100,000 to $250,000. does not guarantee any deposit interest on that
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Frank-Dodd Wall Street Reform and Consumer Protection Act of 2010
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commercial banks, savings and loan associations and savings banks are insured up to 250,000 through
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FDIC
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credit unions are insured up to 250,000 through
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NCUA
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banks must allow funds to be drawn when
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account holder demands money
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checking account is a
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demand deposit
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If sufficient funds in account, banks must pay
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amount of check or ATM withdrawal
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savings account is a
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time deposit
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savings account/time deposit
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expected to remain on deposit for a longer time
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savings account/time deposit earn higher rates of interest than ____ are principle for gain money in future use
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demand deposit/checking account
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____ are offered by commercial banks and pay no interest
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regular checking accounts
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include NOW, share draft, and money market deposit accounts
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interest-bearing checking accounts
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Interest-Bearing checking accounts are offered by ____ and must pay interest
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banks, savings banks, S&Ls, and credit unions
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interest paid, may have minimum balance (financial institution pays interest)
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NOW accounts
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convenient, safe, federally insured
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money market deposit accounts (MMDAs)
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pool investors' funds to purchase high-return, short-term marketable securities
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money market mutual funds (MMMFs)
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MMMFs and MMDAs have limits on
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check writing
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MMMFs are
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not federally insured
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electronic funds transfer systems offer
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ATM service, debit cards linked to checking account, pre-authorized deposits and payments, banking by phone and online banking and bill payment services
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rented drawer in a bank's vault
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safe-deposit boxes
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provide investment and estate planning
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trust services
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when opening and using a checking account consider
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costs, individual or joint account, checking account procedures, overdrafts and stopping payments
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average return fee for checks
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25-30
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how to stop payment
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notify bank, fill out form online or call bank, bank will refuse if another bank presents it
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cashier's checks are
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drawn on the bank --used by people without checking account
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used for making purchases worldwide (20-100 dollars fee at purchase)
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traveler's check
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certified checks
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drawn on account but guaranteed by bank
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estabilishing a savings programe
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create emergency fund, set aside funds for financial goals, utilize direct deposits and automatic transfers, make suitable choices based on goals and time horizon
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On pay day deposit money into ____, using check or debit card
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savings account
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simple interest
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interest paid only on initial deposit
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compound interest
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interest pait at set intervals and added back to principle
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nominal rate
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named or stated interest rate (give 5% interest compounded annually)
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effective rate
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annual rate of return actually earned
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if interest is compounded more frequently than once a year,
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effective rate will be greater than the nominal rate of interest
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how is interest calculated?
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add up all interest in a year and dividie by initial deposit and multiply by 100
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amount of interest earned depends on
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frequency of compounding, balance on which interest is paid, and interest rate paid
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time value of money concepts are used in compounding to find
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interest earned
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liquid assets are considered "liquid" because they're either held in case or can be readily converted to cash with little or no loss in value. Which of the following is not considered a liquid asset?
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stock mutual fund
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the more frequently a bank compound interest; _____ will be.
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the higher the APY
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Your savings will grow faster with monthly interest compounding than with quarterly interest compounding
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true
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if interest on a savings account is compounded semiannually, the effective rate of interest will be
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higher than the nominal rate
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compound interest means that a savings account earns interest on the interest previously earned
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true
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a cashier's check is written on the bank's account rather than on the customer's account
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true
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a certified check is a personal check that the bank guarantees the funds are available
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true
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You have $450 in your checking account when your ATM card and PIN are stolen. You cold lost up to ___ if you report the lost ATM card within 2 business days.
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50
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if Suzie has $2000 in checking and $50,000 in a money market account and $75,000 in certificates of deposit (all individual accounts) at her local bank, her accounts would be completely insured through FDIC
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true
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Financial institutions expend demand deposits to remain on deposit for a longer period of time than time deposits
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false
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there are some limitations on checking writing for both Money Market Deposit Accounts (MMDAs) and Money Market Mutual Funds (MMMFs)
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true
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Money Market mutual funds (MMMFs) are insured up to $250,000 by the FDIC if purchased at an insured bank
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true
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the rate of return on liquid assets is relatively high compared to other types of investments
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false
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savings accounts are sometimes referred to as demand deposits
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false
