Chapter 13 + 14 Deck

Question 1

The fact that people are willing to save money for future purposes describes which function of money ( ).

Answer 1

store of value

Question 2

An ( ) is the process of taking a privately held company public by selling stock for the first time.

Answer 2

initial public offering (IPO)

Question 3

Your ( ) schedule is the schedule by which you’ll reduce the balance of your debt.

Answer 3

amortization

Question 4

The Fed performs all of the following functions except:

Answer 4

regulating state banks.

Question 5

As founder and CEO of a growing public company, you are considering issuing shares of stock to finance an expansion. All of the following statements about stock are true except:

Answer 5

if you issue stock to the public, your percentage ownership of the company will not change.

Question 6

When Pete Peterson took out a small business loan, the bank asked for security in the form of ( ).

Answer 6

collateral

Question 7

The ( ) is the amount by which an initial bank deposit will expand the money supply.

Answer 7

money multiplier

Question 8

The process of raising capital through the sale of a company’s stock is called ( ) financing.

Answer 8

equity

Question 9

( ) stock gives its owner the option of exchanging it for common stock.

Answer 9

convertible preferred

Question 10

( ) is the risk that poor management of an organization with which you’re dealing may adversely affect your personal-finances planning, while ( ) is the risk associated with a product that you’ve chosen to buy.

Answer 10

management risk/business risk

Question 11

Examples of personal liabilities include the following except:

Answer 11

tuition

Question 12

You are more likely to qualify for a loan if you ( ).

Answer 12

have a history of borrowing

Question 13

Monetary or liquid assets include all of the following except ( ).

Answer 13

cars

Question 14

When there is a difference between an amount in the “budget” column and the corresponding amount in the “actual” column, the difference, whether plus or minus, is recorded as a(n) ( ).

Answer 14

variance

Question 15

A ( ) is a document that itemizes expected sources of income and expenditures for the coming year, along with the relevant money amounts for each.

Answer 15

budget

Question 16

In addition to the itemized lists of inflows and outflows, there are three other columns in a budget. They are ( ).

Answer 16

budget, actual, and variance

Question 17

In 2006 and 2007, largely because of ( ) , banks and other institutions that made mortgage loans began losing huge sums of money.

Answer 17

mortgage loan defaults

Question 18

In compiling your credit score, the credit bureaus considers all of the following except ( ).

Answer 18

income

Question 19

Your ( ) is the difference between your assets and your liabilities.

Answer 19

net worth

Question 20

Money serves three functions:

Answer 20

1. a medium of exchange
2. a measure of value
3. a store of value

Question 21

In a ( ) system, goods and services are traded directly for one another.

Answer 21

bartered

Question 22

Because of ( ) you can use it to buy the goods and services you want, everyone’s willing to trade things for money.

Answer 22

medium of exchange

Question 23

( ) simplifies the exchange process because it’s a means of indicating how much something costs.

Answer 23

measure of value

Question 24

( ) makes it so people are willing to hold onto it because they’re confident that it will keep its value over time.

Answer 24

store of value

Question 25

The government uses two measures to track the money supply: ( ) includes the most liquid forms of money, such as cash and checking-account funds. ( ) includes everything in M-1 plus near-cash items, such as savings accounts and time deposits below $100,000.

Answer 25

M-1/M-2

Question 26

Most common types of depository institutions:

Answer 26

banks that accept deposits, including commercial banks, savings banks, and credit unions

Question 27

( ) provide financial services but don't accept deposits They include finance companies, insurance companies, brokerage firms, and pension funds.

Answer 27

nondepository institutions

Question 28

A bank holds onto only a fraction of the money that it takes in—an amount called its ( ).

Answer 28

reserves

Question 29

A ( ) invests money from a pool of investors in stocks, bonds, and other securities.

Answer 29

mutual fund

Question 30

Most large banks are members of the central banking system called the ( ).

Answer 30

Federal Reserve System (the Fed)

Question 31

The Fed has three goals:

Answer 31

1. Price stability 2. Sustain economic growth 3. Full employment

Question 32

The Fed can raise or lower ( ) —the percentage of its funds that banks must set aside and can’t lend out;

Answer 32

reserve requirements

Question 33

The Fed can conduct ( ) —buying or selling government securities on the open market.

Answer 33

open market operations

Question 34

Loan officers determine the interest rate through something called the ( )— the rate that banks charge their very best customers.

Answer 34

prime rate

Question 35

A ( ) is a document that shows the amount of capital that it needs for a specified period, how and where it will get it, and how and when it will pay it back.

Answer 35

financial plan

Question 36

Financial institutions offer business loans with different ( ). A ( ) matures in less than a year, an ( ) in one to five years, and a ( ) after five years or more.

Answer 36

maturities/short-term loan/intermediate loan/long-tern loan

Question 37

Banks also issue ( ) that allow companies to borrow up to a specified amount as the need arises.

Answer 37

line of credit

Question 38

( ) are wealthy individuals who are willing to invest in ventures that they believe will succeed.

Answer 38

Angels

Question 39

( ) , though willing to invest larger sums of money, often want to cash out more quickly than angels.

Answer 39

venture capitalists

Question 40

Successful companies looking for additional capital might decide to go public, offering an initial sale of stock called an ( ).

Answer 40

initial public offering (IPO)

Question 41

A ( ) deals in new financial assets.

Answer 41

primary market

Question 42

A ( ) is a market in which investors buy previously issued securities from other investors.

Answer 42

secondary market

Question 43

In ( ), securities are traded among dealers over computer networks or by phone.

Answer 43

over-the-counter (OTC) markets

Question 44

Stock market trends are measured by ( ).

Answer 44

market indexes

Question 45

When the stock market is enjoying a period of large increases in prices, it’s said to be in a ( ). When prices are declining, it’s often called a ( ).

Answer 45

bull market/bear market

Question 46

( ) —a written offer to sell securities that describes the business and operations of the issuer, lists its officers, provides financial information, discloses any pending litigation, and states the proposed use of funds from the sale.

Answer 46

prospectus

Question 47

Companies can raise funds through ( ) —selling stock—or through ( ) —issuing bonds (debt securities).

Answer 47

equity financing/debt financing

Question 48

If you sell stock to increase your expansion, it'll increase your ( )— the amount invested in the business by its owners. Which is the same thing as owner's equity.

Answer 48

stockholders' equity

Question 49

( ) are distributed earnings.

Answer 49

dividends

Question 50

( ) is safer than common stock but it doesn’t have the upside potential—namely, the possibility that shareholders will benefit greatly if a company performs very well.

Answer 50

preferred stock

Question 51

Unlike ( ), however, whose dividends vary according to a company’s profitability, holders of preferred stock receive annual fixed dividends.

Answer 51

common stockholders

Question 52

A ( ) is a preferred stock that requires a corporation to pay all current and missed preferred dividends before it can pay common dividends.

Answer 52

cumulative preferred stock

Question 53

A ( ) is a preferred stock that gives its owner the option of exchanging it for common stock.

Answer 53

convertible preferred stock

Question 54

( ) is thus the application of financial principles to the monetary decisions that you make, either for your individual benefit or for that of your family.

Answer 54

Personal finance

Question 55

( ) is the ongoing process of managing your personal finances to meet goals that you’ve set for yourself or your family.

Answer 55

Financial planning

Question 56

The ( ) cycle divides an individual’s life into three stages, each of which is characterized by different life events.

Answer 56

financial life cycle

Question 57

What are the three stages of the financial life cycle?

Answer 57

1. Building wealth 2. Preserving and increasing wealth one has accumulated 3. Living on one's saved wealth

Question 58

( ) plans vary greatly in coverage and cost to the employee.

Answer 58

Employer-sponsored health insurance

Question 59

( ) pays an income to an insured person when he or she is unable to work for an extended period of time.

Answer 59

disability insurance

Question 60

There are two main types of retirement plans: a ( ), which provides a set amount of money each month to retirees based on the number of years they worked and the income they earned, and a ( ), which is a form of savings plan into which both the employee and employer contribute. A well-known defined contribution plan is a 401(k).

Answer 60

defined benefit plan/defined contribution plan

Question 61

( ) refers to the effect of earning interest on your interest.

Answer 61

compound interest

Question 62

( ) is the principle whereby a dollar received in the present is worth more than a dollar received in the future. It also states that a dollar received today starts earning interest sooner than one received tomorrow.

Answer 62

time value of money

Question 63

Your ( ) is the difference between your assets and your liabilities.

Answer 63

net worth

Question 64

A ( ) statement shows where your money has come from and where it’s slated to go.

Answer 64

cash flow or income

Question 65

If you’re ( ), it’s because you’re spending more than you’re earning.

Answer 65

insolvent

Question 66

The difference between the actual amount and the budgeted amount is recorded as a ( ) in a budget.

Answer 66

variance

Question 67

A document that itemizes the sources of income and expenditures for a future period (often a year) is a ( ).

Answer 67

budget

Question 68

An ( ) occurs when actual income is higher than budgeted income (or vice versa).

Answer 68

income variance

Question 69

An ( ) occurs when the actual amount of an expenditure is higher than the budgeted amount (or vice versa).

Answer 69

expense variance

Question 70

( ) are made to borrowers who don’t qualify for market-set interest rates because of one or more risk factors—income level, employment status, credit history, ability to make only a very low down payment.

Answer 70

subprime mortgage loan

Question 71

( ) —one that’s pegged to the increase or decrease of certain interest rates that the lender has to pay.

Answer 71

adjustable-rate mortgage (ARM)

Question 72

( ) —one on which the interest rate remains the same regardless of changes in market interest rates

Answer 72

fixed-rate mortgages

Question 73

In the years between 2001 and 2005, lenders made billions of dollars in ( ) ARM loans to American home buyers.

Answer 73

subprime

Question 74

( ) is the possibility that cash flows will be variable.

Answer 74

risk

Question 75

( ) is the risk that poor management of an organization with which you’re dealing may adversely affect the outcome of your personal-finances planning.

Answer 75

management risk

Question 76

( ) is the risk associated with a product that you’ve chosen to buy.

Answer 76

business risk

Question 77

( ) refers to the risk that comes from ill-considered indebtedness.

Answer 77

financial risk