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Mgmt5 > Chapter 18 FINAL > Flashcards

Chapter 18 FINAL Flashcards

1
Q

Umpqua

A

founded in 1953, grown from 1 small Oregon branch with 6 employees to 184 branches with over 2,200 employees in 4 states.

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2
Q

Depositing money in a bank

A

receive interest

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3
Q

Borrowing money from bank

A

pay interest

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4
Q

Barter system

A

system of exchange in which goods or services are traded directly for other goods or services.

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5
Q

Problems with barter system

A

two parties in an exchange must need each other’s products at the same time, and two products must be roughly equal in value.

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6
Q

Money

A

anything a society uses to purchase products, services, or resources…metal coins and paper bills (currency)

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7
Q

Medium of exchange

A

anything accepted as payment for products, services, and resources

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8
Q

3 specific functions money serves in any society

A

Medium of exchange, Measure of value, and store of value

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9
Q

Measure of value

A

a single standard or “yardstick” used to assign values to, and compare the values of, products, services and resources

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10
Q

Store of value

A

a means of retaining and accumulating wealth…whenever we hold onto money (in a pocket, a cookie jar, a savings account, or whatever

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11
Q

Value that is stores as money

A

inflation

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12
Q

inflation

A

rises level of prices

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13
Q

Consumer price index

A

measures the changes in prices of a fixed basket of goods purchased by a typical consumer, including food, transportation, housing, clothing, medical care, recreation, education, communication, and other goods and services

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14
Q

Money must process 5 characteristics

A

divisibility, portability, stability, durability, and difficulty of counterfeiting

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15
Q

Divisibility

A

standard unit of money must be divisible into smaller units to accommodate small purchases and large ones…dollar, quarters, dimes, nickels, and pennies

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16
Q

Portability

A

money must be small enough and light enough to be carried easily.

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17
Q

Stability

A

money should retain its value overtime

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18
Q

Durability

A

the objects that serve as money should be strong enough to last through reasonable use.

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19
Q

Difficulty of counterfeiting

A

if a nation’s currency were easy to counterfeit, its citizens would be uneasy about accepting it as payment. the US government redesigns its paper currency and uses watermarks and intricate designs to discourage counterfeiting

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20
Q

Demand deposit

A

an amount on deposit in a checking account. called demand because it can be claimed immediately…on-demand, checks, ATM, or transferring between accounts

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21
Q

Time deposit

A

an amount on deposit in an interest-bearing savings account or certificate of deposit…requires advanced written notice before withdrawal. time between notice and withdrawal leads to the name…time deposit

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22
Q

two main measures of supply of money

A

M1 & M2

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23
Q

M1 supply of money

A

consists only of currency, demand deposits, and other checkable deposits. plus savings accounts, certain money-market securities and certificate of deposits (CDs) of less than $100k

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24
Q

M2 supply of money

A

assumption that time deposits can be converted to cash for spending

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25
Q

The federal board

A

the fed board have an impact on the interest rates you pay for loans and credit cards

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26
Q

When fed lowers interest rates

A

banks pay less to borrow money

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27
Q

Lower rates

A

provide an incentive for both business firms and individuals to buy goods and services, which helps restores the economic health of the nation

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28
Q

When rates increase

A

designed to sustain economic growth while controlling inflation

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29
Q

When Fed raises rates

A

bank must pay more to borrow money from Fed, and banks charge higher rates for consumers and business loans

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30
Q

Federal reserve system

A

is the central bank of the US and is responsible for regulating the banking industry…created by congress on Dec 23, 1913, its mission is to maintain an economically healthy and financially sound business environment in which banks can operate

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31
Q

Fed is controlled by

A

7 member board of governors, who meet in Wash, DC. each governor is appointed by the president and confirmed by the senate for a 14 year term. the president also selects the chairman and vice chairman among the board for 4 year terms.

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32
Q

Federal reserve system consists of how many banks?

A

12 district banks located in major cities, as well as 24 branch banks

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33
Q

Commercial paper

A

a short-term promissory note issued by a large corporation

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34
Q

Most important function of the Fed is

A

to use monetary policy to regulate the nation’s supply of money in such a way as to maintain a healthy economy

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35
Q

Monetary policy

A

was defined as the federal reserve’s decisions that determine the size of the supply of money in the nation and the level of interest rates

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36
Q

Goal of monetary policy

A

continued economic growth, full employment, and stable prices. 3 methods-controlling bank reserve requirements, regulating the discount rate, and running open-market operations are used to implement the fed’s monetary policy.

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37
Q

Reserve requirement

A

is the percentage of its deposits a bank must retain, either in its own vault or on deposit with its federal reserve district bank

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38
Q

What is the interest rate the federal reserve charges for loans to member banks called?

A

discount rate

39
Q

When the fed lowers the discount rate

A

it is easier and cheaper for banks to obtain money

40
Q

When the fed raises the discount rate

A

banks begin to restrict loans, increase the interests rates they charge for loans, and tighten their own loan requirements. the overall effect is to slow the economy

41
Q

Open-market operations

A

buying and selling of US government securities by the federal reserve system for the purpose of controlling the supply of money

42
Q

The federal open market committee(FOMC)

A

is charged with carrying out the federal reserve’s open-market operations by buying and selling US treasury securities through the trading desk of the federal reserve bank of NY

43
Q

To reduce the nation’s money supply

A

the FOMC sells government securities

44
Q

To increase the money supply

A

the FOMC buys government securities

45
Q

Federal funds rate

A

is the interest rate at which a bank lends immediately available funds on deposit at the fed to another bank overnight to meet the borrowing bank’s reserve requirements…interest rate paid by a bank to borrow funds from other banks

46
Q

Fed responsibilities

A

serving as the government’s bank, clearing checks and electronic transfers, inspecting currency, and applying selective credit controls. and setting the margin (minimum) requirements for securities transactions

47
Q

Margin

A

is the minimum amount (expressed as a percentage) of the purchase price that must be paid in cash or eligible securities…current margin % is 50%.

48
Q

Commercial bank

A

is a profit-making organization that accepts deposits, makes loans, and provides related services to its customers. the bank’s primary goal is to meet its customer’s needs while earning a profit.

49
Q

National bank

A

is a commercial bank chartered by the US comptroller of the currency…approx. 1400 national banks. Must conform to federal banking regulations and are subject to unannounced inspections by federal auditors

50
Q

State bank

A

is a commercial bank charted by the banking authorities in the state in which it operates. state banks outnumber national banks by about 4 to 1, but they tend to be smaller than national banks

51
Q

7 largest US banks

A

bank of america, jpmorgan chase, citigroup, wellsfargo, goldman sachs group, morgan stanley, and american express

52
Q

Savings and loan association(S&L)

A

is a financial institution that offers checking and savings accounts and CD’s and that invests most of its assets in home mortgage loans and other consumer loans. originally, S&Ls were permitted to offer their depositors only savings accounts, however since congress passed legislation regarding S&Ls in the 1980s, they have been able to offer other services to attract depositors.

53
Q

Credit union

A

is a financial institution that accepts deposits from, and lends money to only those people who are its members. usually the members consists of employees of a particular firm. CU may pay higher interest on deposits than commercial banks and S&Ls, and they may provide loans at lower cost. estimated 7300 credit unions

54
Q

6 other financial institutions involved in banking activities

A

mutual savings banks, insurance companies, pension funds, brokerage firms, finance companies, and investment banking firms

55
Q

Mutual savings banks

A

are financial institutions that are owned by their depositors and offer many of the same services offered by banks, S&Ls and credit unions, including checking accounts, savings accounts, and CDs.

56
Q

Insurance companies

A

provide long-term financing for office buildings, shopping centers and other commercial real estate projects throughout the united states. funds used for this type of financing are obtained from policyholder’s insurance premiums.

57
Q

Pension funds

A

are established by employers to guarantee their employees a regular monthly income on retirement. they come from employer, employee or both

58
Q

Brokerage firms

A

offer combination savings and checking accounts that pay higher than usual interest rates. they are convenient and to get slightly higher rates

59
Q

Finance companies

A

provide financing to individuals and business firms that may not be able to get financing from banks, S&Ls, or credit unions

60
Q

Investment banking firms

A

are organizations that assist corporations in raising funds, usually by helping sell new issues of stocks, bonds, or other financial securities.

61
Q

To be successful in the banking industry, employees for a bank, credit union or other financial institution must possess the following traits:

A

You must be honest, you must be able to interact with people, you need to appreciate the relationship between banking and finance, you should possess basic computer skills

62
Q

Check

A

a written order for a bank or other financial institution to pay a stated dollar amount to the business or person indicated on the face of the check

63
Q

NOW account

A

an interest-paying checking account; NOW stands for negotiable order of withdrawal

64
Q

Certificate of deposit(CD)

A

a document stating that the bank will pay the depositor a guaranteed interest rate on money left on deposit for a specified period of time

65
Q

Short term business loans

A

must be repaid within one year or less

66
Q

Line of credit

A

a loan that is approved before the money is actually needed

67
Q

Revolving credit agreement

A

a guaranteed line of credit

68
Q

Long term business loans

A

are repaid over a period of years

69
Q

Collateral

A

real estate or property pledged as a security for a loan(stocks, bonds, equipment or any other asset of value)

70
Q

Debit card

A

electronically subtracts the amount of your purchase from your bank account at the moment the purchase is made

71
Q

Credit card

A

credit card company extends short-term financing, and you do not make payment until you receive your next statement

72
Q

Banking will change

A

more emphasis on evaluating the credit-worthiness of loan applicants as a result of the recent economic crisis, an increase in government regulation of the banking industry, a reduction in the number of banks, S&Ls, credit unions, and financial institutions because of consolidation and mergers, globalization of the banking industry as the economies of individual nations become more interrelated, the importance of customer service as a way to keep customers from switching to competitors, increased use of credit and debit cards and a decrease in the number of written checks, and continued growth in online and mobile banking

73
Q

Online banking offers a number of advantages

A

the ability to obtain current account balances, the capability to deposit checks without leaving your home or office, the convenience of transferring funds from one account to another, ability to pay bills, convenience of seeing which checks have cleared and simplified loan application procedures

74
Q

Most important advantage for financial institution

A

the lower cost of processing large numbers of transactions and increased security because fewer people handle fewer paper documents

75
Q

Electronic funds transfer system (EFT)

A

a means of performing financial transactions through a computer terminal or telephone hookup

76
Q

4 EFT applications that are changing how banks do business

A

Automatic teller machines (ATMs)
Automated clearinghouse (ACH)
Point of scale (POS) terminals
Electronic check conversion (ECC)

77
Q

Automated clearinghouse (ACH)

A

designed to reduce the number of paper checks, an automated clearinghouse processes social security benefits, tax payments, recurring bill payments, payments for Internet sales, and employee’ bank accounts, thus eliminating the need to make out individual paychecks.

78
Q

Point of sale (POS)

A

a POS terminal is a computerized cash register located in a retail store and connected to a bank’s computer.

79
Q

Electronic check conversion (ECC)

A

electronic check conversion is a process used to covert information from a paper check into an electronic payment for merchandise, service, or bills.

80
Q

Letter of credit

A

a legal document issued by a bank or other financial institution guaranteeing to pay a seller a stated amount for a specified period of time usually 30 to 60 days

81
Q

Banker’s acceptance

A

a written order for a bank to pay a third party a stated amount of money on a specific date. no conditions are specified, it is simply an order to pay guaranteed by a bank without any strings attached

82
Q

Federal Insurance corporation (FDIC)

A

primary purpose of the FDIC is to insure deposits against bank failure. provides basic deposit insurance of $250,000 per depositor.

83
Q

National credit union administration (NCUA)

A

insures deposits in member credit unions for up to $250,000 per depositor. like the FDIC, NCUA provides increased coverage for accounts with different categories of ownership

84
Q

Credit

A

is immediate purchasing power that is exchanged for a promise to repay borrowed money, with or without interest, at a later date

85
Q

Individuals who are applying for credit suggestions

A

obtain a loan application and complete it at home, be prepared to describe how you will use the money and how the loan will be repaid, for most loans an interview with a loan officer is required. if your loan request is rejected, try to analyze what went wrong

86
Q

Tips for business owners in need of financing

A

develop a relationship with your banker before you need financing, and help the banker understand what your business is and how you may need future financing for expansion, cash-flow problems or unexpected emergencies, apply for a pre-approved line of credit.

87
Q

5 C’s of credit

A

character, capacity, capital, collateral, and conditions

88
Q

Character

A

borrowers attitude toward credit obligations

89
Q

Capacity

A

the financial ability to meet credit obligations-that is, to make regular loan payments

90
Q

Capital

A

the term capital as used here refers to the borrower’s assets or the net worth of the individual or business applying for a loan

91
Q

Collateral

A

real estate or property including stocks, bonds, equipment, or any other asset pledged as security for a loan

92
Q

Conditions

A

general economic conditions that can affect a borrower’s ability to repay a loan or other credit obligation

93
Q

Credit information concerning businesses can be obtained from the following 4 sources

A

Global credit-reporting agencies
Local credit-reporting agencies
Industry associations
Other firms

Mgmt5 (3 decks)

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