Chapter 5 Flashcards
(27 cards)
Define money management. How does it differ from long-term investment or long-term borrowing decisions?
Money management involves short-term financial decisions such as managing cash flow and liquidity. It differs from long-term investments, which focus on building wealth, and long-term borrowing, which involves managing debt for large purchases.
What is liquidity? How is your personal cash flow statement used to help manage your liquidity? Why is liquidity necessary?
Liquidity is the ease of converting assets to cash without losing value. A personal cash flow statement helps track income and expenses to ensure liquidity, which is necessary for covering unexpected expenses and managing day-to-day finances.
Name some ways in which an individual might handle a cash flow deficiency. Which would be preferable? Why?
Methods include borrowing, selling assets, reducing expenses, or delaying payments. Reducing expenses is preferable as it avoids increasing debt.
What types of investments are appropriate as short-term investment alternatives?
Short-term alternatives include savings accounts, money market funds, and short-term GICs. These options provide liquidity with lower risk.
What is a depository institution? List the three types of depository institutions.
A depository institution accepts deposits and provides financial services. Types include chartered banks, credit unions, and trust and loan companies.
Define and describe a chartered bank. Differentiate among Schedule I, Schedule II, and Schedule III banks.
Chartered banks are regulated institutions that offer various banking services. Schedule I banks are Canadian-owned, Schedule II banks are foreign subsidiaries, and Schedule III banks are branches of foreign banks.
What is a financial conglomerate? List some services that financial conglomerates provide. Give some examples of financial conglomerates.
A financial conglomerate offers a range of services like banking, insurance, and investment management. Examples include TD Bank and RBC.
Define and describe a trust and loan company.
A trust and loan company provides estate and trust services, mortgages, and personal loans.
Define and describe credit unions and caisses populaires.
Credit unions and caisses populaires are member-owned institutions offering banking services, often with lower fees and personalized service.
List and describe the eight types of non-depository financial institutions.
Types include insurance companies, pension funds, mutual funds, brokerage firms, finance companies, payday loan companies, venture capital firms, and private equity firms.
Why do individuals use chequing accounts? What is the disadvantage of having funds in a chequing account?
Chequing accounts provide easy access to funds for daily transactions. The disadvantage is low or no interest earned on the balance.
Define and describe a debit card.
A debit card allows immediate access to funds in a chequing or savings account to make purchases or withdraw cash.
Why is it important to keep track of your account balance?
Tracking your balance prevents overdraft fees, ensures funds are available, and helps manage spending.
Explain overdraft protection. With respect to overdraft protection, are all bank fee structures the same? Explain.
Overdraft protection covers transactions that exceed the account balance. Bank fees vary, so it’s important to compare costs.
What is a stop payment? How do you create a stop payment?
A stop payment halts the processing of a cheque. You request it from your bank before the cheque is processed.
Define and describe online banking.
Online banking allows customers to manage accounts, transfer funds, pay bills, and more via the internet.
What is the difference between a debit card and a credit card?
A debit card withdraws funds from your account, while a credit card borrows funds that must be repaid later.
Define and describe automated banking machines (ABMs).
ABMs allow customers to access their accounts for withdrawals, deposits, and other services without visiting a bank branch.
Differentiate among certified cheques, money orders and drafts, and traveller’s cheques.
Certified cheques guarantee funds. Money orders and drafts are prepaid and used for secure transactions. Traveller’s cheques provide secure international payments.
Steve just received his first paycheque and wants to open a chequing account. What factors should Steve consider when choosing a bank?
Steve should consider fees, convenience, online banking options, customer service, and interest rates.
What features of a tax-free savings account (TFSA) allow it to be considered a very flexible savings alternative?
TFSAs allow tax-free growth and withdrawals, making them flexible for both saving and spending.
Compare and contrast savings accounts and chequing accounts.
Savings accounts earn interest and are for storing funds, while chequing accounts are for daily transactions with little or no interest.
What is a GIC? Why are rates on GICs higher than those on savings accounts? What factor would most affect your choice of maturity date on a GIC?
A GIC is a guaranteed investment certificate with fixed returns. Rates are higher due to limited liquidity. The most important factor for maturity is your financial goals.
What are the two types of Canada Savings Bonds (CSBs)? What is a regular interest bond? What is a compound interest bond?
The two types are regular interest bonds, which pay interest annually, and compound interest bonds, which accumulate interest until maturity.
