Notes/Reading Guide

Chapter 5
Matt Monson 6th
Name: ___________________________________

1. Cash management means making choices among

large range
options
a ____________________
of banking ___________.
2. It also means maintaining and managing your assets so that you can:
bills
a. Pay your ____________
living expenses
b. Pay normal __________________________
unexpected expenses
c. Have enough to cover __________________________
cash
3. Liquid means how quickly an asset can be turned into __________.

long-term
4. Without liquid funds, you might have to compromise your __________________
investments or
go
into
debt
_____________________ to cover unexpected expenses
cash
(liquid)
5. Cash management is the management of ___________
and near cash ______________
assets.

choices
maintaining
6. It also means making ______________
from among banking alternatives; then _________________
managing
and _____________________ the results of those choices.
cash
checking
savings
7. Examples of liquid assets are ___________,
____________
accounts, _______________accounts,
money market
and ___________________
accounts
low risk
low return
8. Liquid assets are _______________
and ___________________.
Another disadvantage: the more
tempted to spend.
you have, the more you are ____________________________.

9. Reading Guide: Look at Facts of Life on page 138. What is one big problem with carrying
It is easy to spend, and hard to remember were you spent it.
cash? _______________________________________________________.
About how much per
2,340
year disappears from the average Americans wallet? $____________

paycheck
10. Have savings automatically deducted from your __________________.
Pay yourself first.
earlier
financial goals
11. The _________________
you start to save, the easier it is to achieve your _____________.
Remember the Time Value of Money!

banks
credit unions
12. Financial institutions are __________
or other deposit-type institutions such as ________________.
checking
savings
They provide traditional ____________
and _____________
accounts.

13. Reading Guide: Using Table 5.1 on page 139, describe the main characteristics of banks and
other deposit-type financial institutions:
Offer widest variety of financial services. Dominate in terms of dollar value of assets. Neighborhood location for personal relationships.
a. Banks: _________________________________________________________________________

Can earn .25% more than saving accounts at competing commercial bank. Services similar to commercial banks.
b. S&Ls: _________________________________________________________________________

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Provides mortgage funding to depositors

c. Savings Banks: __________________________________________________________________
d. Credit Unions: __________________________________________________________________

Established by a wide variety of organizations. Open only to member of that organization. Open only to members of that organization. Tax-exempt mot-for-profit organization. More efficient. Pay higher interest rates. have lower fees. Have more favo

14. Examples of nondeposit-type financial institutions that dont provide checking and savings accounts
mutual fund
brokerage
insurance
are ______________________
companies, _________________
firms, __________________
companies.
15. Reading Guide: Using Table 5.2 on page 140, describe the main characteristics of nondeposittype financial institutions:
a. Mutual Funds: __________________________________________________________________
Investment fund that raises money from investors, pools that money, and invests it in a collection of stocks and/or bonds that is managed by a professional investment manager.

Wide variety of cash management tools: financial counseling, credit cards, money market mutual funds.
b. Brokerage Firms: ________________________________________________________________

16. Online Banking allows you to access your accounts at any time to:

balances
a. Check ________________
funds
b. Transfer __________
bills
c. Pay __________
interest
mobile
d. View your financial information through the use of the ______________,
a ___________
phone,
or other electronic device.
17. Reading Guide: Using Table 5.3 on page 141, describe the advantages and disadvantage of
online banking:

Online Banking
Advantages of Online Banking:

Important data into a personal finance program.

Personal financial management support: ____________________________________________

View and track your accounts, pay bills, view up-to-the-minute credit card activity anytime, from anywhere.
Convenience: __________________________________________________________________

Access and manage all bank accounts from one secure site, and transfer funds between accounts.
Efficiency: _____________________________________________________________________

Effectiveness: __________________________________________________________________
Provides stock quotes, rate alerts, personal financial management support that allows you to import data into personal finance program.

Disadvantages of Online Banking:

Start-up time: __________________________________________________________________

Periodically changing, requiring reentry of data, difficult to navigate when first starting.
Adapting to online banking: _______________________________________________________

Feeling comfortable: _____________________________________________________________

Potential for poor customer service.

Customer service: _______________________________________________________________

Takes time and some effort to register for you bank's Online program. Sign durable power of attorney before bank will display holding together.

Don't feel comfortable banking on line. Print transaction receipt and keep it with bank records until it shows up on bank statement.

18. What to look for in a financial institution: Questions you should ask:

services
a. Which financial institution offers the kind of _____________
you need and want?

safe
insured
sound
b. If your investment ________?
Is it _____________?
Is the financial institution ___________?
costs and _____________
returns
c. What are the ________
associated with the services you want? Are there
minimum
________________ deposit requirements or hidden fees?
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written check
19. Checking accounts you can access your funds through ____________________
or
debit
__________
cards.
20. Advantages:

Liquid
a. ________________

Safe
b. _____________

minimum
c. Low ________________
balance
Convenient
d. ________________
21. Disadvantages:

no
a. Little or _________
interest

Demand Deposits
22. Non-interest bearing checking accounts are called ________________________.

NOW
23. Interest bearing checking accounts are called _________
accounts
24. Disadvantages:

Minimum
a. ________________
balance required

monthly
b. ____________
fee
opportunity
c. ________________________
cost
alternatives
d. Interest is less than _________________
savings options
federally
25. Savings accounts allow you to keep your money is a safe, ______________-insured
higher
institution while it earn a __________________
fixed return or interest.
26. Advantages:

Liquid
a. ________________
Safe Federally insured
b. _______higher
checking account
c. Earns ____________
interest than a __________________________
Online access
d. ________
27. Disadvantages:

minimum
a. Possible __________________
holding time
charges
b. Possible ____________/fees
Low interest rate
c. _______
28. Money Market Deposit Accounts (MMDA) an alternative to savings accounts,
variable
check
ATM
________________
interest rates, and ____________
and _________
access.
29. Advantages:

Safe
a. _______
interest
b. Earns ____________
or higher interest
Check
c. ____________
writing privileges
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30. Disadvantages:
minimum
a. High ________________
balances or penalties
alternatives
b. Interest rates are below ____________________.

fixed
rate of interest while the funds are on
31. Certificates of Deposit (CD) pays a ____________
several years
set
deposit for a _______
period of time (30 days to ________________________).

32. Advantages:
Safe
a. _______

interest
b. Fixed ______________rate
convenient
c. __________________

other
d. Higher interest rate than ______________
alternatives

33. Disadvantages:
withdrawal
a. Early ________________
penalty
interest
b. Fixed ______________
rate
Minimum deposit
c. ______________
deposit required

34. Money Market Mutual Funds (MMMFs) investors receive interest on a pool of
investments
fee 1%
________________,
minus an administrative ________,
usually less than ___% of total investment.
35. Advantages:
Higher
a. __________
interest rates
Check
b. _________
writing
Limited
c. ____________
risk

Convenient
d. _____________________

36. Disadvantages:
fees
a. Administrative ________

initial
b. Minimum ______________
investment
insured
c. Not _____________

check
d. Minimum ____________
amount
financial service package including a
37. Asset Management Account a comprehensive ____________
brokerage
check
card
MMF
_____________
account, credit _________,
______s,
etc. It is offered by a __________________
firm.

38. Advantages:
Monthly
a. ___________
statements
management
b. Coordination of money ___________________

checks
c. ___________
return
d. High _____________
convenient
e. ___________________

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39. Disadvantages:

Costly
a. _____________
initial
b. Minimum ______________
investment

insured
c. Not _______________
shortf
debt issued by the federal
40. U.S. Treasury bills, or T-bills these are __________-term
3
12
government with maturities from ____
- ______
months.
41. Advantages:

Risk
a. _____-free

state
b. Exempt from __________
and local taxes
current
c. Federal tax varies with _____________
rates
42. Disadvantages:

return
a. Low rate of _______________
safe
low risk savings products issued by
43. U.S. Savings Bonds Series EE and I Bonds are ________,
Treasury
the ________________ with low denominations.
44. Advantages:

Safe
a. _______
affordable
b. _________________
taxes
c. No __________
convenient
d. ____________________
any
e. You can redeem at ________
bank
f.

commissions or fees
No ________________

45. Disadvantages:

liquidity
a. Low ______________

maturity
b. Long _________________
compounding
c. Semi-annual __________________
46. Reading Guide: Look at Facts of Life on page 150.The biggest money spenders are
men
34
59
American ________
under the age of _____.
Their cash mystery spending averages $_____
a week.

annual percentage Yield

47. Comparable Interest Rates use the ______________________________
(APY) to easily
APY
compare yields. By law, all financial institutions must declare __________.
real
48. Tax Considerations taxes affect the _________
rate of return on investments.
49. Safety some deposits are federally insured:

banks
250,000
a. FDIC: covers deposits at commercial __________,
up to $____________
per depositor
credit unions at the rate rates as FDIC
b. NCUA: covers deposits at _______________;
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diversified
c. MMMF: not insured but _______________
50. Reading Guide: The Cost Factor. Use your textbook on page 151 to detail each of these
costs of accounts:
Pay a set fee regardless of average balance and how many checks you write.
a. Monthly fees: __________________________________________________________________

b. Minimum balance: ______________________________________________________________

Monthly fee depends on how much cash you maintain in you account. Pay opportunity cost of having funds tied up in minimum balance. No low interest.

Small fixed monthly fee plus a charge per check.

c. Charge per check: _______________________________________________________________
Fee declines dependent on average balance held.
d. Balance-Dependent Scaled Fees: ___________________________________________________
51. Reading Guide: The Convenience Factor. Use your textbook on page 152-153 to detail
each of these convenience factors:
a. Safety-Deposit Boxes: ____________________________________________________________
Storage places for financial documents and valuables. you're given one key and the financial institution retains second key. Both keys needed to open box.

b. Overdraft Protection: ____________________________________________________________

Automatic loan made to checking account whenever account doesn't contain enough cash to cover checks you've written against it. Can be expensive.

52. Reading Guide: The Consideration Factor. Use your textbook on page 153 to
summarize the consideration factor:
You want a financial institution that gives personal attention. You want to feel comfortable approaching a teller about a problem.
______________________________________________________________________________

You want a knowledgeable approachable person a your branch who can answer questions.
______________________________________________________________________________

every
53. To balance your checking account, keep track of ___________
transaction.
monthly statement
reconcile
54. Compare ________________________
with your check register, then ____________________
the
bank
register balance with the ___________ balance.

55. Reading Guide: Summarize each of the following types of other checks on pages 154-155:
a. Cashiers Check: _________________________________________________________________
Check drawn on back/financial institution's account. Can be used by people with no checking account. Costs you a fee+amount to check.

Personal check that's been certified as being good by financial institution on which it's drawn. Cost per check.
b. Certified Check: _________________________________________________________________

Variation of cashier's check, issued by U.S. Postal Service. Fees vary depending on money order size.
c. Money Order: __________________________________________________________________

d. Travelers Checks: _______________________________________________________________

Similar to cashier's checks don't specify a specific payee. Come in specific denominations($20,$50,$100). Issued by large financial institutions. Not risky.

electronically
56. An electronic funds transfer is any financial transaction that takes place __________________.
57. Advantages are:

immediately
a. Transactions take place ___________________
cash
check
b. You dont have to carry ___________
or write a ____________
bills
c. You can use to pay all kinds of ____________
Reading Guide: Use your textbook, pages 156-160 to answer the following questions about

electronic funds:

58. What is an automated teller machine (ATM)?

_____________________________________________________________________________
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Machine that provides cash instantly and can be accessed through a credit or debit card. If borrowed with a credit card, usually very high interest.

59. What is a personal identification number (PIN)?

4-7 digit personal identification number assigned to you account.

_____________________________________________________________________________
Crime.
60. What is the big problem with an ATM transactions? ___________________
61. What is a debit card?
Plastic card linked to an account that you use to get money directly from your account.
_____________________________________________________________________________
62. What is the difference between a debit card and a credit card?

Debit card you spend your money, Credit card you are borrowing money.
_____________________________________________________________________________
63. What is card blocking in a debit card?
_____________________________________________________________________________
Can leave some of your money inaccessible. So if you are going to a hotel for 4 nights each night $100 then they will not let you spend $400 of the dollars in your account.

64. What is a smart card?

_____________________________________________________________________________

(memory card/electronic wallet): variation on debit cards, but instead of withdrawn funds from a designated account with a bank, you withdraw them from an account thats stored magnetically in the smart card. Can contain more that money lick a license.

65. What is a gift card or stored value card?

Money in on the card. Open loop: can be used all over like a credit card. Closed Loop: single store or purpose.
_____________________________________________________________________________

66. What is the most common human error in using EFTs?

Deposits, with most problems stemming from cash deposits made directly in ATM's.
_____________________________________________________________________________
67. How can you protect yourself against this error?

Never deposit cash to an ATM

_____________________________________________________________________________

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