ECON: Unit 7 Personal Finance - Quiz #1

Term
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financial institution
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Terms in this set (16)
financial institution
a place for deposit of funds or medium of savings or collective investments; examples: banks, credit unions, payday lenders, title pawn lenders
commercial bank
financial institution that provides a safe means to store earnings. They also offer direct deposit (where a person's paycheck goes directly into his or her account), check-writing services, debit and credit cards, loans of all sorts (personal, home equity, business), and a host of other services. In their basic form, they take the money deposited in them and loan out a portion of these savings to people who apply for them. By charging interest on the loans, they make money.
credit union
financial institution that provides services similar to those of a bank; the main difference is that it only provides these services to its members, and these members own and control the institution. Examples: Georgia Federal, Delta Community
mortgage
a specific type of loan that is used to buy real estate (a home)
stocks
partial ownership of the company; the investor gives that corporation his or her money to spend. If the company does well, its price usually rises, which translates to an increase in the wealth of its stockholders. Some companies also pay out dividends to their stockholders, which are a portion of their profit; a risky but high return investment
bond
a type of investment that is regularly offered by governments and other entities (companies); by investing in them, the investor gets a promise that his or her investment will be repaid with interest; a very safe form of investment with low returns.
investment
money used with the expectation of some future return or benefit (examples: stocks, bonds, mutual funds, certificates of deposit, retirement savings accounts).
mutual fund
a collection of various investments (stocks, bonds, and other forms of securities). The goal is to have many people pool their earnings, thereby giving these individual investors much greater purchasing power as a unit. The accrued earnings are then used to buy a range of investment options, and any earnings made by the fund are distributed among the individuals.
certificate of deposit
a type of investment where a savings certificate is issued by a bank to a person depositing money for a specific length of time (2-5 years usually). The maturity date and the interest rate are fixed when the certificate is issued; a safe and low return form of investment
principal
amount of money that was initially deposited in a bank account or initially obtained in a loan
rational decisionchoice in which you weigh the costs and benefits of each option; the benefits should equal or exceed the costsretirement savings accounta plan/investing tool used by people to earn and designate funds for retirement savings. These have little risk but money in the account usually cannot be used without penalty until the owner reaches a designated age (usually in their 60s). Examples: 401K or 403Bsavings accountbank accounts that people put money into, which they are able to access at any time. They are insured through the Federal Deposit Insurance Corporation (FDIC) up to $250,000, so there is no risk, but they usually have a low interest rate.payday lendera financial institution that will give out small loans in return for a portion of an upcoming paycheck; they usually charge very high interest rates for these loans.title pawn lendera financial institution that will grant loans where borrowers can use their vehicle title as collateral or as security for repayment; they usually charge very high interest rates for these loans.interestmoney paid regularly at a particular rate for either borrowing or saving money. One way banks make profits is by taking the money deposited by bank customers and loaning out a portion to people who want to borrow. By charging this on the loans, banks make money. The more money on deposit, the more loans they can make, which is why some banks offer very generous checking account services. The rate on the loans is always more than the interest paid out to depositors.