Finance, Insurance, and Pension Institutions Quiz

Cash Flow Statement

• A personal cash flow statement helps understand how much money flows into (inflows) and out of (outflows) one's finances, showing the net cash flow.
• Cash inflows include:
  • Salaries
  • Interest from savings accounts
  • Dividends from investments
  • Capital gains from the sale of financial securities
  • Money received from the sale of assets like houses or cars
• Cash outflows include:
  • Rent or mortgage payments
  • Utility bills
  • Groceries
  • Gas
  • Entertainment (books, movie tickets, restaurant meals, etc.)
• Net cash flow is the result of subtracting outflow from inflow.

Banking and Financial Institutions

• Banking is the business activity of accepting and safeguarding money, then lending it out to conduct economic activities.
• Banks serve as the principal caretaker of the economy's money supply.
• Banks offer added conveniences like:
  • Direct deposit
  • Bank cards
  • Credit cards

Financial Institutions

• Finance companies specialize in providing personal loans.
• Insurance companies collect premium and compensate against the risk of loss of life and properties.
• Pension funds accept savings to provide pension and other retirement benefits to employees.
• Mutual funds invest in financial instruments or assets for the mutual benefit of its members.

Banking Services

• Checking services: a deposit account that allows deposits and withdrawals.
• Credit card financing: funding that allows borrowing with an interest rate.
• Debit card: a payment card that deducts money directly from a consumer's checking account.
• Interest rate: a percentage charged on the total amount borrowed or saved.

Time Value of Money

• Importance:
  • In investment decisions
  • In capital budgeting decisions
• Techniques:
  • Future Value (FV) techniques: calculating future values of cash flows
  • Present Value (PV) techniques: measuring the current value of an amount of money
• Formulas:
  • FV = PV x (1 + r) n
  • PV = FV / (1 + r) n

Financial Planning

• Set personal priorities and financial goals
• Create and stick to a budget
• Establish an emergency fund
• Save for retirement
• Schedule regular progress reports
• Pay off debts

Money Market Funds and Accounts

• Money Market Funds:
  • Invest in high-quality, short-term debt
  • Preserve capital while obtaining a nominal yield
  • Managed by professional fund managers
• Reasons for investing in Money Market Funds:
  • Highly Liquid
  • Higher Returns than a Savings account
  • Affordable
• Money Market Deposit Accounts (MMDAs):
  • Special type of bank or credit union savings account
  • Higher interest rate than regular passbook savings accounts
  • Check-writing and debit card privileges
  • Restrictions that make them less flexible than regular checking or savings accounts
• Pros and Cons of Money Market Accounts:
  • Pros:
    • Safety
    • Interest
    • Access
  • Cons:
    • Transactional Limits
    • Introductory Interest Rates
    • Safety Insurance