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Questions and Answers
What is the primary goal of a money market fund?
Who typically uses money market funds?
What distinguishes a money market deposit account from a regular savings account?
Which of the following is a PRO of a money market account?
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What is a common CON of using a money market account?
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In what way do money market funds differ from money market accounts?
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What feature makes money market deposit accounts less flexible than regular checking or savings accounts?
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What does the acronym MMDA stand for in the context of financial accounts?
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Study Notes
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
- Pros:
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Description
Test your knowledge on finance companies, insurance companies, and pension funds. Learn about the roles and functions of non-depository institutions, contractual saving institutions, and financial institutions providing retirement benefits.
