Finance, Insurance, and Pension Institutions Quiz

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8 Questions

What is the primary goal of a money market fund?

To preserve capital while obtaining a nominal yield

Who typically uses money market funds?

Companies and institutions managing short-term cash needs

What distinguishes a money market deposit account from a regular savings account?

Check-writing and debit card privileges

Which of the following is a PRO of a money market account?

Safety insurance protection

What is a common CON of using a money market account?

Transactional limits

In what way do money market funds differ from money market accounts?

Investing in long-term assets vs. short-term debt securities

What feature makes money market deposit accounts less flexible than regular checking or savings accounts?

$10,000 minimum balance requirement

What does the acronym MMDA stand for in the context of financial accounts?

Money Market Deposit Account

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

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.

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