Section 5.1 Review

Section 5.1 Review

Banking

Multiple Choice

Which is NOT a daily cash need?

• Buying food

• Buying gas

• Buying a washing machine

• Buying movie tickets

Daily Cash Needs

• Daily cash needs includes buying lunch, going to the movies with friends, filling your car with gasoline, or paying for other routine activities.

• Resist the temptation to overspend and avoid buying on impulse or over using credit cards.

• If you need more cash than you have available, you have two options: use your savings or borrow the money.  Although you will have immediate access to the funds you need, long-term financial goals may be delayed.

Types of Financial Services

• Savings: Safe storage of funds for future use.

• Payment Services: Transferring money from a personal account to businesses or individuals for payment. The most commonly used payment service is a checking account.

• Borrowing: You can borrow money for a short-term by using a credit card or taking out a personal cash loan.  To borrow for a longer-term, you may apply for a mortgage or auto loan.

Electronic Banking Services

• Direct Deposit: An automatic deposit of net pay to an employee's designated bank account.

• Automatic Payments: With your authorization, your bank will withdraw the amount of your monthly payment from your bank account.

• Automated Teller Machine (ATM): A computer terminal that allows withdrawals, deposits, or transfers of cash from an account.

• Plastic Payments: Various access cards, such as debit cards or stored-value cards, can also be used to purchase goods and services.

Multiple Choice

Which is NOT true about debit cards?

• They are cash cards that allow you to withdraw money or pay for purchases from your checking or savings account.

• You need a PIN to use a debit card at an ATM.

• You are always liable for any purchases made on a stolen card.

Debit Cards

• Debit cards are cash cards that allow you to withdraw money or pay for purchases from your checking or savings account.

• You will need a personal identification number, or PIN, to use your debit card.

• If you lose your debit card, or if it is stolen, notify your bank immediately. Most card issuers will not hold you responsible for stolen funds.

• Use your bank's ATM machines to avoid the additional fees that other banks charge when using their machines.

• A point-of-sale transaction is a purchase by a debit card of a good or service at a retail store, restaurant, or elsewhere.

Multiple Choice

Giving up a higher interest rate in order to have liquidity is an example of?

• An Automatic Payment

• Direct Deposit

• An Opportunity Cost

Types of Financial Institutions

• Commercial Banks: a for-profit institution that offers a full range of financial services including checking, savings, and lending.

• Credit Union: a non-profit financial institution that is owned by its members and organized for their benefit. You have to meet some sort of requirement to join.

• Savings and Loan Associations: a financial institution that traditionally specialized in savings accounts and mortgage loans but now offers many of the same services as commercial banks. 

• Mutual Savings Banks: banks that specialize in savings accounts and mortgage loans.  Some offer personal and automobile loans as well.

Multiple Select

Which of the following are non-deposit institutions? Select all that apply.

• Investment Companies

• Mortgage Companies

• Life Insurance Companies

• Savings and Loan Associations

Non-Deposit Institutions

• Life Insurance Companies: Though the main purpose of life insurance companies is to provide financial security for dependents, many insurance policies contain savings and investment features.

• Investment Companies: These firms combine your money with funds from other investors in order to buy stocks, bonds, and other securities.

• Finance Companies: Finance companies make higher interest loans to consumers and small businesses that cannot borrow elsewhere because they have below-average credit ratings.

• Mortgage Companies: Mortgage companies specialize in loans for the purchase of homes.