Financial Chapter 1

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Kathlaen
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102163
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Financial Chapter 1
Updated:
2011-09-20 14:58:09
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financial
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The Role of Insurance in the Economy
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  1. Define Economics
    The study of how societies and individuals allocate limited resources among competing, unlimited wants.
  2. Describe the primary sectors that make up local, national and global economies.

    Sector 1
    Sector 1: Raw Materials, aka primary sector: foundation of all economies, land, minerals, lumber, basic food.
  3. Describe the primary sectors that make up local, national and global economies.

    Sector 2
    Sector 2: Manufactured Goods, aka secondary sector: turns raw materials into finished products; manufacturing, processing, construction.
  4. Describe the primary sectors that make up local, national and global economies.

    Sector 3
    Sector 3: Services, aka the tertiary sector, svcs that facilitate the transfer of finished goods to end users in the economy & enhance consumers lives. Retail/wholesale sales, transport, distribution, entertainment, financial svcs, healthcare, law.
  5. Describe the primary sectors that make up local, national and global economies.

    Sector 4
    Sector 4: Intellectual Property, aka quaternary sector, intellectual concerns re gov't, culture, education, scientific research, info technology. Improve quality of life.
  6. What are the 3 primary functions of money in an economy?
    • 1. Standardized medium of exchange.
    • 2. Standardized way to measure value (unit of account).
    • 3. Store of value (money retains its value over time).
  7. Identify the major participants in the marketplace.
    • 1. Households
    • 2. Businesses
    • 3. Governments
    • 4. Financial Intermediaries
  8. Describe the types of markets in which exchanges among participants occur.
    Local & National: Product (output) Markets, Labor Markets, Financial (capital) Markets

    Global:Foreign Exchange Markets
  9. How do funds flow b/t buyers & sellers and between borrowers and lenders during marketplace exchanges?
    In a circular pattern.
  10. What are the different types of financial institutions?
    1. Depository Institutions.

    2. Contractual Savings Institutions.

    3. Investment Institutions.
  11. What are the roles of the different types of financial institutions in an economy?
    • To help consumers, businesses and gov'ts save, borrow, invest, and otherwise manage money.
    • To serve as intermediaries in the marketplace.
    • To provide risk management and investment planning services.
  12. What are the 4 basic financial needs customers have?
    • 1. Cash management and credit needs.
    • 2. Asset accumulation needs.
    • 3. Asset protection needs.
    • 4. Asset distribution needs.
  13. What kinds of financial products help satisfy the 4 basic financial needs customers have?

    1. Cash Management and credit needs.
    1. Checking Accounts, Share draft account, Money Market Deposit Account, Cash Management Account, Installment Credit, Non-installment credit.
  14. What kinds of financial products help satisfy the 4 basic financial needs customers have?

    2. Asset accumulation needs.
    2. Savings Account, Certificate of Deposit (CD), Mutual Fund, Brokerage Account, Deferred Annuity.
  15. What kinds of financial products help satisfy the 4 basic financial needs customers have?

    3. Asset protection needs.
    Life Insurance, Medical Ins., Disability income ins., Automobile Ins., Homeowners Ins., Liability Ins.
  16. What kinds of financial products help satisfy the 4 basic financial needs customers have?

    4. Asset distribution needs.
    • Financial planning.
    • Annuities.
  17. Economy
    The part of the environment that includes all of the elements affecting the production, distribution and consumption of goods & services.
  18. Need
    A condition that must be satisfied by a product or service in order for individuals, businesses, and gov'ts to survive and function properly.
  19. Want
    A desire for a particular product or service.
  20. Economics
    The study of how societies and individuals allocate limited resources among competing, unlimited wants.
  21. Exchange
    A transaction in which one party gives something of value to another party and receives something of value in return.
  22. Medium of Exchange
    A standardized method of making and receiving payments for goods & svcs.
  23. unit of account
    In an economy, the monetary unit in which value is expressed. ie Dollar, Rupee, Euros.
  24. Transfer Payment
    Payments made by a gov't for which no goods or services are given in return.
  25. Intermediation
    The transfer of funds from savers to borrowers through the the services of a financial intermediary.
  26. Product (output) Market
    A market where businesses supply finished goods and services to households, other businesses, and governments.
  27. Labor Markets
    A market where households offer their labor to businesses and governments in exchange for wages or other compensation.
  28. financial (capital) market
    A market in which money is transferred from savers to borrowers.
  29. foreign exchange market
    A market that converts currencies used by buyers into currencies acceptable to the sellers.
  30. circular flow diagram
    A diagram that illustrates the flow of funds through an economy.
  31. financial institution
    A business that owns financial assets, such as stocks and bonds, rather than fixed assets, such as equipment and raw materials.
  32. fiduciary
    A financial institution that holds a special position of trust or confidence when handling the affairs of others, and who must put the interests of others ahead of its own interests.
  33. depository institution
    A financial institution that specializes in accepting deposits and making loans.
  34. interest
    A fee that individuals and financial institutions pay (or charge) for the use of borrowed money.
  35. contractual savings institution
    A financial institution that acquires funds at periodic intervals on a contractual basis.
  36. pension fund
    A contractual savings institution that provides retirement funds for individuals covered by pension plans.
  37. pension plan
    An arrangement under which a plan sponsor provides plan participants with a lifetime income benefit that begins at retirement.
  38. security
    A document or certificate that represents an ownership interest in a business (stock) or an obligation of indebtedness owed by a business, gov't or agency (bond).
  39. stock
    A document or certificate that represents an ownership interest in a business (stock)
  40. bond
    A document or certificate that represents an obligation of indebtedness owed by a business, gov't or agency (bond).
  41. commercial paper
    A financial instrument that consists of short term, unsecured promisory notes issued to busnes's or gov'ts, by corp.'s as an alternitive to short term bank loans or other forms of borrowing.
  42. mutual fund
    An investment co. that pools the funds of customers and uses the funds to buy stocks, bonds and other financial instruments.
  43. liquidity
    the ease with which an asset can be converted to cash for an approximation of its value.
  44. asset accumulation product
    a product that enables customers to increase the amount and/or value of their assets over time.
  45. dividend
    the share of a co's profits payable to owners of teh co's stock.
  46. capital appreciation
    an increase in the value of invested assets.
  47. risk
    the possibility that results will be different than expected; generally associated with the possibility of loss.
  48. risk tolerance
    From an individual investor's perspective, that individuals comfort level with risk.
  49. commission
    payment for services rendered; usually calculated as a %age of the transaction amount.
  50. asset protection product
    a product that protects owners against the risk of financial loss from unforseen events such as natural disasters, theft, accidents, illnesses, and death.
  51. insurance
    A mechanism for transferring some or all of the risk of a financial loss from an individual or entity to an insurance co.

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