Finance Chapter 5
Chapter 5 Notes
Three general reasons for holding onto cash: 1. managing transaction needs 2. preparing for cash emergencies 3. making a temporary investment
-very conservative advice suggest you should have enough liquid assets to cover 5 to 8 months of regular expenses
-others suggest 2 months is more than enough
Four rules to help better cash management outcomes: 1. keep track of your cash by balancing your checkbook every month 2. develop a system to ensure that you pay your bills on time 3. stick to your financial plan by paying yourself first 4. use sound criteria to evaluate financial institutions and select products or services
Depository institutions include commercial banks, several types of savings institutions, and credit unions. All these types of firms are similar in two major ways: * their primary source of funds comes from customer deposits * their primary source of income is interest earned on loans
S&Ls were first limited to offering savings accounts and making home and personal loans to individuals. More recently, however, savings institutions have been able to offer a more competitive selection of checking and savings accounts; they can even offer credit cards, business loans, and financial planning services.
An important distinction between credit unions and other depository institutions is that credit unions have non-profit status and often make use of a partially volunteer labor force, allowing them a low-cost advantage over other institutions
Nondepository firms include mutual fund companies, life insurance companies, brokerage firms, and other financial services firms. No accounts offered are federally insured
Since demand deposits are easily converted to cash, they are less risky to you.
Key Terms:
Annual percentage yield (APY): the amount of interest paid each year, given as a percentage of the investment; the APY makes it possible to compare interest rates
Three general reasons for holding onto cash: 1. managing transaction needs 2. preparing for cash emergencies 3. making a temporary investment
-very conservative advice suggest you should have enough liquid assets to cover 5 to 8 months of regular expenses
-others suggest 2 months is more than enough
Four rules to help better cash management outcomes: 1. keep track of your cash by balancing your checkbook every month 2. develop a system to ensure that you pay your bills on time 3. stick to your financial plan by paying yourself first 4. use sound criteria to evaluate financial institutions and select products or services
Depository institutions include commercial banks, several types of savings institutions, and credit unions. All these types of firms are similar in two major ways: * their primary source of funds comes from customer deposits * their primary source of income is interest earned on loans
S&Ls were first limited to offering savings accounts and making home and personal loans to individuals. More recently, however, savings institutions have been able to offer a more competitive selection of checking and savings accounts; they can even offer credit cards, business loans, and financial planning services.
An important distinction between credit unions and other depository institutions is that credit unions have non-profit status and often make use of a partially volunteer labor force, allowing them a low-cost advantage over other institutions
Nondepository firms include mutual fund companies, life insurance companies, brokerage firms, and other financial services firms. No accounts offered are federally insured
Since demand deposits are easily converted to cash, they are less risky to you.
Key Terms:
Annual percentage yield (APY): the amount of interest paid each year, given as a percentage of the investment; the APY makes it possible to compare interest rates