Chapter 17 Financial Services1

Chapter 17 Financial Services

©2008 Thomson/South-Western

Chapter 17 Financial Services2

Banks and Nonbanks

Bank — financial institution that must accept demand deposits, make consumer and commercial loans, and buy and sell currency and government securities

Nonbank — financial institution whose primary purpose is to offer financial products and services other than deposits and loans

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Major Types of Banks

Commercial banks — full-service, serve all types of customers

Savings institutions — emphasize loans for residential mortgages; include savings and loans and mutual savings banks

Credit unions — nonprofit associations whose services are restricted to members

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Regulating Banks

Federal Reserve System (Fed) Federal Deposit Insurance Corporation

(FDIC) National Credit Union Share Insurance Fund

(NCUSIF)

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Types of Nonbanks

Finance companies Insurance companies Pension funds Mutual funds Securities and investment firms Financial services companies

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Common Banking Services

Checking accounts Loans

– Secured loan — loan backed by something of value owned by the borrower (collateral)

– Unsecured loan — loan not backed by collateral– Interest rates

Prime rate Fixed interest rate Variable interest rate

Chapter 17 Financial Services7

Technology and Financial Services

Electronic funds transfer (EFT) — transferring money by computer rather than by check

Direct deposit — electronic transfer of a paycheck directly from employer’s bank account into employee’s bank account

Automatic teller machine (ATM) — computer terminal that enables bank customers to deposit, withdraw, or transfer funds with a bank-provided plastic card

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Investment Instruments

Interest-bearing checking accounts Savings accounts Savings bonds Certificates of deposit (CDs) Money market accounts Mutual funds Treasury instruments — Treasury bills,

notes, and bonds

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Investment Goals

Liquidity — ease of turning an investment into cash without significant loss

Safety — high risk vs. lower earning potential Growth — trade-off between investment

growth and a stable income from the investment

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Investment Trading

Stock exchanges– New York Stock Exchange (NYSE)– National Association of Securities Dealers

(NASDAQ)

Stock indexes– Dow Jones Industrial Average Index– NASDAQ Market Index– Standard & Poor’s 500 Index