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Understanding Banking and Securities

Understanding Banking and Securities. Characteristics of Money. Medium of exchange Measure of value Store of value. Forms of Money. Currency Demand deposits Time deposits. Substitutes for Currency and Checks. Credit cards Debit cards Smart cards. Financial Institutions. Deposit.

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Understanding Banking and Securities

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  1. Understanding Banking and Securities Business In Action 3e

  2. Characteristics of Money • Medium of exchange • Measure of value • Store of value Business In Action 3e

  3. Forms of Money • Currency • Demand deposits • Time deposits Business In Action 3e

  4. Substitutes for Currency and Checks • Credit cards • Debit cards • Smart cards Business In Action 3e

  5. Financial Institutions Deposit Nondeposit • Commercial banks • Savings and loans • Mutual savings banks • Credit unions • Insurance companies • Pension funds • Finance companies • Brokerage firms Business In Action 3e

  6. Types of Loans Consumers Businesses • Mortgage • Automobile • Home-improvement • Student loan • Expansion • New equipment • Construction • Line of credit Business In Action 3e

  7. Electronic Banking • Automated teller • Electronic funds transfer • Online banking Business In Action 3e

  8. Bank Safety and Regulation • Federal Deposit Insurance Corporation • National Credit Union Association • State Banking Commission • Office of the Comptroller of the Currency • Office of Thrift Supervision • Federal Reserve System Business In Action 3e

  9. Evolving U.S. Banking • Number of financial institutions • In 1934 there were 14,146 main bank offices • Today there are 8,357 main bank offices Business In Action 3e

  10. Banking Legislation • Financial Services Modernization Act (1999) • Riegle-Neal Banking Efficiency Act (1994) Business In Action 3e

  11. Securities Investments • Stocks • Mutual funds • Bonds Business In Action 3e

  12. Stocks: Important Terms • Authorized stock • Issued stock • Unissued stock • Stock split • Par value Business In Action 3e

  13. Common Stock • Voting rights • Dividends • Limited liability • Liquidity Business In Action 3e

  14. Preferred Stock • Convertible preferred stock • Cumulative preferred stock Business In Action 3e

  15. Corporate Bonds • Secured bonds • Debentures • Convertible bonds Business In Action 3e

  16. S&P Interpretation Moody’s Interpretation AAA AAA Highest rating Highest rating Aaa Aaa Prime quality Prime quality AA AA Very strong capacity to pay Very strong capacity to pay Aa Aa High grade High grade A A Strong capacity to pay; somewhat susceptible to changing business conditions Strong capacity to pay; somewhat susceptible to changing business conditions A A Upper-medium grade Upper-medium grade BBB BBB More susceptible than A rated bonds More susceptible than A rated bonds Baa Baa Medium grade Medium grade BB BB Somewhat speculative Somewhat speculative Ba Ba Somewhat speculative Somewhat speculative B B Speculative Speculative B B Speculative Speculative CCC CCC Vulnerable to nonpayment Vulnerable to nonpayment Caa Caa Poor standing;may be in default Poor standing;may be in default CC CC Highly vulnerable to nonpayment Highly vulnerable to nonpayment Ca Ca Highly speculative; often in default Highly speculative; often in default C Bankruptcy petition filed or similar action taken C Lowest rated; extremely poor chance of ever attaining real investment standing Corporate Bond Ratings Business In Action 3e

  17. U.S. Government Securities and Municipal Bonds • Treasury notes • Treasury bills • Treasury bonds • U.S. savings bonds Business In Action 3e

  18. U.S. Government Securities and Municipal Bonds • Municipal bonds • General obligation bonds • Revenue bonds • Capital gains Business In Action 3e

  19. Mutual Funds: Important Terms • Load fund • No load fund • Open end fund • Closed end fund Business In Action 3e

  20. Types of Mutual Funds • Money market • Growth • Balanced • Income • Global • International • Index Business In Action 3e

  21. Mutual Fund Abuses • Market timing • Late trading Business In Action 3e

  22. Securities Market • Primary • Initial public offerings • Secondary • Securities exchanges Business In Action 3e

  23. Securities Exchanges • Trading floor • New York Stock Exchange (NYSE) • Over-the-counter market • National Association of Securities Dealers (NASDAQ) Business In Action 3e

  24. Buying and Selling Securities • Auction exchange (NYSE) • Exchange floor • Stock specialist • Dealer exchange (NASDAQ) • Computer • Market maker • Electronic communication networks • Computer • Broker Business In Action 3e

  25. Market order Limit order Day order Margin trading Stop order Open order Short selling Discretionary order Orders to Buy and Sell Securities Business In Action 3e

  26. Analyzing Financial News • Bull market • Rising market • Bear market • Falling market Business In Action 3e

  27. Dow Jones Industrial Average (DJIA) Standard and Poor’s 500 (S&P 500) Wilshire 5000 NASSAQ Composite Index Nikkei 225 Index FT-SE 100 Index Watching Market Indexes and Averages Business In Action 3e

  28. Interpreting Financial News • Stock exchange reports • Bond quotation tables • Mutual fund quotations Business In Action 3e

  29. Industry Challenges • Electronic trading • Round-the-clock trading • Online trading Business In Action 3e

  30. Regulation of the Securities Market • SEC filing requirements • Fair disclosure regulations • Securities fraud Business In Action 3e

  31. Ask Questions Before You Invest • Is the investment registered with the SEC? • Have you read the audited financial statements? • Is a registered broker offering the investment? • What’s in it for the person touting the investment? • Should you trust email/bulletin board advice? Business In Action 3e

  32. Ask Questions Before You Invest • Are you being pressured to act? • Does the investment promise you’ll get rich quick? • Does the investment match your objectives? • How easy would it be to sell your investment later? • Does the investment originate overseas? Business In Action 3e

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