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  • Add the rest of title? “(with Illustrative Interest Rates Earned on Funds)”
  • Following from earlier edits and suggestions, this heading (flush left) would then be “2. Mutual Funds” and following slide would be “3. Stock Brokerage Firms”.
  • ]

Transcript

  • 1. Chapter Five Management of Monetary Assets
  • 2. Learning Objectives
    • List and define tools of monetary asset management and providers of financial services
    • Understand key aspects of electronic banking and legal protections available
    • Describe different types of checking accounts.
    • Identify key aspects and benefits of a savings account.
    • Explain the importance of placing excess funds in an appropriate money market account.
    • List the benefits of putting money into longer-term savings instruments .
  • 3. What Is Monetary Asset Management?
    • Monetary Assets – Cash and near-cash items that can readily be converted to cash.
    • Monetary Asset (Cash) Management – How you handle your monetary assets.
    • Cash Equivalents
      • Retain a constant or nearly constant value.
      • Have ready liquidity.
      • Examples???
    Liquidity – Speed and ease in which an asset can be converted to cash Safety – Freedom from financial risk
  • 4. Four Tools of Monetary Asset Management
    • A low-cost, interest-earning checking account from which to pay monthly living expenses.
    • A small savings account in a local financial institution for irregular expenses and emergency cash
    • When income begins to exceed expenses regularly, open a money market account .
    • Your monetary asset management plan is complete when you transfer some funds into longer-term savings instruments .
      • Examples: CDs, U.S. Savings Bonds
  • 5. Figure 5.1: Four Tools of Monetary Asset Management
  • 6. Who Provides Monetary Asset Management Services?
    • Financial Services Industry – providers of monetary asset management services.
      • Banks and Depository Institutions
      • Mutual Funds
      • Stock Brokerage Firms
    • Examples of each???
  • 7. Banks and Depository Institutions
    • Recognized and regulated by the federal government as firms that offer loans and banking services to businesses and individuals.
      • Commercial Banks – corporations chartered under federal and state regulations.
      • Savings and Loan Associations (S&Ls)
      • Credit Unions (CUs)
      • Mutual Savings Banks (MSBs)
  • 8. Deposit Insurance (FDIC): A Feature of Depository Institutions
    • The maximum insurance on all single-ownership accounts (in one name) is $100,000.
    • The maximum insurance on all joint accounts held with other individuals is $100,000.
    • The maximum insurance on all retirement accounts is $100,000.
    • A maximum of $100,000 in insurance per beneficiary is payable on “death accounts.”
  • 9. Other Financial Institutions
    • Mutual Fund
    • Investment company that raises money by selling shares to the public and then invests that money in a diversified portfolio of investments.
    • Stock Brokerage Firm
    • Financial institution that specializes in selling and buying stocks, bonds, and other investments.
    • Offer money market mutual fund accounts (operated by mutual funds) into which clients place money while waiting to make investments.
  • 10. Electronic Banking
    • Electronic Banking – Occurs whenever banking transactions are conducted via computers without the customer using paper documents or having face-to-face contact with financial services personnel.
    • Electronic Funds Transfers (EFTs) – funds are shifted electronically among various bank accounts.
    • Does anyone use an Internet (online only) bank?
  • 11. Electronic Banking (Continued)
    • Direct Deposits – Having your paycheck or other regular income deposited directly into your account rather than being paid by check.
    • Preauthorized Payments – Having certain payments, such as monthly utility bills, automatically paid by your bank when billed by the entity to whom the payment is owed.
  • 12. You Can Do Your Banking with an Automatic Teller Machine
    • Automated Teller Machine (ATM or Cash Machine) – Computer terminal through which customers make deposits, make withdrawals, and complete other financial transactions
    • Personal Identification Number (PIN ) – Confirms that you are authorized to access the account. Keep it secure!!!
    • ATM Transaction Fee – May be assessed for using an ATM
      • Own financial institution and/or machine provider
      • High percentage for a low withdrawal amount
  • 13. You Can Make Purchases at POS Terminals Using a Debit Card
    • Point-of-Sale (POS) Terminal – A computer terminal located at a store or other merchant location that allows the customer to make purchases electronically via a debit or credit card.
    • Debit (or Check) Card – A plastic card that provides instant access to your checking account.
      • Advantages of debit cards???
  • 14. Smart Cards and Stored-Value Cards
    • Smart Cards and Stored-Value Cards – Plastic payment devices that use built-in computer chips or magnetic strips to store data and handle payment functions.
    • Electronic Benefits Transfer (EBT) – Directs cash benefits to recipients using smart cards as the delivery mode.
      • Examples???
  • 15. Consumer Protection Regulations
    • Disclosure Statement —Notification by financial institution of the rules of the EFT account and depositor rights
    • Periodic Statement —Your monthly account statement
  • 16. Monetary Asset Management: Tool #1 – Interest-Earning Checking Accounts
    • Checking Account – Allows you to write checks against amounts on deposit to transfer money to others (also, online, ATM,etc.)
      • A.K.A., “Demand Deposits” – Because financial institution must withdraw funds and make payments whenever “demanded” to do so by a checking account depositor.
    • Lifeline Banking Account – Offers access to certain minimal financial services that every consumer needs, regardless of income, to function in our society.
  • 17. Types of Interest-earning Checking Accounts
    • Negotiable Order of Withdrawal (NOW) Account – Earns interest or dividends as long as minimum-balance requirements are satisfied.
    • Share Draft Account – Credit-union version of a NOW account.
      • CU members own the organization
      • Deposits are called “shares”
      • Costs are often lower than at a bank
  • 18. Aspects of the Check Clearing Process
    • Check Truncation – An alternative to receiving a canceled check.
    • Image Statements – Show miniature computer pictures of checks.
    • Substitute Checks – Warranted by banks as an acceptable version of original checks written by you.
    • Bad Check – A check for which there are insufficient funds in the account (NSF)
  • 19. Payment Instruments for Special Needs
    • Traveler’s Checks - Accepted almost everywhere; sign twice; fee to purchase
    • Money Orders -Bought for a specific amount
    • Certified Checks -Shows that account has enough money; fee charged
    • Cashier’s Checks - Backed by financial institution; fee charged
  • 20. Monetary Asset Management: Tool #2 – Savings Accounts
    • Statement Savings Account (or Passbook Savings Account)
    • Permits frequent deposits or withdrawals of funds.
    • No fee if minimum balance maintained
    • Printed receipts and periodic statements
    • Can usually be accessed through ATMs
  • 21. Savings Account Interest
    • The calculation of interest to be paid on deposits in financial institutions is primarily based on four variables:
      • the amount of money on deposit
      • the method of determining the balance
      • the interest rate applied and
      • the frequency of compounding.
  • 22. Savings Account Interest (Continued)
    • Annual Percentage Yield (APY) Percentage based on the total interest that would be received on a $100 deposit for a 365-day period, given the institution’s annual rate of simple interest and frequency of compounding.
    • More frequent compounding, the greater the effective return
    • APY must be used in advertising and disclosures…Why???
  • 23. Monetary Asset Management: Tool #3 – Money Market Accounts
    • Money Market Account – Any of a variety of interest-earning accounts that:
      • Pay relatively high interest rates (compared with regular savings accounts)
      • Offer some limited check-writing privileges
      • Four types:
        • Super NOW accounts
        • Money market deposit accounts
        • Money market mutual funds
        • Asset management accounts
  • 24. Super NOW Accounts
    • Super NOW Account – Government-insured money market account offered through depository institutions.
    • High interest NOW checking account
    • Usually allow 6 checks per month
    • Usually $1,000 to $2,500 minimum deposit to earn highest interest
  • 25. Money Market Deposit Accounts
    • Money Market Deposit Account (MMDA) – Has minimum-balance requirements and tiered interest rates that vary with the size of the account balance; government insured.
    • Typically limited to 3 to 6 transactions per month
    • Institution sets minimum deposit to
    • earn highest interest
    • Usually pay higher rates than Super NOWs
  • 26. Money Market Mutual Funds
    • Money Market Mutual Fund (MMMF) – A money market account in a mutual fund investment company (rather than at a depository institution).
      • Interest is calculated daily
      • Buys debts with short-term maturities
      • Usually $500 to $1,000 to open account
      • Limited check-writing
      • NO government (FDIC) insurance
  • 27. Asset Management Accounts
    • Asset Management Account (AMA or All-in-One Account) – A coordinated account that places a customer’s monetary assets into a unified account and reports them on a single monthly statement.
      • Money market mutual fund
      • Credit card
      • Checking account
      • Stock brokerage account
  • 28. Monetary Asset Management: Tool #4 – Long-Term Savings Instruments
    • Involves placing money into long-term savings instruments for a given period of time (anywhere from 6 months to two years or longer)
    • Instruments include
      • Certificates of Deposit (CDs)
      • U.S. Government Savings Bonds
        • EE bonds (buy at half of face value)
        • I bonds (buy at full face value)
  • 29. Certificates of Deposit
    • Certificate of Deposit (CD) – An interest-earning savings instrument purchased for a fixed period of time.
      • Interest rate remains fixed for entire term
    • Variable-Rate Certificates of Deposit (or Adjustable-Rate CDs) – Pay an interest rate that is adjusted periodically.
      • Reduces predictability
    • Can buy CDs from banks and brokerage firms
  • 30. Golden Rules of Managing Monetary Assets
    • Choose an interest-earning checking account and reconcile the bank statement monthly.
    • Minimize ATM fees by making fewer large withdrawals rather than frequent small withdrawals.
    • Monitor bank fees and, if necessary, change financial institutions to avoid fees.
    • Build an emergency fund sufficient to cover three months’ expenses and keep in higher-interest accounts.
    • Start saving regularly when you are young. The sooner you start, the more money you will amass.