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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”.
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  • ppt_ch05.ppt

    1. 1. Chapter Five Management of Monetary Assets
    2. 2. Learning Objectives <ul><li>List and define the tools of monetary asset management and describe the various providers of financial services. </li></ul><ul><li>Understand the key aspects of electronic banking and the legal protections available. </li></ul><ul><li>Describe the different types of checking accounts. </li></ul>
    3. 3. Learning Objectives <ul><li>4. Identify the key aspects and benefits of a savings account. </li></ul><ul><li>5. Explain the importance of placing excess funds in an appropriate money market account. </li></ul><ul><li>6. List the benefits of putting money into longer-term savings instruments. </li></ul>
    4. 4. What Is Monetary Asset Management? <ul><li>Monetary Assets – cash and near-cash items that can readily be converted to cash. </li></ul><ul><li>Monetary Asset (Cash) Management – encompasses how you handle all of your monetary assets. </li></ul><ul><li>Cash Equivalents – </li></ul><ul><ul><li>retain a constant or nearly constant value. </li></ul></ul><ul><ul><li>have ready liquidity. </li></ul></ul>
    5. 5. What Is Monetary Asset Management? (continued) <ul><li>Liquidity – the speed and ease with which an asset can be converted to cash. </li></ul><ul><li>Safety – freedom from financial risk. </li></ul>
    6. 6. The Four Tools of Monetary Asset Management <ul><li>You need a low-cost, interest-earning checking account from which to pay monthly living expenses. </li></ul><ul><li>You might want to maintain a small savings account in a local financial institution. </li></ul>
    7. 7. The Four Tools of Monetary Asset Management (continued) <ul><li>When income begins to exceed expenses regularly, you can consider opening a money market account. </li></ul><ul><li>Your monetary asset management plan is complete when you transfer some funds into longer-term savings instruments. </li></ul>
    8. 8. Figure 5.1: Four Tools of Monetary Asset Management
    9. 9. Who Provides Monetary Asset Management Services? <ul><li>Financial Services Industry – providers of monetary asset management services. </li></ul><ul><ul><li>Banks and Depository Institutions </li></ul></ul><ul><ul><li>Mutual Funds </li></ul></ul><ul><ul><li>Stock Brokerage Firms </li></ul></ul>
    10. 10. Banks and Depository Institutions <ul><li>Recognized and regulated by the federal government as firms hat offer loans and banking services to businesses and individuals. </li></ul>
    11. 11. Banks and Depository Institutions (continued) <ul><li>These include </li></ul><ul><ul><li>Commercial Banks – corporations chartered under federal and state regulations. </li></ul></ul><ul><ul><li>Savings and Loan Associations (S&Ls) </li></ul></ul><ul><ul><li>Credit Unions (CUs) </li></ul></ul><ul><ul><li>Mutual Savings Banks (MSBs) </li></ul></ul>
    12. 12. Deposit Insurance Is a Feature of Depository Institutions <ul><li>The maximum insurance on all of your single-ownership accounts is $100,000. </li></ul><ul><li>The maximum insurance on all of your joint accounts held with other individuals is $100,000. </li></ul><ul><li>The maximum insurance on all of your retirement accounts is $100,000. </li></ul><ul><li>A maximum of $100,000 in insurance per beneficiary is payable on “death accounts.” </li></ul>
    13. 13. Mutual Funds <ul><li>An investment company that raises money by selling shares to the public and then invests that money in a diversified portfolio of investments. </li></ul>
    14. 14. Stock Brokerage Firms <ul><li>Licensed financial institution that specializes in selling and buying stocks, bonds, and other investment alternatives </li></ul><ul><li>Typically offer money market mutual fund accounts (operated by mutual funds) into which clients place money while waiting to make their investments </li></ul>
    15. 15. Electronic Banking <ul><li>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. </li></ul><ul><li>Electronic Funds Transfers (EFTs) – funds are shifted electronically among various bank accounts. </li></ul>
    16. 16. Electronic Banking (continued) <ul><li>Direct Deposits – having your paycheck or other regular income deposited directly into your account rather than being paid by check. </li></ul><ul><li>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. </li></ul>
    17. 17. You Can Do Your Banking with an Automatic Teller Machine <ul><li>Automated Teller Machine (ATM or Cash Machine) – a computer terminal through which customers may make deposits, make withdrawals, and complete other financial transactions. </li></ul><ul><li>Personal Identification Number (PIN) – confirms that you are authorized to access the account. </li></ul><ul><li>ATM Transaction Fee – may be assessed for using an ATM. </li></ul>
    18. 18. You Can Make Purchases at POS Terminals Using a Debit Card <ul><li>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. </li></ul><ul><li>Debit (or Check) Card – a plastic card that provides instant access to your checking account. </li></ul>
    19. 19. Smart Cards and Stored-Value Cards <ul><li>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. </li></ul><ul><li>Electronic Benefits Transfer (EBT) – directs cash benefits to recipients using smart cards as the delivery mode. </li></ul>
    20. 20. Consumer Protection Regulations <ul><li>Disclosure Statement—notification by the institution of the rules of the EFT account </li></ul><ul><li>Periodic Statement—your monthly account statement </li></ul>
    21. 21. Monetary Asset Management: Tool #1 – Interest-Earning Checking Accounts <ul><li>Checking Account – allows you to write checks against amounts you have on deposit, thereby transferring your deposited funds to other people and organizations. </li></ul>
    22. 22. Types of Checking Accounts <ul><li>Demand Deposits – a financial institution must withdraw funds and make payments whenever demanded to do so by the checking account depositor. </li></ul><ul><li>Lifeline Banking Account – offers access to certain minimal financial services that every consumer needs, regardless of income, to function in our society. </li></ul>
    23. 23. Types of Interest-earning Checking Accounts <ul><li>Negotiable Order of Withdrawal (NOW) Account – earns interest or dividends as long as minimum-balance requirements are satisfied. </li></ul><ul><li>Share Draft Account – the credit-union version of a NOW account. </li></ul><ul><li>These accounts usually pay a tiered interest rate – the combination of a base rate and a higher rate. </li></ul>
    24. 24. Aspects of the Check Clearing Process <ul><li>Check Truncation – an alternative to receiving a canceled check. </li></ul><ul><li>Image Statements – show miniature computer pictures of checks. </li></ul><ul><li>Substitute Checks – warranted by banks as an acceptable version of original checks written by you. </li></ul><ul><li>Bad Check – a check for which there are insufficient funds in the account. </li></ul>
    25. 25. Protect Yourself from Checking Account Overdraft Fees <ul><li>Bank Agreements to Use to Avoid Bad Check Fees: </li></ul><ul><ul><li>automatic funds transfer agreement </li></ul></ul><ul><ul><li>automatic overdraft loan agreement and </li></ul></ul><ul><ul><li>bounce protection agreement. </li></ul></ul>
    26. 26. Payment Instruments for Special Needs <ul><li>Traveler’s Checks </li></ul><ul><li>Money Orders </li></ul><ul><li>Certified Checks </li></ul><ul><li>Cashier’s Checks </li></ul>
    27. 27. How Ownership of Checking Accounts (and Other Assets) Is Established <ul><li>Signature Card – a form that can be used to verify the saver’s signature against a signed withdrawal slip or check in the future. </li></ul><ul><li>Individual Account – has one owner who is solely responsible for the account and its activity. </li></ul><ul><li>Payable at Death Designation – a person is named in the account to receive the funds upon the death of the individual owner. </li></ul>
    28. 28. Joint Accounts <ul><li>Joint Account – has two or more owners, each of whom has legal rights to the funds in the account. </li></ul><ul><li>Joint Tenancy with Right of Survivorship (or Joint Tenancy) – each person owns the whole of the asset and can dispose of it without the approval of the other(s). </li></ul>
    29. 29. Joint Accounts (continued) <ul><li>Tenancy in Common – a form of joint ownership in which two or more parties own the asset, but each retains control over a separate piece of the property rights. </li></ul><ul><li>Tenancy by the Entirety – restricted to property held between a husband and a wife. No one co-owner can sell or dispose of his or her portion of an asset without the permission of the other. </li></ul>
    30. 30. Monetary Asset Management: Tool #2 – Savings Accounts <ul><li>Statement Savings Account (or Passbook Savings Account) – permits frequent deposits or withdrawals of funds. </li></ul>
    31. 31. Savings Account Interest <ul><li>The calculation of interest to be paid on deposits in financial institutions is primarily based on four variables: </li></ul><ul><ul><li>the amount of money on deposit </li></ul></ul><ul><ul><li>the method of determining the balance </li></ul></ul><ul><ul><li>the interest rate applied and </li></ul></ul><ul><ul><li>the frequency of compounding. </li></ul></ul>
    32. 32. Savings Account Interest (continued) <ul><li>Annual Percentage Yield (APY) – a 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. </li></ul>
    33. 33. Monetary Asset Management: Tool #3 – Money Market Accounts <ul><li>Money Market Account – any of a variety of interest-earning accounts that: </li></ul><ul><ul><li>pay relatively high interest rates and </li></ul></ul><ul><ul><li>offer some limited check-writing privileges. </li></ul></ul>
    34. 34. Super NOW Accounts <ul><li>Super NOW Account – a government-insured money market account offered through depository institutions. </li></ul>
    35. 35. Money Market Deposit Accounts <ul><li>Money Market Deposit Account (MMDA) – has minimum-balance requirements and tiered interest rates that vary with the size of the account balance. </li></ul>
    36. 36. Money Market Mutual Funds <ul><li>Money Market Mutual Fund (MMMF) – a money market account in a mutual fund investment company (rather than at a depository institution). </li></ul>
    37. 37. Asset Management Accounts <ul><li>Asset Management Account (AMA or All-in-One Account) – a multiple-purpose, coordinated package that gathers most of the customer’s monetary asset management vehicles into a unified account and reports them on a single monthly statement. </li></ul>
    38. 38. Monetary Asset Management: Tool #4 – Long-Term Savings Instruments <ul><li>Involves placing money into long-term savings instruments for a given period of time (anywhere from 6 months to two years or longer) </li></ul><ul><li>Instruments include </li></ul><ul><ul><li>Certificates of deposit </li></ul></ul><ul><ul><li>U.S. Government Savings Bonds </li></ul></ul>
    39. 39. Certificates of Deposit <ul><li>Certificate of Deposit (CD) – an interest-earning savings instrument purchased for a fixed period of time. </li></ul><ul><li>Variable-Rate Certificates of Deposit (or Adjustable-Rate CDs) – pay an interest rate that is adjusted periodically. </li></ul>
    40. 40. Certificates of Deposit (continued) <ul><li>Bump-Up CDs – allow savers to bump up the interest rate once to a higher market rate and add up to 100 percent of the initial deposit whenever desired. </li></ul><ul><li>Brokered Certificates of Deposit – CDs purchased through a stockbroker. </li></ul>
    41. 41. U.S. Government Savings Bonds <ul><li>Series EE Savings Bonds – U.S. government savings instruments that are purchased for 50 percent of their face value. </li></ul><ul><li>Series I Savings Bonds – not discount bonds but instead are purchased at their face value. </li></ul>
    42. 42. Golden Rules of Managing Monetary Assets <ul><li>Choose an interest-earning checking account for your checking account needs and reconcile the bank statement monthly. </li></ul><ul><li>Minimize ATM fees by making fewer large withdrawals rather than more frequent small withdrawals. </li></ul><ul><li>Monitor your bank fees and, if necessary, change financial institutions to avoid fees. </li></ul>
    43. 43. Golden Rules of Managing Monetary Assets (continued) <ul><li>Build and maintain an emergency fund sufficient to cover three months of expenses and keep those funds in higher-interest accounts. </li></ul><ul><li>Start saving regularly when you are young. The sooner you start, the more funds you will amass over time. </li></ul>