Insurance
The amount you pay, often monthly, to an insurance company to keep your coverage active.
What is a premium?
You drop your spare coins into a jar so you can save them for later. This is the use of money in this action.
What is a store of value?
A bank is this kind of "middleman" that connects depositors, who supply funds, with borrowers, who demand funds.
What is a Financial Intermediary?
The balance sheet equation: Assets equals this.
What is liabilities + owners' equity
True or false: the United States Dollar is currently backed by the Gold Standard
What is false?
A fixed fee, like $25, that you pay each time you visit the doctor even though you have health insurance.
What is a copay?
You hand a cashier $5 in exchange for a sandwich. This is the use of money in this action.
What is a medium of exchange?
The Federal Reserve sets this minimum percentage of deposits a bank must keep on hand. It limits how much the bank can lend out.
What is the reserve minimum (reserve requirement)?
The Income Statement equation: Profit (or loss) equals this.
What is Revenues - Expenditures?
This statement shows profit or loss by subtracting expenditures from revenues.
What is the Income Statement?
The amount you must pay out of your own pocket before your insurance company starts paying a claim.
What is a deductible?
A bike is priced at $200 and a skateboard at $50, letting you compare their worth. This is the use of money in this action.
What is a unit of account?
By lending out most of each deposit while keeping only a fraction in reserve, banks create new money. This is the name of the system.
What is Fractional Reserve Banking?
A business has $10,000 in revenues and $7,000 in expenditures. Its profit is this amount.
What is $3,000
In the balance sheet equation, "what a business owns" is this, and "what a business owes" is these two things added together.
What are 1. assets and 2. liabilities + owners' equity
The chance that something bad or costly will happen, like a car accident or a house fire.
What is risk?
Being easy to carry around, and being able to break a $1 into four quarters. Name both features of good currency and why they matter.
What are portability and divisibility?
Banking depends on this. The FDIC helps maintain it by insuring deposits, up to $250,000 per depositor, per bank.
What is trust?
The balance sheet answers this question about a business.
What does this business own and owe?
The balance sheet equation is always true because everything a business owns was paid for in one of these two ways.
What is borrowing (liabilities) or the owners' own money (owners' equity)?
This is the reason that people buy insurance.
What is to protect themselves against major financial risk from emergencies OR because it is legally mandated (car insurance)
Limited in supply so it holds its value, and strong enough to survive repeated use. Name both features of good currency and why they matter.
What are scarcity and durability?
Banks make money mostly this way. Also, a checking account pays a lower interest rate than a savings account or CD for this reason.
What is loaning money out? (Checking accounts are more accessible to the depositor (you), so the bank cannot loan your money out as easily as it could from a savings account or CD. This is why interest rates are higher on CDs/Savings accounts)
Describe how a business can record a profit while having negative net cash flows.
How can a business have a profit but negative NCF?Example: customers buy on credit, so revenue is recorded but cash hasn't arrived yet. Or the business spends a lot of cash on a long-term investment (like equipment), which lowers cash but isn't an expenditure on the Income Statement.
Your paycheck is like a business's revenue. Explain why individuals may want to keep personal financial statements like businesses do.
Why keep personal financial statements?A personal Balance Sheet tracks what you own and owe, an Income Statement tracks your profit or loss, and a Statement of Cash Flows tracks money in and out. Together they help you make better financial decisions.