HW Answers Chapter 5
Chapter 5. Write your answer in the space provided or on a separate sheet of paper.
580) What are the four questions you should answer when looking for a financial institution?
581) Describe the comprehensive financial services typically offered by a brokerage firm in an asset management
account. What is its greatest advantage?
582) Once you have examined a financial institution's service and convenience you will want to ask three
questions about their cash management alternatives. What are they?
583) List the common deposit-type financial institutions.
584) Briefly describe each of the cash management alternatives discussed in this chapter.
585) Explain the advantages of credit unions. Are there any disadvantages to them?
586) What are the three questions you should ask when choosing among cash alternatives?
587) Name the three Cs of choosing a financial institution.
588) Why are liquid assets important in cash management?
Chapter 5 Homework Answers
580) You will want to know if it offers the kind of service you need and want. You will ask if your money will be safe.
The costs and returns associated with the services you want are concerns. Last, you will want to know if it offers the
personal service and convenience you seek.
581) The services offered generally include a checking account, credit and debit cards, money market mutual funds,
loans, automatic payment of any fixed payments such as mortgages or other debt, brokerage services (buying and
selling stocks or bonds), and a system for the direct payment of interest, dividends, and proceeds from security
sales into the money market mutual fund. The major advantage of this account is that it automatically coordinates
the flow of funds into and out of it.
582) - What is the safety or risk involved?
- How will they correlate with my tax status?
- What is their comparable rate of return?
583) - Commercial banks
- Savings and Loan Associations, including Mutual and Corporate S & Ls
- Savings banks
- Credit unions
584) a. Demand deposit a type of checking account on which no interest is paid
b. NOW account a checking account on which you earn interest on the balance
c. Savings account a deposit account that pays interest
d. Money market deposit account a bank account that provides a rate of interest that varies with the current
market rate of interest
e. Certificates of deposit savings alternatives that pay a fixed rate of interest while keeping the funds on deposit
for a set period of time that can range from 30 days to several years
f. Money market mutual funds mutual funds that invest in short-term (generally with a maturity of less than 90
days) notes of very high denomination
g. Asset management account a comprehensive financial services package offered by a brokerage firm
h. U.S. Treasury Bills or T-Bills short-term notes of debt issued by the federal government with maturities ranging
from 3 months to 12 months
i. Series EE bonds a type of government security that is actually a loan to the government on which you receive
interest. The interest accrues every 6 months but generally the holders let it compound until they redeem the bond.
585) Credit unions enjoy a tax-exempt status because they are not-for-profit organizations. As such, they are generally
able to operate on a more efficient, smaller scale and pay their depositors more than commercial banks. They tend
to have lower fees and minimum balances associated with their accounts. Their loans tend to be at favorable rates.
They tend to be handy, generally close to work, and offer many of the same services as banks.
The one disadvantage is that they are reluctant to provide home mortgage loans. This could be a problem when all
of your accounts are at the credit union and you must seek a home loan at an institution that is unfamiliar with you.
586) - What is the safety or risk?
- How will this coordinate with my tax status?
- What are the comparable rates of return?
587) a. cost
588) Cash management begins and ends with liquid assets. Keeping some money in liquid assets is necessary for paying
bills, normal living expenses, emergencies, and to prevent dipping into long-term investments.