FIN 434 Final

  1. transaction deposit
    a deposit service in which checks or drafts against the deposit may be used to pay for purchases of goods & services; payment or demand deposits (regular non-int. bearing= safekeeping of funds, recordkeeping for any transactions & int. bearing); 1 of the oldest services; provider is required to honor any withdrawals immediately
  2. NOW (negotiable order of withdrawal) accounts
    interest bearing savings deposits against which a customer can write negotiable drafts (checks) but that reserve the depository institution's right to insist on prior notice before the customer withdraws their funds
  3. money market deposit accounts (MMDAs)
    short-maturity deposits having a term of only a few days, weeks, or months & on which the offering depository institution can pay any competitive IR over designated short intervals of time; 6 preauthorized drafts (checks) per month; also have limited checking account powers (3 withdrawals made by writing checks)
  4. super NOWs (SNOWs)
    savings accounts that usually promise a higher interest return than regular NOW accounts but often impose restrictions on the # of drafts (checks) or withdrawals the depositor is allowed to make
  5. thrift deposits
    accounts whose principal purpose is to provide an interest-bearing outlet for customer savings (encourage them to save rather than make payments)=a place for the customer to store liquid purchasing power at interest until needed; a.k.a savings deposits; Longer-Term; Pay Higher Interest Rates Than Transaction Deposits; Generally Less Costly to Process and Manage to the institution
  6. passbook savings deposits
    accounts sold to household customers in small denominations along with a small booklet or computer statement showing the account's current balance, interest earnings, deposits, & withdrawals (unlimited); low IR paid on them, stable, little sensitivity to changes in IR
  7. time deposits
    interest-bearing accounts with stated maturities (fixed), which may carry penalties in the form of lost interest earnings or reduction of principal if early withdrawal occurs (before 7 days); fixed or fluctuating IR; most popular= certificate of deposit (CD)
  8. core deposits
    a stable & predictable base of deposited funds, usually supplied by households & smaller businesses, that is not highly sensitive to movements in market IR but tends to remain loyal to the depository institution; can be withdrawn immediately
  9. conditional pricing
    established minimum-size account balances & charging a lower or even 0 fee if the customer's deposit balance climbs above that required minimum but charging a higher fee if the average balance falls below the required minimum amount
  10. relationship pricing
    basing fees charged a customer on the # of services & the intensity of use of those services that the customer purchases; 2 or more = lower deposit fees or some fees waived; increases the customer's dependence on that institution & loyalty; less sensitive to prices posted on services offered by competing firms
  11. basic (lifeline) banking
    low-cost deposits & other services that are designed to meet the needs of customers of limited means; individuals should be entitled to a minimum level of financial services no matter their income level
  12. profit potential
    a motive for carrying out a merger, in which the shareholders of either the acquiring firm, the acquired firm, or both anticipate greater profits due to greater revenues or lower operating costs after the merger is completed; rise in stock price
  13. cash flow risk
    the danger that CF's may fluctuate widely due to economic conditions, service mix, & other factors; a merger may help to reduce this risk by combining organizations & service packages that have different CF patterns over time
  14. earnings risk
    the danger that earnings may fluctuate widely due to economic conditions, demand for services, mix of services offered, or other factors; a merger between 2 or more organizations may dampen this form of risk by bringing together different revenue sources with different CF patterns over time
  15. tax benefits
    ways to save on a potential tax obligation by investing in tax-exempt assets, incurring tax-deductible expenses, or accruing income losses that help offset taxable income from loans or other income sources
  16. market-positioning benefits
    a motive for conducting a merger between 2 or more firms, in which the firms involved anticipate gaining access to important new markets not previously served ( & at a reduced cost) or securing a stronger foothold in markets currently served
  17. cost savings (efficiency)
    a motivation for mergers that rests on the possibility that by combining 2 or more institutions together, overall operating expenses will be reduced, creating the possibility of a rise in NI for the combined (merged) institution; eliminate duplicate facilities, cut staff
  18. merger premium
    a bonus offered to the shareholders of a firm to be acquired, consisting of an amount of cash or stock in the acquiring institution that exceeds the current MV of the acquired firm's stock; can do this when the acquiring firm's P/E ratio is larger than the acquired firm's
  19. exchange ratio
    the # of shares of stock in the acquiring firm that stockholders of the acquired firm will receive for each share they hold
  20. dilution of earnings
    spreading a fixed amount of earnings over additional shares of stock so that the EPS flowing to existing (acquiring) stockholders decline, as in the case when a merger results in excessive shares being issued to the stockholders of the acquired firm; when the P/E ratio of the acquired firm is greater than that of the acquiring
  21. dilution of ownership
    the degree to which the proportionate share of ownership held by the current owners of a firm is reduced when additional equity shares are issued to new stockholders or to the shareholders of a firm that is being acquired; results from offering the acquired firm's shareholders an excessive # of new shares relative to the value of their old shares
  22. purchase-of-assets method
    a method for completing a merger in which the acquiring institution buys all or a portion of the assets of the acquired organization, using either cash or its own stock to pay for a purchase
  23. purchase-of-stock method
    a method for carrying out a merger in which the acquired firm usually ceases to exist because the acquired firm assumes all of its assets & liabilities
  24. Bank Merger Act of 1960
    law passed by the U.S. Congress that requires each merging bank to notify its principal regulatory agency of a pending merger & requests federal approval before the merger can be completed (national banks = Comptroller of Currency, insured state-chartered members of the FRS = the Fed, insured, state-charted nonmembers = FDIC)
  25. competitive effects
    the aspect of a merger or acquisition between 2 or more financial institutions that will have an impact on interfirm rivalry, either reducing or increasing competition in the markets served by the firms involved; under current federal law is the is most important factor federal regulatory agencies must weigh in deciding to approve or deny any proposals
  26. public benefits
    aspect of a merger or holding-company acquisition application in which merging or acquiring financial firms must show how the transaction will improve the quality, availability, or pricing of services offered to the public
  27. charter of incorporation
    a license to open & operate a bank or other business, issued either by the commission of the state where the firms is to be located or by the Comptroller of the Currency (for federally chartered banks) inside the U.S.
  28. branch offices
    full-service units operated by a business that's headquartered in another location; offering many, if not all, of the services available from the home office; most frequent mode of entry into new financial-service markets; much cheaper than charting new financial-service corporations
  29. branchless banking
    banking corporations that have no full-service branch offices but often deliver their services via electronic networks; carried out through limited-service facilities: point-of-sale (POS) terminals, ATMs, telephone banking, & internet-supplied services
Card Set
FIN 434 Final
Chapters 12, 19, and 14