Banking and Securities
Chapter 8
©2007 Prentice Hall
8-1

Chapter 8 Objectives
After studying this chapter, you will be able to:
• Highlight the functions, characteristics, and common forms of money
• Discuss the responsibilities and insurance methods of the FDIC
• Discuss how industry deregulation and the repeal of the Glass-Steagall Act are affecting the banking industry
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Chapter 8 Objectives, cont.
• Highlight the distinguishing features of common stock, preferred stock, bonds and mutual funds
• Explain the advantages of index funds
• Discuss the importance of establishing investment objectives and identifying five factors to consider when making investment choices
• Explain how government regulation of securities trading tries to protect investors
8-3
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Characteristics of Money
Portable
Stable Medium of Exchange
Measure of Value
Divisible
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Store of Value
Durable
8-4

Forms of Money
• Currency
• Demand deposits
• Time deposits
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8-5

Checking and Savings
• NOW
• Passbook
• Money market
• CD
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8-6

Currency Alternatives
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Credit Cards
Debit Cards
Smart Cards
8-7

Deposit Nondeposit
 Commercial banks
 Savings and loans
 Mutual savings banks
 Credit unions
 Insurance companies
 Pension funds
 Finance companies
 Brokerage firms
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8-8

Financial Institution Services
• Loans
 Line of credit
• Electronic banking
 Mobile banking
• EFTS
 Direct deposit
• Online banking
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8-9

Bank Safety and Regulation
• Glass-Steagall Act
• FDIC
• Savings Association
Insurance Fund
• Bank Insurance Fund
• National Credit Union
Association
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8-10

Bank Safety and Regulation, cont.
• Office of the Comptroller of the Currency
• Office of Thrift Supervision
• Federal Reserve System
• SAR
• Patriot Act
8-11
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Evolving US Banking Industry
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8-12

Security Investments
Securities
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8-13

• Authorized stock
• Issued stock
• Unissued stock
• Stock split
• Par value
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Voting
Rights
Dividends
Limited
Liability
Liquidity
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• Convertible Preferred
Stock
• Cumulative Preferred
Stock
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Secured
Bonds
Debentures
Convertible
Bonds
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U.S. Government Securities and
Municipal Bonds
• Treasury Bills
• Treasury Notes
• Treasury Bonds
• U.S. Savings Bonds
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8-18

U.S. Government Securities and
Municipal Bonds
• Municipal Bonds
• General Obligation Bonds
• Revenue Bonds
• Capital Gains
8-19
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Mutual Funds
• No-load funds
• Load funds
• Open-end fund
• Closed-end fund
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8-20

Mutual Funds
• Money market
• Growth
• Balanced
• Income
• Sector
• Global
• International
• Index
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8-21

Primary
Initial Offerings
Secondary
Security Exchanges
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8-22

Trading Floor
Over-The-Counter
Market
New York Stock
Exchange
(NYSE)
National Association of Securities Dealers
(NASDAQ)
8-23
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Sample of Major Federal
Legislation Governing Securities
Insert Exhibit 8.2
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8-24

SEC Filing and Disclosure
Requirements
• EDGAR
 Full and fair disclosure
• Securities Fraud
 Phishing
8-25
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Establishing Investment
Objectives
• Income
• Growth
• Safety
• Liquidity
• Tax consequences
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8-26

Sound Investing
• Investment portfolio
• Asset allocation
• Diversification
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8-27

s
Market Order Stop Order
Limit Order
Day Order
Margin Trading
Open Order
Discretionary Order
Short Selling
8-28
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Analyzing Financial News
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8-29

Market Indexes and Averages
 Dow Jones Industrial Average (DJIA)
 Standard and Poor’s 500 (S&P 500)
 Wilshire 5000
 NASDAQ Composite Index
 Nikkei 225
 FT-SE 100
8-30
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Interpreting Financial News and
Ratios
Stock Exchange
Reports
Bond Quotation
Tables
Mutual Fund
Quotations
8-31
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