Notes

Business Midterm Notes

Chapter 18

Types of Credit
Trade Credit: Company receives goods from a supplier and pays for them later
Loan Credit: Borrow money for a special purpose and pay back in installments
Sales Credit: Charge a purchase at the time you buy it (charge accounts and credit cards


Charge Accounts (Go under sales credits)
Regular Accounts: Make full payment within a stated period (usually 25-30 days), used for everyday purchases, and may have a limit, usually for service providers (ex dentist)
Budget Accounts: Make payments of a fixed amount over several months (pay for same amount every month for AC over the year for example), usually found with stores and utility companies
Revolving Accounts: Most popular form of sales credit, you only have to pay off some of the debt, there is a credit limit, finance charge is owed if full amount isn’t paid (includes interest and other charges)

Credit Cards
Bank Cards (Revolving): Visa and Mastercard for example, processing is done through Independent Sales Organizations, banks take on responsibility of granting credit rather than business
Charge Cards: American Express and Diners Club are examples, high yearly membership fee, no credit limit, pay full balance every month, provide detailed records
Affinity Cards: Organizations (like sports team or charity) co-brand with banks to receive small percentage of credit sales
Retail Store Cards: Stores (like Target) offer credit cards that can only be used in store

Installment Loans
Monthly payments over period of time
Promissory note- Written promise to repay based on debtor’s credit history, includes principal, time, maturity date, payee, interest date, maker

Simple Interest: I=PRT

Three Cs of Credit
Character: Honesty and willingness to pay bill when it is due
Capacity: Person’s ability to pay a debt when it is due
Capital: Value of borrower’s possessions

Credit bureau or a credit reporting agency: Collects credit info on various credit users to sell to businesses offering credit

Clearing house: Checks and bills from member banks are exchanged

Credit Acts
Truth in Lending Act of 1968- The lender has to clearly state the finance charge and APR and consumers are protected against unauthorized use of credit cards
Equal Credit Opportunity Act- Prohibits creditors from denying credit based on age, sex, race, marital status, etc
Fair Credit Billing Act: Requires prompt correction of billing mistakes
Fair Credit Reporting Act: Consumers are required to be informed of what info of theirs is going to credit bureaus
Consumer Credit Reporting Reform Act: Credit reporting agency must prove that disputed data is correct, not you, and you can sue if info isn’t correct
Fair Debt Collection Practices Act: Debt collectors must treat you fairly and reasonably


Chapter 19

Saving is storage of money for future use while investing is using your savings to earn more money.

Commodities: Includes grain, livestock, and precious metals, is a speculative investment and involves a futures contract

Real property is the real estate and anything attached to it, while personal property is anything movable that is subject to ownership.

Equity: Difference between the price at which you could currently sell your house and the amount owed on mortgage

A real estate agent is a person who is licensed to help with the buying and selling of a house while an appraiser is trained to estimates the value of the property and gives an official report on the value and condition of the property.

Mortgage: A long-term (15-30 yrs) loan that require monthly payments and the payments include portion of principal, interest, insurance and property taxes, and down payment reduces the loan amount

Diversification- Spreading your investments around and having variation in your investments

Types of Mutual Funds
Small-cap: Volatile, small companies
Mid-cap
Large-cap: Steady, big companies
International

Single stocks and day trading are very risky.

Point of investing: To beat inflation

Stock Exchanges: Business organizations that accommodate the buying and selling of securities (example New York Stock Exchange)

Bonds: Certificate representing a promise to pay a definite amount of money at a stated interest rate on a specific date

Municipal bonds: State and local bonds used for public services

Securities
Liquidity
Yield