HACE 3100: Final Exam

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FTC: Federal Trade Commission	agency in rooting out fraud, violations of consumers’ privacy, and deceptive marketing practices in the emerging point and click marketplace. it was established in 1914
USDA	The U.S department of agriculture, established in 1862. The Supplemental Nutrition Assistance Program (formerly Food Stamps) is within the jurisdiction of this agency/department. All domestic and imported meat and poultry including products containing these foods (frozen pizza, etc) also …
Thomas Vilsack	current secretary of agriculture and overseas the USDA
SEC: Securities and Exchange Commission	its primary mission is to protect investors and maintain the integrity of the securities markets. Created by the Securities Exchange Act of 1934 to administer that act and the Securities Act of 1933.
DOJ: Department of Justice	the mission of DOJ is to enforce the law and defend the interests of the US based on the law, to provide federal leadership in preventing and controlling crime, to seek just punishment for those guilty of unlawful behavior etc. Est. in 1862
CDC: Centers for Disease Control and Prevention	Overseas all foods, food borne diseases, trains local and state food personnel. Its main goal is to protect public health and safety through the control and prevention of disease, injury, and disability
FAA: Federal Aviation Agency	Its mission is to provide the safest, most efficient aerospace systems in the world. Air commerce act of 1926 was the governments cornerstone of civil regulation.
FDA	regulates all domestic and imported food (except meat and poultry), bottled water, and wine (<7% alcohol). Charged with ensuring that processed foods, drugs, medical devices, and cosmetics are safe and properly labeled: that foods are wholesome and drugs are effective
CPSC: COnsumer Product Safety Commission	1972: To protect consumers against injuries and deaths associated with consumer products: (toys, baby and sports equipment, coffee makers, and lawn mowers). Provides information to consumers on what safety features to look for in products and lists product recalls.
CCC: Civilian Conservation Corps	a public relief program that operated from 1933-1942 in the US for unemployed, unmarried men from relief families, ages 18-25 as part of Roosevelt's New Deal. Robert Fechner was the head of the agency. Designed to provide jobs for young men, to relieve families who had difficulty finding …
Teddy Roosevelt	outraged by The Jungle; in 1906 signed Pure Food and Drug Act and Meat Inspection
FDR	inspired by Keynes, signed fair labor standards act in '38
Rachel Carson	"Silent Springs" about DDT and effects on environment
Greenspan	first appointed Federal Reserve chairman by President Reagan. He states, "authorities should not interfere with pollinating bees of Wall Street. Regulation is harmful."
Carter	called for conservation and reduction of energy consumption. he was personally interested in solar power and other environmental technologies and appointed numerous strong consumer advocates to government posts, including Esther Peterson as special assistant for consumer affairs. Because …
Reagan	1981-89, renewed look at consumer protection in this country. Agencies were recognized and became less powerful. Was an advocate of supply-side economics and mostly took the view that the market should regulate itself (aka less govt intervention). He thought his predecessors were overzeal…
Reagan (continued)	Supported a corporate thrust behind consumer education (as opposed to more legislation), and consumers were encouraged to use the laws already on the books. Some consumer legislation was passed during the Reagan term.
Ralph Nader	author of "Unsafe at any speed" which detailed his claims of resistance by car manufacturers to the introduction of safety features.
Upton Sinclair	a muckracker, author of "the jungle" which was a fictional expose of the working conditions of Chicago meat packing houses, the book nauseated readers.
Adam Smith	1776 - the author of "An inquiry into the nature and causes of the wealth of Nations" states that "consumers act in their own self interest and markets work with the invisible hand", the founder of modern economics.
Keynes	believed in government intervention in economy
supply	all things equal, the quantity supplied depends of the price. If the price of a good is increasing, then the quantity of the supply increases, and vice versa
demand	all things equal, the quantity demanded depends on the price. If the price of a good is increasing, then the quantity demanded decreases, and vice versa
inflation	prices of goods increase (too much money in economy)
deflation	prices of goods decrease
__ in 12 dollars flowing in the US economy is connected to the insurance industry	1
what is the purpose of insurance?	to provide protection against a financial loss due to factors associated with risk. Ex) car insurance, home owners insurance, health insurance
Criteria for something to be insurable:	a probability of risk can be established (odds) a financial loss can be determined (dollar amount) the event will not affect everyone insured- explains why natural disasters are often not covered by private insurance companies
policies	are contracts with an insurance provider
Premiums	are payments consumers make
exclusions	are items not covered
deductibles	are amounts policy holders pay before insurance pays
Exposures	are sources of risk
Perils	are events that cause a financial loss
Auto Insurance: Liability	bodily injury liability protection - pays for damage you cause to someone else property damage liability protection personal injury liability protection Don't have to have your vehicle covered, but have to have liability coverage in case something else
Auto insurance: collision	covers if your vehicle collides with another vehicle, flips over, crashed into a object, regardless of who caused the crash
Auto Insurance: Comprehensive	losses from incidents other than collisions such as fire, theft, hail, flood
Uninsured motorist	coverage pays for bodily injury for you and your passengers if the driver causing the accident has no liability coverage and underinsured
medical payments	covers medical expenses for accidental injury up to the policy limit
towing insurance	covers the cost of providing road service
rental car insurance	covers the cost of renting a car while your car is being repaired, within the limits of the policy
credit insurance	protects a loan or mortgage in the event that a person cannot make his payments. A lender may demand it when you take out a mortgage, but this must be explained to you according to FTC regulations
Credit card insurance	pays for charges if you lose or your credit card is stolen or you can't work due to unemployment, illness, etc. not a good idea, expensive and they seldom protect you
homeowner's insurance	helps pay to repair or rebuild your home and personal possession due to theft, fire, storm, etc.
property insurance	pays for losses to homes and personal property
liability insurance	pays for losses from negligence resulting in bodily injury or property damage to other for which the policyholder is responsible
renter's/tenant's insurance	if you are renting, you should compare policies that will protect your personal possessions. These may not be covered by the insurance the landlord has on the property.
__ million americans do not have health insurance	47 million
US has nationalized health insurance for _____ and for _____	elderly (Medicare) very poor (Medicaid)
disability income insurance	pays benefits to policyholders when they are unable to work
Clark HOward	consumer advocate who has a radio consumer call-in show syndicated in over 140 cities in the US, says that "Workman's compensation only covers an employee if he becomes disabled from an injury or illness received while on the job
life insurance	purpose is to replace lost income for anyone who depends on you for financial support- if you have no one dependent on you, you may not need life insurance. Parents with young children generally have the most need for life insurance
Term insurance	is more economical than other types because it provides protection only certain period of time; when it expires can take out another policy - provides more protection for the money
whole life insurance	provides a savings or investment component, may not be as beneficial as a separate investment account
long term care insurance	provides benefits for nursing home care or in-home care not covered by medicare
Consumers have the right to ___ and to complain if there are problems	choose and receive good insurance
Consumers are responsible for:	bring wise consumers shopping for good policies keeping policies updated understanding their policies keeping good insurance records
Fraud and scams	many insurance scams, fall prey to promises of large returns on their money or to stories to how they will suffer if they don't have insurance
insurance is regulated at the ___ level	state
Each state has an ___ ___	insurance commissioner
___ of americans own stocks through mutual funds and retirement plans	1/2
Purposes and Principles of Investing	Purpose of investing is to build and maintain wealth many consumers have investments through retirement plans- consumers should have additional investment accounts
Investing	putting your money into an asset that generates a return (ex. stock, bond, mutual fund)
speculating	putting your money into an asset that the future value, or return, relies on supply and demand ( ex. baseball cards, collectors items)
risk	probability of loss
return	amount earned on an investment
Highest rate of return =	highest risk
systematic risk	associated with all securities and cannot be reduced through diversification
nonsystematicrisk	risks associated with one particular investment and can be reduced through diversification
diversification	refers to the number of different types of securities owned
diversificationreduces risk	TRUE
capital gain/losses	your investment goes up or down
income from bonds	you receive interest
income from stocks	you receive dividends
Equities	ownership in a company, share in company profits
bonds	promise to repay debt, various terms to maturity, government and corporate
money market	federal government debt, short terms, less than 1 year
Mutual fund	groups of investments where consumers buy into the fund which in turn invests in many different types of stocks or bonds. The consumer can sell shares of the mutual fund and obtain money easily, though there may be a fee to pay
nominal (quoted) rate	the rate of return without adjusting for inflation
real rate	the inflation adjusted rate of return
premiums	additional returns demanded by investors for taking on additional risk
"The most powerful force in the universe is compound interest"	Albert Einstein
Real Estate	investments in real estate or Real Estate INvestment Trusts (REITs) are investments in land alone or in improved land (land with apartments, houses, or other building upon land)
dividends	distributions of money from companies or government to investors
diversity	spreading money among several different kinds of investments
portfolio	one's set of investment holdings
Pyramid Schemes	require money investments and are outlawed in most states
Ponzi Scheme	kind of pyramid scheme promising high returns in a short period of time- early investors are paid with money received from later investors. later investors are getting nothing
National Consumers League manages:	a national consumer fraud website
The Law of Demand	all other things being equal, quantity demanded depends on price. If price increases, demand decreases
The Law of Supply	quantity supplied depends of price. if price increases, supply increases
equilibrium price	price at which supply is equal to demand
Caveat Emptor	"Let the buyer beware"
Free Market	an economic system in which individuals, rather than government, make the majority of decisions regarding economic activities and transactions
market failure	where markets do not efficiently organize production or allocate goods and services to consumers
imperfect competition =	monopolies
price discriminationbased on	age, race, gender
imperfect information is:	when the seller knows more than the buyer
inequality	usually used among individuals, but can also be used among countries refers to inequality of outcome and is related to the idea of equality of opportunity
market failure leads to:	government intervention sometimes in the form of Government Protection
Consumer Protection Laws	Federal and state statutes and regulations that promote product safety and prohibit abusive, unfair, and deceptive practices
Regulation	an attempt by the government to control the workings of the marketplace - ex) smoking and drinking laws
Deregulation	removes or reduces government intervention - the idea behind this is that competition in any industry will drive down the prices and create a more efficient market
Example of deregulation	CA became the first state to deregulate its $23 billion electric utility industry in 1996, it promised to deliver cheaper rates to consumers by ending monopolistic holds over the energy markets and increasing competition
Federal Food and Drug Act	1906, preventing the manufacture, sale, or transportation of adulterated, misbranded, poisonous, or deleterious foods, drugs, medicines, and liquors and for regulating traffic therein, and for other purposes
Food, Drug, and COsmetic Act	1938, by FDR. passed in wake of a therapeutic disaster. A TN drug company marketed a new form of the new sulfa wonder drug that would appeal to pediatric patients, ELIXER SULFANILAMIDE. it was highly toxic
FDA is empowered to:	regulate food, food additives, drugs, cosmetics, and medicinal devices.
Federal Regulatory Agencies	independent of each other and allegedly the government to some degree funds from congress or administration
Economic Regulations	regulate the price, entry, exit, and service of an industry ex) gasoline, long distant telephone prices
Social Regulations	address health, safety, employment fairness, environmental quality, and other non-economic questions ex) job discrimination, clean air acts
FDA	See that foods, drugs, and cosmetics are safe for consumers 1906 oldest consumer protection agency in the nation
Consumer Product Safety Commission	Ensure the safety of products not covered elsewhere est 1972-73 protect public against injuries from products assist consumers in evaluating safety of products promote research and investigations into causes and prevention of product-related death
Federal Communications Commission	an independent US govt agency directly responsible to Congress Est by Communications Act of 1934 and is charged with regulating interstate and international communications by radio, TV, wire, satellite, and cable
Federal Trade Commission	created in 1914 to prevent unfair method of competition in commerce 1938- included unfair or deceptive practices, advertising 19750 Magunson-Moss warranty Act - requires manufacturers and sellers of consumer products to provide consumers with detailed info about warranty coverage…
National Highway Traffic Safety Administration	1967 - develops minimum performance standards for motor vehicles, including bicycles and buses
Federal Consumer Information Center	Part of the General Services Administration Develops, promotes, and distributes useful information
Federal Deposit Insurance Corporation	independent agency created by congress that maintains the stability and public confidence in the nation's financial system by insuring deposits, examining and supervising financial institutions, and managing receiverships.
SEC - Securities and Exchange Commission	1934 - protect investors and maintain integrity of the securities market - watches for fraud and deception; require companies to disclose information.
EPA - Environmental Protection Agency	1970 - protect human health and environment, works for cleaner, healthier environment for the American people. led by the Administrator - appt by POTUS Earth Day - 1st in 1970
Federal Aviation Agency	provide the safest, most efficient aerospace system in the world Air Commerce Act of May, 20 1926 - cornerstone of the Fed. govt's regulation of civil aviation
US Department of Agriculture	1862 responsible for the safety of meat, poultry, and egg products oversees programs like food stamps and school lunches TOM VILSACK - current secretary from Iowa, Former Governer of Iowa
Department of Justice	est 1862 works with the FTC in enforcing Sherman Anti-trust law approves mergers, stops price fixing, stops monopolies
mergers	when 2 or more companies combine into a single company
horizontal merger	similar companies merge like Pepsi and Coke
Vertical merger	companies dependent on each other - top down approach of acquiring the steps within the process for a chain of companies
market extension merger	A market extension merger takes place between two companies that deal in the same products but in separate markets. The main purpose of the market extension merger is to make sure that the merging companies can get access to a bigger market and that ensures a bigger client base.
product extension merger	A product extension merger takes place between two business organizations that deal in products that are related to each other and operate in the same market. The product extension merger allows the merging companies to group together their products and get access to a bigger set of consu…
State Government Protection	protect consumers with respect to businesses that operate in only one state enforce little FTC Acts
COnsumer Protection in most states is through:	Attorney General's Office, but some have Offices of Consumer Affairs
Injurious Consumption	occurs when individuals or groups make consumption decisions that have negative consequences that cause injury to themselves or others, ex) alcohol, smoking
special interest groups	those determined to encourage or prevent changes in public policy without trying to be elected
lobbyists	work for special interest groups must be adept at the art of persuasion. Figure out how to sway politicians to vote on legislation in the way that favors the interest they represent
Special Interests: Dietary Supplements	1993- FDA wanted to add regulations Health Food Stores lobbied Congress 1994- passed Dietary Supplement and Health Education Act - which exempted dietary supplements from most regulation
Society of COnsumer Affairs Professionals International (SOCAP)	organization of people who work in business in the area of consumer affairs and customer service 1974
consumer union	a private organization which does product testing and publishes consumer reports
The national consumers league is the ____ consumer organization and is often the voice of consumers in the media	oldest
low labeling	manufacturers label products in order to avoid paying for consumer dissatisfaction ex) dry clean only - isn't companies fault if they wash it and it shrinks
Basics of Decision Making Process	need recognition information search evaluation of alternatives purchase decision purchase evaluation
underutilization	a consumer uses a product but only a small fraction of the extent to which they intended to use it Reasons: impulsiveness, sale items, functional problems, self consciousness, loss of interest, lifestyle changes
bounded rationality	we have a limited capacity for processing information We make constructive choices, based on info at hand
Service contracts	extended warranties they are NOT warranties repair insurance, bad deal for consumer, people often lose them or forget they have them, usage rate is lower than breakdown rate.
Cross selling	if you return an item, you don't get your money back but you can buy a new/different item from that company
The viral effect	consumers who complain in volume on the internet
rollover	dangerous because of the centripetal force
T-bone	cars are more vulnerable to side impact collisions because of the smaller crumple zone
head on	many advances have been made in this area
off center	creates an asymmetric force on the car causing a loss of control
our biggest export to china:	trash
Roles of Banks in the economy	facilitate borrowing and lending facilitate payments risk management
banks include:	commercial banks Savings and Loan Associations (S&L's) credit unions
bank holding company	firm that owns one or more banking firms
Modern commercial banking industry began with what?	Bank of North America - Philadelphia in 1782
National Bank Act	1863- establishes national banks and Office of the Comptroller of the Currency
Federal Reserve Act	1913, creates Federal Reserve System
Banking Act (Glass-Steagall)	1933, creates FDIC and separates banking and securities industries. Allowed commercial banks to sell on the run govt securities, but prohibited underwriting and brokerage services. Prohibited real estate and insurance business.
Multiple Regulatory Agencies	Federal Reserve FDIC Office of the Comptroller of the Currency State Banking Authorities
Savings	provide a safety net and are also helpful for putting together money for future needs such as a down payment on a house.
emergency fund	three to six months of salary set aside as savings is recommended as a financial goal. Should be kept in a liquid interest-bearing account such as a money market fund, short-term certificates of deposit (CDs), or a savings account.
CD's	maturity of at least 7 days, with penalties on early withdrawals. a type of time deposit, usually safe ways to store money from 7 days to several years.
E-Money	electric money, or stored cash, only exists in electric form. Accessed via a stored value card or a smart card. E-Cash refers to an account on the internet used to make purchases.
Financial Planner	looks at a person's or a family's total financial picture, helps that person or family define and prioritize goals, then works out a plan to achieve those goals.
Certified Divorce Planner	trained to focus on who gets the assets in divorces help divvy ip retirement accounts and stock options, divide up businesses, calculate alimony payments, and decide who keeps houses
Collateral	property used to secure the loan
Lien	Legal rights to take and hold property if the person does not pay the debt.
Interest	cost of using money rate is determined by supply and demand expressed as percentages.
Banks must be regulated because:	a bank failure can be devastating to depositors there's a risk of systematic failure (failure of one bank can make it more likely that others will fail) govt assistance to a bank can be very costly
bank debts tend to be ____	short term
Ways Govt regulates banks:	Federal deposit insurance imposing capital requirements imposing reserve requirements restricting the types of assets that banks may hold performing bank examinations
Primary Bank Regulators:	Office of the Comptroller of the Currency (OCC) - dept of treasury Federal Reserve System FDIC State bank regulators
FDIC	created after bank failures in Great Depression in 1933
Deposit insurance ___ the supply of deposits from consumers	increases
Deposit insurance ___ banks incentives to avoid risks	reduces
Reserve Requirements	The Federal Reserve System requires banks to hold reserves that are greater than or equal to a specified percentage of their deposits
Bank Examinations:CAMELS	Capital adequacy Asset quality Management Earnings Liquidity Sensitivity to market risk 1 - high 5 - low, bad - there is a high prob of failure
Truth in Lending Act	requires financial institution to reveal annual percentage yield/rate, fees charged, info about the loan balance, payment due, total amount charged
FDIC	govt insurance of banks or savings and loan accounts up to $250,000 per depositor per bank
Bank Crisis 1930s	banks loaned out more money than they had coming in created inherent fragility confidence disappeared
Two Reasons for Bank Crisis 1930s:	the value of bank assets/investments/holdings falls, so assets< liabilities Deposit outflow: large number of depositors withdrew their funds form the bank, exhausting baks cash and other liquid assets
During Great Depressing unemployment soared to nearly ___% in 1933	25%
the unemployment rate was ___% or more every year from 1931-39	14%
Bank collapse and Great Depression=	central bank as lender of last resort deposit insurance separation of commercial banking and investment banking (Glass-Steagall Act 1933)
Moral Hazard	agents who are insured will tend to take fewer precautions to avoid the risk they are insured against the insurance provided by central bank and govts gave bankers strong incentives to take more risks to counter this: authorities have to supervise and regulate
Banking Crisis of 1980's	late 1970's banks grew fast, with lots of loans to businesses (poor quality loans, too many loans to risky firms) High cost of funds (large share of funds borrowed from other banks)
what happened with 1980s bank crisis?	100's of savings and loan associations and banks failed in 1980's and 90's
1980;s bank crisis illustrated:	how changes in the market environment and a loosening of regulations can lead to a bank crisis how regulations and supervisory standards must be improved to address new problems
From 1980 to 1994, over ___ banks and S&Ls failed	2,900
On average a bank or S&L failed every __ days from 1980-94	15
About __ out of 6 banks or S&Ls was closed or received govt assistance	1
Causes of 1980s crisis	changes in market of environment looser regulations that gave S&Ls more competitive options
1980's Crisis: Changes in Market Environment	banks and S&Ls faced more competition from other financial firms (such as mutual funds) new kinds of financial assets made it possible for investors to take on more risk
1980s crisis: Changes in Regulation	banking industry was partially deregulated in early 1980's S&Ls had mostly been restricted to home mortgage lending before, nut now they were allowed to invest in commercial real estate and stocks
by 1984 bank;s nonperformingloans rose to ___ billion	$5.2 billion
May 1984	an electric bank run - depositors withdrew billions of dollars in deposits
Resolution Trust Corporation	1989 - handle failing S&Ls took over assets and sold them to recover as much value as possible issued bonds to fund the costs of convering S&L losses
WHo paid the cost of 1980s crisis?	bank and S&L stockholders some depositors w/ deposits that exceeded deposit insurance limits taxpayers, will pay higher taxes to pay off bonds that were issued to fund costs of crisis
Alan Greenspan	former federal reserve chairman "authorities should not interfere with pollinating bees of Wall Street. Regulation is harmful"
Erosion of Glass-Steagall	Fed, OCC< FDIC allowed banks to engage in underwriting activities, under the Section 20 loophole in the act
Gramm- Leach- Bliley Act of 1999	legislation to eliminate Glass Steagall states retain insurance regulation, while SEC oversees securities activities Fed still oversees banks holding companies
Securitization	refers to the transformation of illiquid assets into market instruments (MBS) deregulation of banks allowed this
housing price increase during 2000-2005, followed by ____ and ____	leveling off, price decline
Increase in default and foreclosure rates beginning in second half of ____	2006
collapse of major investment banks in ___	2008
Collapse of stock prices in ___	2008
Share of mortgages held by Fannie Mae and Freddie Mac rose from 25% in 1990 to __% in 2001	45%
What caused crisis of 2008?	govt regulations began to erode the conventional lending standards fed's manipulation of interest rates during 2002-06 doubling of debt/income ratio of households since mid 1980's
Debt to income ratio increased to ___% by 2007	135% (was b/w 45 and 60% prior to 1980's)
around ___ commercial banks currently exist in US	7,500
largest US banks:	JPMogan Chase Co Bank of America CitiGroup wells fargo Bank of New York Mellon COrp
COmplementarity	when one bank fails, other banks are in toruble
substitutability	like with auto companies when one firm fails, this is good news for others
rate of return	(ending value- beginning value) +income ___________________ beginning value


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HACE 3100: Final Exam

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