| A | B |
|---|
| Asset Transformation | using deposits to generate revenue by putting deposits to wrk via loans |
| modern portfolio theory(MPT) | within and portfolio of investments, diversification should be used to spread out risk |
| adverse selection | concept that the borrowers who are most willing to accept a high interest rate are the same borrowers who are most likely to default on their loans |
| captive borrower | a consuemer with a weak credit history that can easily get a loan |
| moral hazard | when a borrower takes greater risks if they think the harm they will incur from those risks will somehow be minimalized |
| credit rationing | when banks refuse to provide a loan or when they lend less than the customer requested |
| installment loan | loan for which the amount of the payments, the rate of interest, and the number of payments are fixed. |
| personal loans | loans that dont require that a specific purpose be stated |
| secured loan | one in which some item of value backs the loan incase the borrower defaults on the loan |
| collateral | item that secures the loan |
| lien | a legal claim to the property to secure the debt |
| unsecured loan | a loan backed only by the reputation and creditworthiness of the borrower |
| grace period | an amount of time you have to pay the bill in full and avoid any finance charges |
| open-end loan | has a flexible amount |
| subprime rates | higher than normal to offset the increased risk represented by a less-than-perfect borrower |
| consumer reporting agency(CRA) | a company that compiles and keeps records on consumer payment habits and sells these reports to banks to calculate creditworthiness |
| FICO score | a 3 digit number that credit granters can use in making a loan approval decision |
| revolving credit | a line of credit that has a maximum limit |
| sum-of-digits method | takes the total finance charge, divides it by the number of months in the loan term and assigns a higher ratio of interest to the early payments |
| previous balance method | take amount owed at beginning and calculate interest from that |
| adjusted balance method | subtract payments made during the billing cycle |
| average daily balance method | balances for each day are added and divided by number of days in billing cycle to yield an average figure on which the finance charge is calculated |
| predatory lending | occurs when lenders create problems for consumers by making credit too easily available without regard to the borrowers ability to pay |
| liquidity risk | risk that a bank will have to sell its assets at a loss to meet its cash demands` |
| credit risk | the banks estmate of the probability that the borrower can and will repay a loan with interest as scheduled |
| market risk | risk that investment wuill decrease in price as market conditions can change |
