Archive for the ‘Level 1’ Category

Why is it good to have a credit history?

Wednesday, October 14th, 2009

When you’re hiring someone for a job, the best choice is probably a person who has a reputation for doing similar jobs well in the past. Although someone without any established reputation is better than someone with a bad reputation, he’s still something of a gamble – you have no special reason to think he won’t perform the job well, but no reason to believe he will, either.

Credit history follows the same principle. It’s basically a record of how you’ve used credit in the past. How much do you owe right now? Have you made your credit payments on time? Have you had any financial problems? In credit as in anything else, a long history of good behavior is a great asset because it inspires trust. For example, a bank may be more inclined to let you take out a loan if you have an excellent credit history; if you’ve repaid your debts in a timely manner in the past, odds are you’ll deal with their loan in the same way.

Microfinance is…

Thursday, October 8th, 2009

Microfinance is a range of financial services targeted at people “at the bottom of the pyramid” who don’t have access to regular financial products like credit, savings and insurance. When people talk about microfinance, they are often referring to inreasingly popular “microloans.”

An Investment Bank is…

Thursday, October 8th, 2009

An investment bank is an institution that serves as an agent for corporations that are issuing securities. Investment banks do not accept deposits or offer loans like regular banks. Instead, they tend to help with mergers and acquisitions, corporate restructuring or companies that are going public.

A Debit Card is…

Thursday, October 8th, 2009

A debit card (a.k.a. bank card) is a plastic substitute for cash. It’s linked to your bank account and when you use it to buy something, the money is immediately taken out of that account.

Is it worth it to buy a gift for Mom at the airport duty-free shop?

Thursday, October 8th, 2009

The quick answer is that it depends, but probably yes. As the name implies, a duty free shop has no ‘duty’ — or local import tax — on the goods that it sells. By buying something at Heathrow Airport in London, for instance, you don’t have to pay the import tax that the UK slaps on foreign goods (such as Russian vodka) and that a local store in London would include in its price for the same goods.

Because of this, goods at duty-free stores are generally cheaper than if you were to purchase them with the import tax inside the country. However, there are two reasons to be a little cautious: The first is that according to U.S. law, if you buy more than $800 worth of items purchased abroad (duty-free or not), then you will have to pay the import tax.  The second is that sometimes, depending on geography and exchange rates, an item may just be more expensive at duty free stores.

Basically, if you know the price of your mom’s favorite perfume at Macy’s and see it cheaper at the duty-free shop (and you dont plan on buying more than $800 of it), chances are it’s a good deal.

How do you decide whether to give anonymously?

Thursday, October 8th, 2009

Ultimately, there is no correct answer to whether or not you should attach your name to your donations – it’s entirely a personal choice. However, there are valid arguments for either option.

People who want their donations to bear their names often want the recognition that comes with giving, but sometimes there’s a deeper motive. By making your donation public knowledge, you’re setting an example for others – saying, in effect, that this is a worthy cause to which your peers can and ought to donate. To some people, giving anonymously can feel like they’re somehow ashamed of their donation or that they don’t want to own up to it. Public donors want to give the exact opposite impression.

People who do decide to give anonymously often believe they are being more genuinely altruistic by doing so. If they give privately, they get no recognition for giving, and some people think this makes their motives more pure. In addition, some people who want to give outside their own foundation or organization choose to donate to other causes anonymously, basically in order to avoid the question, “If your organization is so great, why are you giving to another one, instead of sending all you can spare to your own cause?” (The answer, of course, is that there are always multiple causes worthy of attention, and you can’t necessarily be involved on an administrative level in all of them.) Since you’re already doing good by giving in the first place, choosing whether to be anonymous or not is basically a win-win situation – just pick whatever option, in your opinion, makes a good thing even better.

Why does the NYSE opening bell ring at 9:30?

Thursday, October 8th, 2009

The opening bell for the New York Stock Exchange (NYSE) has rung at 9:30am since 1985 when it was changed from 10:00am. The bell starts the daily trading session, which is the time in which all stocks are bought and sold on the trading floor. Until relatively recently, the technology to trade stocks from outside the trading floor didn’t even exist, so the trading session was really the only time when trading took place.

Now trading can be done at all hours from anywhere on the planet – even from your cell phone. However, the majority of trading is still done during the trading session. The board of the NYSE has discussed several times making the bell earlier to extend normal trading hours, but the hours haven’t changed for over 20 years.

What do you do if someone gives you insider information?

Wednesday, October 7th, 2009

When someone has privileged or sensitive non-public information about a company that could affect its share price once the information becomes public, they can use that information to either buy or sell stock at the expense of the people they sell to or buy from who don’t have this information. This is called insider trading and it’s illegal. Let’s say you work at a company and know that the company just lost a ton of money, even though the public thinks the company is doing great. If you sell  your stock to the unwitting public, that’s insider trading.

But what if you are just given the information and aren’t actually an “insider” at the company? This is often called “tipping,” and it’s still illegal for you to trade based on that privileged information because the effect is the same – if people think that it’s not safe to invest because they are going to be taken advantage of by sneaky insiders and their friends, they won’t buy stock, and that’s bad for everyone.

An Investment is…

Wednesday, October 7th, 2009

An investment is something you buy in the hopes of making money on it, like stocks, bonds, real estate, etc..

A Trust is…

Wednesday, October 7th, 2009

A trust is a legal structure set up by one person (the trustor) for another person (the beneficiary) to use in the future. It is managed by a person or institution (the trustee). For example, a father might set aside money in a trust for his 16-year old son to inherit when he turns 18.