Global Financial Services

1. Budgeting

Definition: Creating a plan for how to spend your money.

Purpose:
- Track income and expenses.
- Identify areas to save.
- Achieve financial goals (e.g., buying a house, retirement).
- Avoid debt.

Key Steps:
1. Calculate Income: Know your net income (after taxes).
2. Track Expenses: Use budgeting apps, spreadsheets, or notebooks.
3. Create a Plan: Allocate money to different categories (housing, food, transportation, etc.).
4. Review and Adjust: Regularly compare your plan to actual spending and make changes.

Common Budgeting Methods:
- 50/30/20 Rule: 50% for needs, 30% for wants, 20% for savings/debt repayment.
- Zero-Based Budget: Every dollar is assigned a purpose.

2. Borrowing

Definition: Obtaining money with the agreement to pay it back, usually with interest.

Types of Borrowing:
- Loans: (e.g., personal loans, mortgages, student loans) Fixed amount, fixed repayment schedule.
- Credit Cards: Revolving credit, flexible repayment options (but high interest if not paid in full).
- Lines of Credit: Flexible borrowing amount, interest charged on what's used.

Key Considerations Before Borrowing:
- Need vs. Want: Is it essential?
- Affordability: Can you comfortably make the repayments?
- Interest Rate: Compare rates from different lenders.
- Loan Terms: Length of the loan impacts repayment amount and total interest paid.
- Credit Score Impact: Borrowing and repayment history affects your credit score.

3. Protection (Insurance)

Definition: Transferring risk of financial loss to an insurance company.

Types of Insurance:
- Life Insurance: Provides financial support to beneficiaries upon death.
- Health Insurance: Covers medical expenses.
- Homeowner's/Renter's Insurance: Protects your home and possessions.
- Auto Insurance: Covers vehicle damage and liability.
- Disability Insurance: Replaces income if you become disabled.

Importance:
- Provides financial security in unexpected events.
- Avoids wiping out savings due to large expenses.

Key Considerations:
- Coverage Amount: How much protection do you need?
- Deductible: Amount you pay out-of-pocket before insurance covers the rest.
- Premiums: Cost of the insurance policy.

4. Critical Illness Insurance Cover

Definition: Insurance that pays a lump sum if you are diagnosed with a specified critical illness (e.g., cancer, heart attack, stroke).

Purpose:
- Cover medical expenses not covered by health insurance.
- Replace lost income.
- Pay for lifestyle changes or care needs.

Key Considerations:
- Covered Illnesses: Understand which illnesses are included.
- Waiting Period: Time before coverage begins.
- Benefit Amount: How much lump sum will be paid?
- Survival Period: Must survive a certain period after diagnosis to receive benefit.

Benefits vs. Life Insurance:
- Critical Illness: Pays out while you are alive, to help with expenses related to the illness.
- Life Insurance: Pays out after death, to provide for beneficiaries.

5. Investment and Saving

Definition: Setting aside money for future use and/or growing your wealth.

Saving: Typically short-term goals, low-risk, easily accessible (e.g., savings accounts, CDs).

Investment: Typically long-term goals, higher risk, potential for higher returns (e.g., stocks, bonds, real estate).

Key Principles:
- Time Value of Money: Money today is worth more than money in the future due to potential earnings.
- Compounding: Earning returns on your initial investment and accumulated interest.
- Diversification: Spreading investments across different asset classes to reduce risk.
- Risk Tolerance: Understanding your comfort level with potential losses.

Investment Options:
- Stocks: Ownership shares in a company (higher risk, higher potential return).
- Bonds: Lending money to a government or corporation (lower risk, lower potential return).
- Mutual Funds: Pools money from many investors to invest in a diversified portfolio.
- Exchange-Traded Funds (ETFs): Similar to mutual funds, but trade on stock exchanges.
- Real Estate: Buying property (potential for appreciation and rental income).

Retirement Savings:
- Employer-Sponsored Plans: 401(k), 403(b).
- Individual Retirement Accounts (IRAs): Traditional IRA (tax-deductible contributions), Roth IRA (tax-free withdrawals).

6. Legal Concepts in Financial Advice

Fiduciary Duty: Financial advisors must act in the best interest of their clients.

Suitability Standard: Recommendations must be suitable for the client's financial situation.

Disclosure Requirements: Advisors must disclose fees, conflicts of interest, and other relevant information.

Privacy: Protecting client's financial information.

Contract Law: Understanding agreements between advisors and clients.

Estate Planning:
- Wills: Legal document outlining how assets are distributed after death.
- Trusts: Legal arrangement where assets are held and managed by a trustee for beneficiaries.
- Power of Attorney: Authorizing someone to make financial or medical decisions on your behalf.

7. The Financial Advice Process

Gather Client Information:
- Financial goals, risk tolerance, time horizon, current financial situation.

Analyze Information:
- Assess assets, liabilities, income, expenses.

Develop Recommendations:
- Create a financial plan tailored to the client's needs and goals.

Implement Plan:
- Help the client execute the plan (e.g., open accounts, purchase investments).

Monitor and Review:
- Regularly track progress and make adjustments as needed.
- Review with the client at least annually.

8. Other Financial Services

Wealth Management: Comprehensive financial planning and investment management for high-net-worth individuals.

Portfolio Management: Professional management of investment portfolios to achieve specific goals.

Brokerage Services: Facilitating the buying and selling of securities for clients.

Credit Rating: Evaluation of a borrower's creditworthiness.

Investment Banking: Raising capital for companies through the issuance of securities.

Factoring: Purchasing a company's accounts receivable at a discount.

Depositories: Institutions that hold securities for safekeeping and facilitate electronic transfers.

9. Credit Rating

Definition: An evaluation of a borrower's ability to repay debt.

Purpose:
- Lenders use credit ratings to assess risk and determine interest rates.
- Investors use credit ratings to evaluate the creditworthiness of bonds.

Factors Considered:
- Payment history
- Outstanding debt
- Length of credit history
- Types of credit used
- New credit inquiries

Credit Score Ranges:
- Excellent: 750+
- Good: 700-749
- Fair: 650-699
- Poor: Below 650

Major Credit Rating Agencies:
- Equifax, Experian, TransUnion

10. Investment Banking

Definition: Financial institutions that help companies raise capital by issuing securities.

Key Activities:
- Underwriting: Guaranteeing the sale of newly issued securities.
- Mergers and Acquisitions (M&A) Advisory: Assisting companies with buying or selling other companies.
- Financial Restructuring: Advising companies on how to reorganize their finances.
- Research: Providing investment recommendations to clients.

11. Factoring

Definition: A financial transaction where a company sells its accounts receivable (invoices) to a third party (the factor) at a discount.

Purpose:
- Improve cash flow.
- Outsource credit control and collections.

Types of Factoring:
- Recourse Factoring: The company is responsible for any uncollected invoices.
- Non-Recourse Factoring: The factor assumes the risk of uncollected invoices.

12. Depositories

Definition: Institutions that hold securities for safekeeping and facilitate electronic transfers.

Purpose:
- Reduce the risk of physical loss or theft of securities.
- Streamline the settlement process.
- Facilitate electronic trading.

Key Functions:
- Safekeeping of securities
- Clearing and settlement
- Dividend and interest payments
- Proxy voting

Examples of Depositories:
- Central Securities Depositories (CSDs)
- Depository Trust & Clearing Corporation (DTCC)