Deck 5: Banking and Interest Rates

Question 1

Savings institutions differ from commercial banks in that they tend to focus less on providing commercial loans.

Answer 1

True

Question 2

Deposits in commercial banks that are members of the FDIC, are insured up to a maximum of $50,000 per account.

Answer 2

False

Question 3

An example of a depository financial institution is an insurance company.

Answer 3

False

Question 4

A mutual fund is a means by which investors with relatively small amount of money can invest in a portfolio of securities.

Question 5

Nondepository institutions are financial institutions that provide various financial services, but their deposits are not federally insured.

Question 6

Deposits at commercial banks are insured by a government-owned insurance agency called the

A) Federal Deposit Insurance Corporation.
B) National Credit Union Share Insurance Fund.
C) Federal Deposit Interest Company.
D) Insurance Regulatory and Development Authority.

Question 7

Bank fees for use of an automated teller machine (ATM) do not need to be considered when choosing a bank since fees are set by the federal government and are the same for all banks.

Question 8

Deposits at commercial banks are insured up to ________ per depositor by the Federal Deposit Insurance Corporation (FDIC).

A) $100,000
B) $75,000
C) $250,000
D) $150,000

Question 9

Financial institutions loan funds at ________ they pay depositors.

A) a lower interest rate than
B) a higher interest rate than
C) a rate equal to the rate
D) a cost plus 3% of what

Question 10

To join a credit union, you need to

A) have a steady job.
B) be a member of a group with a common bond.
C) have established good credit.
D) be sponsored by an existing member of that credit union.

Question 11

Bank ATM charges may be substantial if you make many transactions monthly and use out-of-network machines.

Question 12

Which of the following is not a depository institution?

A) First National Bank of Chicago
B) Butterfield and Edwards Brokerage Company
C) American 1 Federal Credit Union
D) New England Savings Bank

Question 13

Which of the following is not a depository institution?

A) Commercial bank
B) Securities firm
C) Savings institution
D) Credit union

Question 14

Securities firms primarily sell insurance to protect individuals from adverse events.

Question 15

Credit unions are nonprofit depository institutions that serve members who have a common affiliation (such as the same employer or same community).

Question 16

Depository institutions are financial institutions that accept deposits (that are insured up to a maximum level) from individuals or firms and provide loans.

Question 17

Introductory high interest rates paid by financial institutions for new accounts are usually a good deal and you should therefore take advantage of them without question.

Question 18

Financial institutions that accept deposits (that are insured up to a maximum level) from individuals and provide loans are called

A) finance companies.
B) depository institutions.
C) investment companies.
D) nondepository institutions.

Question 19

Finance companies are more selective in choosing the borrowers they serve, and therefore they usually charge lower interest rates than banks or credit unions.

Question 20

Which of the following financial institutions would be used the most by business customers wishing to borrow money?

A) Commercial banks
B) Savings institutions
C) Credit unions
D) All are used equally by business customers.

Question 21

If you have $10,000 that you do not currently need for expenses and you wish to put it somewhere so that it will earn a return, which of the following financial institutions would you not choose?

A) Savings institution
B) Finance company
C) Securities firm
D) Investment company

Question 22

Which of the following characteristics is common to both commercial banks and credit unions?

A) Lower fees
B) Lower credit card rates
C) Insurance up to $250,000
D) Nonprofit

Question 23

Organizations that offer a diverse set of financial services to individuals and firms are ________.

Question 24

Use the following two columns of items to answer the matching questions below:
depository institutions

A)nondepository institutions that facilitate the purchase and sale of securities by firms or individuals
B)financial institutions that accept deposits and provide loans
C)financial institutions that offer a diverse set of services
D)a nondepository institution that sells shares to individuals and uses the proceeds to invest in securities and create a mutual fund
E)a nondepository institution that provides insurance to protect against adverse events
F)a nondepository institution that specializes in providing personal loans

Question 25

Financial institutions offering traditional checking and savings accounts as well as providing loans to both individuals and firms are called ________.

Question 26

You have $3,000 that you may need any day to replace the furnace in your house. Which of the following would be the best place to put the $3,000?

A) A one-year CD earning 4%
B) A common stock mutual fund earning 9%
C) A savings account earning 2%
D) Shares of stock in a high-tech company that could double in 6 months

Question 27

If you were taking out a personal loan, the highest rate would probably be charged by a

A) commercial bank.
B) finance company.
C) member of your family.
D) credit union.

Question 28

Which of the following financial institutions specializes in making personal loans to people who are perceived to have a higher risk of default?

A) Finance companies
B) Commercial banks
C) Savings institutions
D) Credit unions

Question 29

Savings institutions accept deposits and provide mortgage and personal loans to individuals. Another name for these financial institutions is

A) trust institutions.
B) economy institutions.
C) insured institutions.
D) thrift institutions.

Question 30

Your great aunt Mary passed away and left you an inheritance of $5,000. Since you don't have a need for the money in the near future, which of the following would be the best place to put the $5,000?

A) A savings account earning 1% interest
B) A checking account
C) A five-year CD paying 4.38% annually
D) High-risk stock in a producer of natural gas that is predicted to triple in the next year

Question 31

Which of the following is a nonprofit depository institution that provides services only to members who have a common affiliation?

A) Commercial bank
B) Savings institution
C) Credit union
D) Finance company

Question 32

Which of the following is not a service provided by a commercial bank?

A) Checking and savings accounts
B) FDIC insurance on all deposits with no maximum limit
C) Personal loans
D) Mortgage loans

Question 33

________ are nondepository institutions that facilitate the purchase or sale of securities by firms or individuals by providing investment banking services and brokerage services.

A) Finance companies
B) Securities firms
C) Insurance companies
D) Mutual funds

Question 34

________ are nondepository institutions that provide insurance to protect individuals or firms against possible adverse events.

A) Finance companies
B) Securities firms
C) Insurance companies
D) Investment companies

Question 35

________ are nondepository institutions that sell shares to individuals and use the proceeds to invest in securities to create mutual funds.

A) Investment companies
B) Finance companies
C) Financial conglomerates
D) Insurance companies

Question 36

A financial conglomerate offers a diverse set of services that include which of the following?

A) Credit cards
B) Personal loans
C) Brokerage subsidiary
D) All of the above

Question 37

A nondepository institution facilitating transactions in stocks or bonds is a(n) ________.

Question 38

Which of the following is classified as a nondepository institution?

A) Credit union
B) Insurance company
C) Commercial bank
D) Savings institution

Question 39

During the financial crisis that began in 2008, what was the key aspect in banks that made savers comfortable that their money was safe?

A) Congress was watching over the banks.
B) The Federal Reserve did not let any banks fail.
C) Deposits were insured up to $250,000 by FDIC.
D) Bailouts protected the savers.

Question 40

Lucky Louie has $10,000 that he wants to invest for 3 years but wants to take no risk on the investment. His best course of action would be to

A) invest in a 3-year Treasury note.
B) invest in a blue-chip stock portfolio.
C) put his money in a 3-year CD at his bank.
D) Both A and C are correct.

Question 41

Banks do not charge fees for safety deposit boxes.

Question 42

Use the following two columns of items to answer the matching questions below:
finance company

A)nondepository institutions that facilitate the purchase and sale of securities by firms or individuals
B)financial institutions that accept deposits and provide loans
C)financial institutions that offer a diverse set of services
D)a nondepository institution that sells shares to individuals and uses the proceeds to invest in securities and create a mutual fund
E)a nondepository institution that provides insurance to protect against adverse events
F)a nondepository institution that specializes in providing personal loans

Question 43

ATM cards are declining in use because they are expensive and the machines are becoming more difficult to locate.

Question 44

The Act that allows banks to transmit electronic images of checks, thus allowing funds to be transferred immediately is known as

A) Check 2004.
B) the Electronic Check Act of 2004.
C) the Fraud Detecting Act.
D) Check 21.

Question 45

A(n) ________ card allows you to pay for a purchase directly from your checking account without writing a check.

A) credit
B) debit
C) expense
D) travel

Question 46

Debit cards allow you to pay for a purchase later when the bill arrives.

Question 47

Your checkbook balance at the end of May is $1,041.52. When you receive May's bank statement, you discover the following additional items: Bank fees, $27.00; Interest earned, $16.35. Your adjusted checkbook balance after considering these items is

A) $1030.87.
B) $1052.17.
C) $950.04.
D) $997.65.

Question 48

You can be assured that if your ATM query shows you have a certain balance in your checking account, that figure is more accurate than the amount in your check register.

Question 49

Which of the following is not a reason that your checking account balance might change from one month to another?

A) Deposits to your account
B) Cleared checks
C) Purchasing new shoes with a credit card
D) Bank fees

Question 50

A debit card differs from a credit card in that it does not provide credit; instead, it deducts the purchase from your checking account immediately.

Question 51

Cashier's checks, money orders, and traveler's checks are secured check alternatives to a personal check and therefore are more risk-free for the payee.

Question 52

Use the following two columns of items to answer the matching questions below:
securities firm

A)nondepository institutions that facilitate the purchase and sale of securities by firms or individuals
B)financial institutions that accept deposits and provide loans
C)financial institutions that offer a diverse set of services
D)a nondepository institution that sells shares to individuals and uses the proceeds to invest in securities and create a mutual fund
E)a nondepository institution that provides insurance to protect against adverse events
F)a nondepository institution that specializes in providing personal loans

Question 53

Which of the following is not an advantage of using ATM cards?

A) It is an easy and convenient way to withdraw funds.
B) Your total banking expenses will be lower.
C) You have access to your account any time of the day.
D) You can bank at remote locations all over the world.

Question 54

To prevent an overdraft or "bounced check," it is always a good idea to record each check written in your check register and reconcile your account balance when you receive your monthly bank statement.

Question 55

Use the following two columns of items to answer the matching questions below:
financial conglomerates

A)nondepository institutions that facilitate the purchase and sale of securities by firms or individuals
B)financial institutions that accept deposits and provide loans
C)financial institutions that offer a diverse set of services
D)a nondepository institution that sells shares to individuals and uses the proceeds to invest in securities and create a mutual fund
E)a nondepository institution that provides insurance to protect against adverse events
F)a nondepository institution that specializes in providing personal loans

Question 56

Use the following two columns of items to answer the matching questions below:
investment company

A)nondepository institutions that facilitate the purchase and sale of securities by firms or individuals
B)financial institutions that accept deposits and provide loans
C)financial institutions that offer a diverse set of services
D)a nondepository institution that sells shares to individuals and uses the proceeds to invest in securities and create a mutual fund
E)a nondepository institution that provides insurance to protect against adverse events
F)a nondepository institution that specializes in providing personal loans

Question 57

Which of the following is not a service that a depository institution might offer?

A) Checking services
B) Credit counseling
C) Online services
D) The use of a debit card

Question 58

A(n) ________ card allows you to pay for a purchase at a later time when the bill arrives.

A) credit
B) debit
C) expense
D) ATM

Question 59

Use the following two columns of items to answer the matching questions below:
insurance company

A)nondepository institutions that facilitate the purchase and sale of securities by firms or individuals
B)financial institutions that accept deposits and provide loans
C)financial institutions that offer a diverse set of services
D)a nondepository institution that sells shares to individuals and uses the proceeds to invest in securities and create a mutual fund
E)a nondepository institution that provides insurance to protect against adverse events
F)a nondepository institution that specializes in providing personal loans

Question 60

List four types of financial institutions that you have made use of or might deal with in the future.

Question 61

Because of potential security concerns, it is unlikely that you will find a financial institution that offers mobile applications.

Question 62

Lucky Louie's bank requires a minimum balance at all times of $1500 in order to provide free checking services. The bank pays .5% per annum interest on the minimum balance. If you do not maintain the balance, account service fees are $4 per month. Assuming Lucky can earn 2.5% on his money not sitting at the bank, what is his net benefit to maintaining the minimum balance?

A) Not a benefit; he should invest his money elsewhere at 2.5%
B) $18 per year benefit
C) $48 per year benefit
D) Breakeven

Question 63

Describe four factors you should consider when choosing a financial institution.

Question 64

A ________ is a check that is written on behalf of an individual and will be charged against a large well-known financial institution or credit card sponsor's account.

A) cashier's check
B) money order
C) traveler's check
D) personal check

Question 65

You are purchasing a new car and are making a down payment of $6,500. To be assured of payment, the dealership would request that you provide a

A) personal check.
B) money order.
C) cashier's check.
D) traveler's check.

Question 66

A ________ is a check that is written on behalf of a person to a specific payee and will be charged against a financial institution's account.

A) cashier's check
B) money order
C) traveler's check
D) personal check

Question 67

$5 per ATM transaction is the maximum fee a bank can charge under Federal banking law

Question 68

Which of the following is not a disadvantage of using ATM cards?

A) Forgetting to record the transaction
B) Fees from your bank and other banks for using out-of-network machines
C) Increased fees if you make too many transactions per period
D) Difficulty of withdrawing funds

Question 69

Use the following two columns of items to answer the matching questions below:
debit card

A)automatically deducts an amount from a checking account
B)extends the payment time through credit

Question 70

A ________ is a check that is written on behalf of a person for a fixed amount that is paid in advance.

A) cashier's check
B) money order
C) traveler's check
D) personal check

Question 71

Since rates and fees differ only slightly between all national banks, there is little need to consider these when choosing your financial institution.

Question 72

To speed the process of paying your bills and to save money on stamps, you could

A) agree with the service provider to pay quarterly.
B) use your bank's online banking capability.
C) pay with money orders.
D) use your bank's wire transfer capability.

Question 73

Convenience, deposit rates and insurance, and fees are primary considerations in choosing a financial institution for your needs.

Question 74

If you wish to make purchases that are charged against your checking account without writing a check you need to have a(n) ________.

Question 75

Use the following two columns of items to answer the matching questions below:
credit card

A)automatically deducts an amount from a checking account
B)extends the payment time through credit

Question 76

Lorenzo is considering two banks for his checking account. Suny Bank requires a minimum deposit of $100 and charges a monthly fee of $8, plus 5 cents a check. Merchants Bank also requires a minimum deposit of $100, it charges a per check fee of 15 cents but no monthly fee. How many checks would Lorenzo need to write each month to make Suny Bank cheaper to use than Merchants?

A) over 50
B) over 60
C) over 70
D) over 80

Question 77

Which of the following is not a fee that financial institutions may charge?

A) Checking account service charge
B) ATM usage fee
C) Depository insurance
D) Safety deposit box rental

Question 78

Which of the following should not affect your choice of a financial institution?

A) Convenience
B) Whether it is state or federally chartered
C) Deposit rates and insurance
D) Fees

Question 79

Because they have lower expenses, Web-based financial institutions tend to pay higher interest rates on deposits than institutions with physical branches.

Question 80

The opening balance in your checking account was $1000. During the month you had the following activity: wrote checks for $45.00 and $75.00 but only the first one cleared; had debit card transactions for $50 and $35.20; received a bank charge for the account of $6, deposited a check you received from a friend for $100 but it did not clear by month end. What is your month end account balance?

A) $1052.13
B) $875.45
C) $863.80
D) $888.80