Deck 4: Managing Your Cash and Savings

Question 1

Visa and MasterCard issue debit cards linked to your checking account.

Answer 1

True

Question 2

Your savings will grow faster with monthly interest compounding than with quarterly interest compounding for a given nominal interest rate.

Answer 2

True

Question 3

Interest earned for a period should be added to the ending balance shown in your checkbook while reconciling your account.

Answer 3

True

Question 4

Which of the following statements regarding low interest rates is true?

A)They encourage investors to search for investments like Treasury bills.
B)They encourage the substitution of equity by debt.
C)They encourage investors to search for stocks paying high dividends.
D)They encourage individuals to save more.
E)They encourage paying down the national debt.

Question 5

Compound interest means that a savings account earns interest on the interest previously earned.

Question 6

Negotiable order of withdrawal (NOW)accounts manage and administer the investments in a trust account or from an estate.

Question 7

Cash management helps in personal financial planning.

Question 8

The minimum amount that you must keep in an account every day is an important criterion when comparing the features and requirements of different checking accounts offered by a bank.

Question 9

Debit cards are a form of electronic funds transfer system (EFTS).

Question 10

Low interest rates that have persisted since the financial crisis of 2008-2009 have been beneficial to:

A)students.
B)retirees.
C)big banks.
D)savers.
E)share investors.

Question 11

Cash is the only kind of liquid asset.

Question 12

One can hold a credit card issued by a stock brokerage firm.

Question 13

Extremely low interest rates favor investors and boost the incentive to save.

Question 14

Nondepository institutions are referred to as banks.

Question 15

Low interest rates create economic distortions, especially when real, inflation-adjusted interest rates are positive.

Question 16

You can hold an account with a mutual fund that allows you to write a limited number of checks.

Question 17

The Federal Deposit Insurance Corporation (FDIC)covers consumer accounts at credit unions.

Question 18

Low interest rates result in:

A)facilitating a greater supply of money for borrowers.
B)reducing the cost of financing the federal budget deficit.
C)encouraging a higher savings rate.
D)bringing more investment avenues.
E)improving the standard of living.

Question 19

A certified check is a personal check that a bank certifies to guarantee that the funds are available.

Question 20

Keeping valuables in a safe-deposit box may reduce your homeowner's insurance premium by eliminating the "riders" that are often needed to cover such items.

Question 21

A customer withdraws funds by writing checks from his or her negotiable order of withdrawal (NOW)account and:

A)certificate of deposit.
B)savings account.
C)term insurance deposit.
D)time deposit.
E)share draft account.

Question 22

When a savings bank is a mutual association, it is owned by the:

A)borrowers.
B)creditors.
C)depositors.
D)management.
E)local government.

Question 23

Which of the following is an aspect of asset management accounts?

A)Limited free checking of available balance
B)Sweeping of excess balances into money market deposit account (MMDA)
C)Fixed annual fees and account charges on deposit account
D)Borrowing and investing facility unavailable to accountholders
E)Deposits protected by the Securities Investor Protection Corporation (SIPC)

Question 24

Compared to other depository financial institutions, credit unions:

A)are more beneficial to all kinds of consumers.
B)pay lower interest on savings to their members.
C)have a greater number of account holders.
D)have a greater number of branches.
E)charge lower rates on loans to their members.

Question 25

Laura has a $100,000 balance in her checking account at Best Bank, and she has purchased a certificate of deposit (CD)worth $50,000 issued by Best Bank. Laura is also thinking of investing $200,000 either in Best Bank or in Trust Bank. Which of the following is a suitable strategy for Laura if she wants her deposits to be completely insured?

A)Laura should invest $200,000 in a money market deposit account (MMDA)of Best Bank.
B)Laura should invest $100,000 in a money market deposit account (MMDA)of Best Bank and invest $100,000 in an asset management account of Best Bank.
C)Laura should invest $100,000 in a money market deposit account (MMDA)of Best Bank and invest $100,000 in an asset management account of Trust Bank.
D)Laura should invest $150,000 in a money market deposit account (MMDA)of Best Bank and invest $100,000 in an asset management account of Trust Bank.
E)Laura should invest $150,000 in a money market deposit account (MMDA)of Best Bank and invest $200,000 in a money market deposit account (MMDA)of Trust Bank.

Question 26

Convenience is a reason for the growth in popularity of:

A)Internet banks.
B)savings and loan associations.
C)mutual savings banks.
D)credit unions.
E)insurance companies.

Question 27

Money market deposit accounts:

A)allow free unlimited check writing every month.
B)are federally insured.
C)have floating maturity dates.
D)are offered only by credit unions.
E)pay the lowest interest rates of any bank accounts with check-writing facility.

Question 28

Cash and near-cash resources are known as:

A)liquid assets.
B)long-lived assets.
C)noncurrent assets.
D)fixed assets.
E)noncash assets.

Question 29

Joe Gustafson is a very busy person who prefers to use one account to handle all his financial services needs like checking, investing, and borrowing. Which of the following types of accounts is most suitable for Joe?

A)A checking account
B)A money market deposit account
C)A brokerage account
D)An asset management account
E)A savings account

Question 30

Which of the following is an interest-bearing checking account?

A)Certificate of deposit
B)Treasury bill
C)Negotiable order of withdrawal (NOW)account
D)Series EE U.S. savings bond
E)Regular checking account

Question 31

Money market mutual funds:

A)allow check writing above a stipulated minimum amount.
B)are federally insured.
C)have floating maturity dates.
D)are offered by savings and loan associations (S&Ls)and credit unions.
E)pay interest 1 to 3% lower than those paid by a regular savings account.

Question 32

An investor receives the highest interest rate on his or her:

A)asset management account.
B)regular checking account.
C)negotiable order of withdrawal (NOW)account.
D)money market deposit account (MMDA).
E)share draft account.

Question 33

Christina's bank allows her employer to directly deposit her paycheck into her personal bank account. This service provided by Christina's bank is called a(n):

A)ATM service.
B)Federal Deposit Insurance Corporation (FDIC)service.
C)money market service.
D)electronic funds transfer system (EFTS)service.
E)overdraft service.

Question 34

Credit unions are:

A)member-owned financial cooperatives.
B)mortgage lenders.
C)available to the general public.
D)special commercial lenders.
E)large institutions when compared with commercial banks.

Question 35

Brent had $450 in his checking account when his EFTS card and PIN were stolen almost a week ago. Because he has been ill, he didn't report the theft until today, five days after the theft occurred. The delay in notifying the bank means that he could lose:

A)$0.
B)$25.
C)$50.
D)$500
E)all the money in his account.

Question 36

Funds in commercial banks are protected by the:

A)National Credit Union Administration (NCUA).
B)Federal Depositors Assurance Corporation (FDAC).
C)Federal Deposit Insurance Corporation (FDIC).
D)National Credit Union Share Insurance Fund (NCUSIF).
E)Savings Association Insurance Fund (SAIF).

Question 37

A(n)_____ is traditionally a non-interest-paying demand deposit account.

A)money market mutual fund
B)money market deposit account
C)negotiable order of withdrawal (NOW)account
D)asset management account
E)regular checking account

Question 38

Macie has $25 in her checking account when her EFTS card and PIN are stolen. If Macie notifies her bank tomorrow, the day after the theft of her card, her loss is limited to:

A)$0.
B)$25.
C)$50.
D)$400.
E)$500.

Question 39

You had $800 in your checking account when your EFTS card and PIN were stolen. You didn't report the theft for two months after your periodic statement was mailed. How much could you lose?

A)$0
B)$50
C)$400
D)$800
E)$800 plus a fee

Question 40

Which of the following are protected by the Federal Deposit Insurance Corporation (FDIC)?

A)Money market deposit accounts
B)Money market mutual funds
C)Asset management accounts
D)Stocks and bonds
E)Life insurance policies

Question 41

The least expensive method for banks to interact with their customers is through:

A)a vendor.
B)phone calls.
C)the Internet.
D)an ATM machine.
E)a full-service teller.

Question 42

Harry received a scholarship of $2,000. He plans to invest this money for 5 years at 8%, compounded annually. If he accomplishes this, Harry will have an ending balance of: (Use time value tables or a financial calculator. Select the closest answer.)

A)$2,160.
B)$2,520.
C)$2,608.
D)$2,938.
E)$3,162.

Question 43

Which of the following statements regarding safe-deposit boxes offered by banks is true?

A)They can be opened only by the banker.
B)They may increase a homeowner's insurance premiums.
C)They are owned by the customers of the bank.
D)They can be used to manage mutual funds.
E)They can be used as a storage place for important documents.

Question 44

Alice lost her EFTS card and reported it missing the next day. She found that $800 had been withdrawn from her savings account. Alice's loss is equal to:

A)$0.
B)$25.
C)$50.
D)$800.
E)$800 plus a fee.

Question 45

The _____ department of a bank provides investment and estate planning advice.

A)safe-deposit
B)electronic funds transfer
C)debit card
D)NOW account
E)trust services

Question 46

At maturity, a deposit of $6,000 in a certificate of deposit (CD)for 10 years at 3% will be worth: (Select the closest answer.)

A)$7,340.
B)$7,800.
C)$8,064.
D)$8,678.
E)$9,005.

Question 47

A safe-deposit box in a bank can be opened only when the:

A)banker's key is used.
B)account holder's key is used.
C)keys of both the banker and the account holder are used.
D)key issued to the insurance company is used.
E)keys of both the banker and the insurance company are used.

Question 48

The more frequently a bank compounds interest, _____ for a given nominal rate will be.

A)the higher the stated interest rate
B)the lower the inflation rate
C)the higher the effective rate
D)the lower the yield rate
E)the higher the normal rate

Question 49

Factors that typically influence the choice of where to maintain a checking account are:

A)inflation, tax rates, and cost.
B)convenience, inflation, and services.
C)cost, inflation, and tax rates.
D)convenience, services, and cost.
E)services, insurance, and cost.

Question 50

A check you issued last week has been stolen. You can prevent the amount on the check from being withdrawn from your account by an unauthorized person by:

A)writing a new check.
B)depositing the correct amount of money.
C)requesting a stop payment.
D)tearing up the check.
E)properly endorsing the check.

Question 51

Jane is a college student who withdraws cash at least five times a week to meet her everyday expenses. Jane should have a checking account with good:

A)asset management facilities.
B)automated teller machine facilities.
C)money market deposit facilities.
D)trust services.
E)mutual fund management facilities.

Question 52

John Anderson deposited $10,000 in a certificate of deposit (CD)for 3 years at 5%. At maturity, it will be worth: (Use time value tables or a financial calculator. Select the closest answer.)

A)$10,500.
B)$10,725.
C)$11,400.
D)$11,580.
E)$12,400.

Question 53

Whenever you write a check or make a deposit, an entry should be made in your:

A)deposit slip.
B)checkbook ledger.
C)overdraft booklet.
D)balance sheet.
E)personal check.

Question 54

Which of the following is a rented drawer in a bank's vault?

A)Safe-deposit box
B)ATM
C)Debit card
D)NOW account
E)Trust service

Question 55

When doing an account reconciliation, interest earned on your account should be:

A)deducted from your checkbook ledger.
B)added to your checkbook ledger.
C)ignored because the bank has already recorded it.
D)listed as outstanding.
E)treated like a loan.

Question 56

Mary has calculated her adjusted balance as $500. She notices that her bank's service charges are $20 for this period. Mary's ending balance in her bank account is:

A)$520.
B)$480.
C)$600.
D)$500.
E)$510.

Question 57

The minimum denomination of T-bills is:

A)$25.
B)$50.
C)$100.
D)$500.
E)$1,000.

Question 58

A lump-sum deposit of $8,000 left in a bank for 12 years at 9%, compounded annually, will result in an ending balance of: (Select the closest answer.)

A)$11,600.
B)$16,640.
C)$22,504.
D)$52,938.
E)$96,000.

Question 59

A check you wrote to buy shoes last week has not yet been approved by the bank. It is said to be:

A)outstanding.
B)credited.
C)endorsed.
D)certified.
E)deposited.

Question 60

You are going on an overseas trip, and you want to carry checks. You should purchase:

A)cashier's checks.
B)certified checks.
C)conditional checks.
D)traveler's checks.
E)guaranteed checks.

Question 61

Liquid assets include your:

A)money market deposit account.
B)10-year Treasury bond.
C)3-year certificate of deposit purchased in the current financial year.
D)Series EE U.S. savings bond.
E)I bonds.

Question 62

Low interest rates:

A)increase the number of financial institutions.
B)do not impact the supply of credit.
C)increase the demand for lower-grade, riskier bonds.
D)decrease employment opportunities.
E)reduce asset prices in financial markets.

Question 63

Which of the following savings vehicles is free of state and local income taxes?

A)Certificates of deposit
B)Money market mutual funds
C)Time deposits
D)Money market deposit accounts
E)I savings bonds

Question 64

It costs financial institutions more if their customers perform:

A)ATM transactions.
B)Internet transactions.
C)teller transactions.
D)check transactions.
E)electronic bill pay.

Question 65

The financial crisis of 2008-2009 followed by low interest rates has been beneficial to:

A)borrowers.
B)retirees.
C)shareholders.
D)investors.
E)savers.

Question 66

_____  is the routine, day-to-day administration of liquid assets by an individual or family.

A)Depository management
B)Resource management
C)Cash management
D)Bond management
E)Treasury management

Question 67

Banks must notify customers ______  days before lowering rates on deposit accounts or certificates of deposit.

A)30
B)60
C)15
D)45
E)10

Question 68

Funds invested in a _____ should not be withdrawn for a stated period in order to avoid an interest penalty.

A)savings account
B)U.S. Treasury bill
C)checking account
D)negotiable order of withdrawal (NOW)account
E)certificate of deposit

Question 69

Kate tends to issue checks quite often without having a sufficient balance in her account. She should look for an account with a(n)_____ facility.

A)ATM
B)overdraft protection
C)trust services
D)mutual fund management
E)balance tracking

Question 70

Maggie wants to open a checking account that will be the least expensive, given her normal financial transactions. She typically writes 15 checks a month and uses an ATM 35 times a month. Her monthly minimum checking balance falls to about $350 on an average. Which of the following accounts would be least expensive for Maggie? (Show all your work.)
Account A:
No monthly fee is charged if a minimum balance of at least $300 is maintained.
A $5.00 fee is charged in any month the minimum balance falls below $300.
An ATM fee of $0.10 per transaction is charged on all transactions.
Account B:
No monthly fee is charged if a minimum balance of at least $500 is maintained.
A $3.00 fee plus $0.10\check is charged in any month the minimum balance falls below $500.
There is no ATM fee on transactions.
See 4-4: Maintaining a Checking Account.

Question 71

People who do not have checking accounts often use:

A)cashier's checks.
B)overdraft protection.
C)certified checks.
D)demand deposits.
E)preauthorized deposits.

Question 72

______  offer banking services but do not accept deposits like traditional banks.

A)Nondepository institutions
B)Stock brokerage firms
C)Nonprofit organizations
D)Credit bureaus
E)Mutual funds

Question 73

In account reconciliation, one of the steps in calculating the adjusted bank balance is:

A)deducting total withdrawals still outstanding from the bank balance.
B)deducting total deposits still outstanding from the bank balance.
C)adding the total credit card outstanding balance to the bank balance.
D)adding bank service charges to the bank balance.
E)subtracting interest paid on the account's balance for the period.

Question 74

The interest earned on an individual's _____ is free of state and local income taxes.

A)Series EE bonds
B)certificates of deposit
C)term deposits
D)money market deposit accounts
E)time deposits

Question 75

You are buying a large amount of merchandise through the mail from a dealer several hundred miles from you with whom you have never dealt before. The dealer will probably require that you pay him with:

A)a certified check.
B)a credit card.
C)overdraft protection.
D)cash.
E)traveler's checks.

Question 76

The percentage of _____ out of disposable income has decreased due to low interest rates.

A)savings
B)expenditure
C)taxable income
D)insurance
E)retirement funds created

Question 77

A(n)_____ account is called a demand deposit.

A)checking
B)savings
C)asset management
D)time deposit
E)certificate of deposit

Question 78

The Federal Deposit Insurance Corporation (FDIC)insures each _____  up to a stated maximum dollar amount at any given financial institution.

A)depositor
B)account
C)shareholder
D)bank
E)financial transaction

Question 79

Interest rates are the lowest on:

A)savings accounts.
B)regular checking accounts.
C)money market deposit accounts.
D)certificates of deposit.
E)money market mutual funds.

Question 80

Individuals prefer to invest their savings in stocks rather than traditional instruments like Treasury bonds because bonds have:

A)low interest rates.
B)high tax rates.
C)low GDP rates.
D)high effective rates.
E)high risk.