Question 1

Every month, Justin contributes 5 percent of his income and his employer contributes an additional 5 percent to guarantee that Justin will have a regular income when he retires.This is known as

Accepted Answer

The scenario described is a typical pension fund, where the employee and employer both contribute a portion of the employee's income towards a retirement fund that guarantees a regular income stream upon retirement.

Question 2

Suzanne is considered a member of her financial institution, which provides checking, savings, and other financial services.She is eligible for membership because she is a teacher.This financial institution is a

Accepted Answer

Credit unions are financial institutions that are typically organized by a group of people who share a common bond, such as membership in a specific profession or geographic location. In this case, the fact that Suzanne is a teacher indicates that she is likely a member of a credit union organized for educational professionals. Credit unions offer similar services to banks and savings and loan associations, but are owned and operated by their members, rather than by shareholders or a board of directors.

Question 3

If Jamie wanted to purchase Disney stock using borrowed money and had €4,000 of her own money to use, what is the maximum amount of stock she can purchase with a margin requirement of 50 percent?

Accepted Answer

With a margin requirement of 50 percent, Jamie can borrow an additional €4,000 (50% of her own €4,000) to purchase stock. This gives her a total of €8,000 to invest in Disney stock, so she can purchase up to €8,000 worth of Disney stock.

Question 4

Commercial banks have experienced competition from all of the following except

Accepted Answer

Federal Reserve Banks are not commercial banks and therefore do not directly compete with them in terms of providing banking services to individuals and businesses. Federal Reserve Banks act as central banks, providing support to the overall banking system and managing monetary policy.

Question 5

Maya Michey graduated from college and is seeking employment in the banking industry.She believes she has what it takes to be successful because she

Accepted Answer

Maya's honesty and enjoyment in interacting with people are positive traits for working in the banking industry. However, her motivations for wanting to work in banking should not be solely driven by a desire for a big salary or an expectation of an easy job. Knowing employees at local banks may be helpful, but it is not a guarantee for success in the industry.

Question 6

The usual passbook savings account at a commercial bank earns

Accepted Answer

The usual passbook savings account at a commercial bank earns between 0.10 and 0.90 percent. This is the most common range for interest rates on passbook savings accounts.

Question 7

A financial institution that is owned by its depositors is called a(n)

Accepted Answer

A mutual savings bank is owned by its depositors, who share in the institution's profits and losses. Ordinary share banks are owned by shareholders, insurance companies are not deposit-taking institutions, savings and loan associations are owned by shareholders, and national banks can be either owned by shareholders or operate as federally chartered institutions.

Question 8

A document stating that the bank will pay the depositor a guaranteed interest rate for money left on deposit for a specified period of time is a(n)

Accepted Answer

A document stating that the bank will pay the depositor a guaranteed interest rate for money left on deposit for a specified period of time is called a certificate of deposit. It is a low-risk investment option that provides a fixed rate of return.

Question 9

Judy Martinez, owner of Judy's Fashions, received a €12,000 tax refund.She deposited the money in Chase Bank.The terms of the agreement are that she must leave the money on deposit for three years and the bank will pay her 2.0 percent interest.Her account is a

Accepted Answer

The terms of leaving the money on deposit for three years and earning interest suggest that a certificate of deposit (CD) is the best choice. CDs generally have higher interest rates than checking accounts, NOW accounts, and Super NOW accounts, and they come with a fixed term that the depositor agrees to lock in their funds. Commercial drafts are not a type of bank account.

Question 10

Jack owns a chain of health food stores that has been growing rapidly.He decides that new, larger locations would be extremely successful, and he sells stock for the first time to obtain the needed funding to build the new stores.What type of financial institution can assist Jack in the new ordinary share issue?

Accepted Answer

Investment banking firms specialize in underwriting new securities offerings, such as ordinary share issues. They can assist Jack in pricing and selling his new shares to investors.

Question 11

Credit union members usually are

Accepted Answer

Credit unions can have membership requirements based on any of the described factors, including community, profession, employment, or general membership.

Question 12

Like other businesses, a bank's primary mission is to

Accepted Answer

While banks may store and supply money, provide check-clearing services, and offer financial advice, their primary mission is to meet the needs of their customers while earning a profit. This means that they aim to provide services that will attract and retain customers while also generating revenue for the bank.

Question 13

Banks must meet certain requirements before they receive a charter, or permission to operate from authorities, because

Accepted Answer

Banks deal with money belonging to other individuals and firms, making it necessary for authorities to ensure that they meet certain requirements for reliability and safety in handling money.

Question 14

Which of the following may offer as high as 2 percent rate of return?

Accepted Answer

A certificate of deposit (CD) is a time deposit offered by financial institutions that offer higher interest rates than traditional savings accounts. Depending on the length of the term, CDs can offer as high as a 2 percent rate of return. Passbook savings accounts and NOW accounts typically offer lower interest rates, while checking accounts and revolving lines of credit generally do not offer any interest.

Question 15

A written order for a bank or other financial institution to pay a stated amount to a specified business or person is called a

Accepted Answer

A check is a written order for a bank or other financial institution to pay a stated amount to a specified business or person. A promissory note is a written promise to pay a debt, a deposit slip is used to deposit funds into an account, a debit memorandum is a record of a deduction in a bank account, and a receipt is a document acknowledging that a payment has been made.

Question 16

Pile & Joseph (P&J) Enterprises wants to obtain long-term financing for a commercial real estate project, but it does not want to go to a regular bank for help.Which of the following institutions could help P&J?

Accepted Answer

Insurance companies often invest in real estate ventures and may be willing to provide long-term financing for commercial real estate projects. The stock market is not a direct source of financing for a specific project and local credit unions may not have the necessary funds to provide long-term financing for a large commercial project. The Board of Governors of the Federal Reserve and Federal Reserve District Banks are regulatory bodies and do not provide direct financing for commercial real estate projects.

Question 17

GE Capital is an example of a(n)

Accepted Answer

GE Capital is a finance company that provides a range of financial services, such as commercial lending, leasing, and consumer financing.

Question 18

Kyle uses a local financial institution for his banking needs such as a checking and savings account.When he asks the manager what the money he has deposited is used for, the manager explains that the institution deals primarily with consumer loans and home mortgage loans.Anyone can open an account at this institution.This describes a

Accepted Answer

The institution primarily deals with consumer loans and home mortgage loans, which is a characteristic of a savings and loan association. Additionally, anyone can open an account at the institution, which aligns with the services offered by a savings and loan association.

Question 19

Joe Barnes opened up an account at Community Credit Union.He is allowed to write checks and earns interest as long as he keeps his account balance above €2,000.In all likelihood, he opened a

Accepted Answer

A NOW account, or Negotiable Order of Withdrawal account, allows the holder to write checks and earn interest while maintaining a minimum balance requirement. This matches the description provided in the scenario.

Question 20

The business that collects premiums and then provides long-term financing for large real estate projects is a(n)

Accepted Answer

Insurance companies collect premiums and invest them to earn a return, which they use to pay claims and expenses. One of the investments they make is in long-term financing for real estate projects, which provides a steady stream of income from interest payments over a period of years. This involves taking on some level of risk, but it can also offer higher returns than other investments. Therefore, an insurance company is the best fit for the description given.

Quiz 17: Money and the Banking System