Question 1

Traditionally, banks provide loans to individuals and companies according to the recipient's

Accepted Answer

Banks provide loans based on the creditworthiness of the recipient, which is determined by their credit history, income, and other financial factors. This helps the bank assess the risk of loaning money and ensure that the loan can be paid back in a timely manner. Future earnings potential and family history are not reliable indicators of a borrower's ability to pay back a loan. The volume of credit already established may be considered, but it is not the primary factor in determining loan eligibility.

Question 2

________ are nonprofit, member-owned financial cooperatives that offer a full variety of banking services such as accepting deposits and making loans.

Accepted Answer

Credit unions are nonprofit, member-owned financial cooperatives that offer full banking services. Mutual thrift associations are also financial cooperatives, but they are not necessarily nonprofit and may not offer the full range of banking services. Commercial banks are for-profit institutions and mutual fund companies are investment firms.

Question 3

Ryan works at a community college and the college requires all employees to contribute to a pension fund. At this time, he is not too worried about the safety of this contribution because

Accepted Answer

Pension funds are provided by some corporations and government employers as retirement accounts for their employees. Pension funds are usually bound by rules and regulations requiring them to only invest in low-risk securities.

Question 4

Anthony would like to have his brokerage firm handle more of his financial needs because he has been pleased with the service provided when he bought and sold stocks and bonds. If he explores the services offered by such firms in more depth, he will find that

Accepted Answer

Brokerage firms are becoming serious competitors for banks by offering high-yield combination savings and checking accounts and other types of accounts. Brokers can also make loans to their customers, using the customers' securities as collateral.

Question 5

Savings and loan associations are sometimes known as

Accepted Answer

Savings and loan associations are also referred to as thrift institutions because they traditionally focused on providing savings accounts and mortgages to individuals and families. While credit unions are similar in structure, they typically serve a specific group of individuals (such as employees of a company or members of a certain organization) and are nonprofit. Nonbanks and bankers' banks refer to other types of financial institutions.

Question 6

Nora is an investment specialist for the Teamsters Union Central States Pension Fund. Her job involves deciding how to invest the contributions paid into the fund. Which of the following statements about Nora's job are true?

Accepted Answer

Pension funds are amounts of money set aside by organizations to help meet the financial needs of their members when they retire. Pension funds are considered to be nonbanks. Contributions to the fund are made either by employers and employees, or by the employees alone. These funds usually invest contributions in safe and conservative securities.

Question 7

Wyatt keeps $25,000 in an interest-bearing time deposit with the Bigbux Bank. While earning a relatively attractive rate of interest, Wyatt had to agree to not withdraw any of the funds until the end of a three-year period. Wyatt's investment represents a(n)

Accepted Answer

A certificate of deposit is a time deposit that pays interest, but requires the depositor to leave all of the funds deposited until the certificate matures. Maturity dates on CDs now range from 3 months to several years.

Question 8

How did banks contribute to the recent financial crisis?

Accepted Answer

Banks contributed to the recent financial crisis by making risky loans and then creating mortgage-backed securities from the assets they held. These securities were then considered safe investments and were sold to investors worldwide, leading to a housing bubble and eventual collapse of the housing market.

Question 9

The technical name for a savings account is a

Accepted Answer

A time deposit, such as a savings account, requires notice before withdrawal, distinguishing it from a demand deposit like a checking account, which allows immediate access to funds.

Question 10

Traditionally, life insurance companies, pension funds, and brokerage firms are known as

Accepted Answer

These institutions are not considered banks as they do not hold deposits or provide checking or savings accounts that fall under the purview of regulatory bodies like the Federal Reserve. They primarily deal with investments, insurance, and retirement planning.

Question 11

A time deposit that earns interest is a

Accepted Answer

A time deposit that earns interest is commonly known as a certificate of deposit (CD). Passbook accounts, discount deposits, and NOW accounts may also earn interest, but they do not typically have fixed terms for their deposits like CDs do.

Question 12

A(n) ________ accepts savings and checking account deposits and provides home mortgage loans.

Accepted Answer

A savings and loan association specializes in accepting deposits and providing home mortgage loans, making it the best choice for this scenario. Nonbanks and commercial finance companies may offer some financial services but do not typically accept deposits or offer mortgage loans. Insurance companies primarily offer insurance products rather than banking services.

Question 13

Designed to create more confidence in banking institutions, the FDIC was established

Accepted Answer

The Federal Deposit Insurance Corporation (FDIC) was established in 1933 during the Great Depression to restore trust in the American banking system. More than one-third of banks failed in the years before the FDIC's creation, and the FDIC was created to provide insurance coverage for bank deposits.

Question 14

The ________ insures holders of accounts in savings and loan associations.

Accepted Answer

The Savings Association Insurance Fund (SAIF) is a government agency that insures deposits in savings and loan associations. It was established by the Federal Deposit Insurance Corporation (FDIC) in 1989 to protect account holders in savings and loan associations after many of these institutions failed in the 1980s. The SAIF provides up to $250,000 in insurance coverage per depositor, per institution.

Question 15

Which of the following represents a nonbank?

Accepted Answer

Nonbanks are financial institutions that traditionally do not accept deposits, but offer many of the services offered by regular banks. Examples of nonbanks include life insurance companies, pension funds, as well as commercial and consumer finance companies. Credit unions and savings and loan associations (thrift institutions) are part of the U.S. banking system.

Question 16

Commercial banks, savings and loan associations, and credit unions

Accepted Answer

Commercial banks, savings and loan associations, and credit unions are all depository institutions that accept deposits and make loans.

Question 17

The ________ insures deposits held in credit unions.

Accepted Answer

The National Credit Union Administration (NCUA) insures deposits held in credit unions, not the Federal Credit Insurance Agency, Credit Union Insurance Fund, or the Federal Deposit Insurance Corporation.

Question 18

Originally, savings and loan associations

Accepted Answer

Savings and loan associations are often called thrift institutions because they were originally established to encourage thrift and home ownership.

Question 19

________ represent money set aside by corporations, nonprofit organizations, or unions to cover part of the retirement needs of their members.

Accepted Answer

Pension funds are specifically designed to cover part of the retirement needs of their members. Annuity accounts and individual retirement accounts may also be used for retirement savings, but they are not necessarily administered by corporations, nonprofits, or unions. Term-life retirement funds are not a recognized financial product.

Question 20

Which of the following represent an independent agency of the U.S. government that insures bank deposits?

Accepted Answer

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the U.S. government that provides deposit insurance to protect deposits in case of bank failures. The other options (National Deposit Assurance Cooperative, Insurance Corporation of America, and Deposit Protection Fund) are not real agencies or organizations.

Quiz 20: Money, Financial Institutions, and the Federal Reserve