Deck 5: Cash or Liquid Asset Management

Question 1

With online banking,you are able to access your accounts and conduct business transactions through the Internet,your mobile phone,and devices.

Answer 1

True

Question 2

Liquid assets allow you to cover unplanned expenses without having to interrupt your long-term investments or liquidate any tangible assets.

Answer 2

True

Question 3

When you automate your savings you are less likely to spend those dollars because they never become part of the funds in your checking account.

Answer 3

True

Question 4

It is wise to wait until you are earning a substantial amount of money before you establish a disciplined financial plan for your future.

Question 5

What is a risk associated with keeping liquid assets?

Question 6

Why are liquid assets important in cash management?

Question 7

It is best for college students to wait and begin saving once they are "making more money."

Question 8

One way to think of liquid assets is as a reservoir,with money moving in as wages are received and moving out as living expenses are paid.

Question 9

Liquid assets or funds are important to

A) cover unplanned expenses.
B) prevent interrupting your long-term investments.
C) prevent overdrafts in checking accounts.
D) cover some planned expenses.
E) All of the above are correct.

Question 10

Cash and investments that can be easily converted into cash are termed

A) capital assets.
B) liquid assets.
C) illiquid assets.
D) depositable assets.
E) None of the above are correct.

Question 11

How do you compare cash management alternatives to determine which is best for you?

A) Compare returns using comparable interest rates.
B) Take into account their tax status.
C) Consider their safety or risk.
D) All of the above are correct.

Question 12

Two advantages of carrying cash are that it's easy to spend and many times you can even recall where you spent it.

Question 13

Nondeposit-type financial institutions are commonly referred to as mutual funds and brokerage firms.

Question 14

Because liquid assets can be turned into cash quickly and with little loss,they have little risk associated with them and therefore provide a low rate of return for the consumer.

Question 15

Which of the following characteristics apply to liquid assets?

A) They are characterized by low returns.
B) They involve low risk.
C) The temptation to spend is greater.
D) All of the above are correct.

Question 16

List two ways to pay yourself first.

Question 17

What is involved with proper cash management?

Question 18

When college students start saving early

A) in an account earning interest, they immediately put their money to work.
B) by automating their savings, they are less likely to spend money.
C) they can take advantage of the time value of money and achieve their financial goals.
D) all of the above.

Question 19

According to the Keown book,one way to think of liquid assets is as a(n)

A) reservoir, with money moving in as wages are received and moving out as living expenses are paid.
B) apple tree farm: pick money off of the money tree whenever you need it.
C) garden: plant the seeds and the green is readily available.
D) wind current: easy come, easy go.

Question 20

Keeping your funds in liquid assets is riskier than keeping them in illiquid assets and therefore investors require a higher expected rate of return on liquid assets.

Question 21

Credit unions and Internet-only banks typically offer

A) more attractive interest rates to both borrowers and savers.
B) less attractive interest rates to both borrowers and savers.
C) the same interest rates as brick-and-mortar banks.
D) Both A and C are correct.

Question 22

List the common deposit-type financial institutions.

Question 23

Brick-and-mortar banks typically offer superior interest rates for borrowers and savers.

Question 24

Which of the following financial institutions were originally established to provide mortgage loans to depositors?

A) Commercial banks
B) Savings and loan associations
C) Internet banks
D) Credit unions

Question 25

The interest rate earned on a money market deposit account is generally higher than the interest earned on a Bank savings account.

Question 26

Which of the following is an advantage of online and mobile banking?

A) The potential for subpar customer service
B) Accessibility to and management of your accounts
C) Minimal start-up time to establish access
D) Only operational during business hours

Question 27

Explain the advantages of credit unions.Are there any disadvantages to them?

Question 28

The deregulation of the 1980s has allowed brokerage firms to offer traditional banking services,and has also let banks offer services formerly found only at investment companies.

Question 29

Which of the following financial institutions is a not-for-profit organization that is open only to members of that institution and tends to offer more favorable interest rates to borrowers and savers?

A) Savings bank
B) Commercial bank
C) Savings and loan association
D) Credit union
E) None of the above are correct.

Question 30

What is the name of an investment company that raises funds from investors,pools the money,and invests in stocks or bonds?

A) Stockbrokerage firm
B) Bond brokerage firm
C) Mutual fund firm
D) Securities fund firm

Question 31

T-bills are extremely safe investments,having been issued by the federal government.

Question 32

Financial institutions that provide traditional checking and savings accounts are commonly referred to as

A) deposit-type financial institutions.
B) nondeposit-type financial institutions.
C) personal depository institutions.
D) financial brokerage companies.
E) None of the above are correct.

Question 33

List five features available through online and mobile banking.

Question 34

Describe the advantages of online and mobile banking.

Question 35

Describe the disadvantages of online and mobile banking.

Question 36

Online and mobile banking allows you to do the following

A) access your accounts at any time of day.
B) transfer funds between accounts.
C) pay bills and receive payments online.
D) all of the above.

Question 37

What are the four questions you should answer when looking for a financial institution?

Question 38

Online banking simplifies cash management and budgeting for consumers.

Question 39

Once you have examined a financial institution's service and convenience you will want to ask three questions about their cash management alternatives.What are they?

Question 40

Credit unions and Internet-only banks typically offer more attractive interest rates to both borrowers and savers.

Question 41

One of the advantages of T-Bills is that they are exempt from federal taxes but subject to state income taxes.

Question 42

Money market mutual funds provide attractive competition for bank deposits because

A) their low fees are affordable for almost anyone.
B) they are convenient to purchase and use.
C) their short term, higher returns are generally regarded as practically risk-free.
D) they are fully insured.
E) None of the above are correct.

Question 43

The APY can never be the same as the APR.

Question 44

When comparing returns on cash management investment alternatives,it is important to make sure that the rates you compare are all on the same tax basis.

Question 45

What is another name for an interest-bearing checking account?

A) DIFI
B) IBC
C) NOW
D) CWI

Question 46

The Truth in Savings Act of 1993

A) helps investors compare interest rates on investment options.
B) requires that all institutions publish only annually compounded APRs.
C) ensures that all investments are federally insured.
D) All of the above are correct.

Question 47

The APY is the APR after taxes.

Question 48

What are short-term notes of debt issued by the federal government commonly called?

A) T-Bills
B) T-Notes
C) T-Bonds
D) T-Accounts

Question 49

When you are considering different investment options and want to maximize your returns,be sure to compare the investments'

A) quoted rates.
B) APRs.
C) APYs.
D) None of the above

Question 50

The ________ converts interest rates compounded for different periods into comparable annual rates,allowing you to compare interest rates easily.

A) APR
B) APY
C) YTD
D) YAY

Question 51

Briefly describe each of the cash management alternatives discussed in this chapter.

Question 52

Which of the following is not an advantage of a CD as a cash management alternative?

A) CDs have fixed interest rates, which are beneficial if interest rates drop.
B) CDs offer a wide selection of maturities.
C) CDs are insured.
D) CDs offer liquidity.
E) CDs are convenient to purchase.

Question 53

What is the name for comprehensive financial services packages offered by brokerage firms?

A) Asset management accounts
B) Comprehensive management accounts
C) Platinum management accounts
D) Consolidated management accounts

Question 54

A savings alternative that pays a fixed rate of interest while keeping your funds on deposit for a contracted period of time that can range from 30 days to several years is called a

A) demand deposit.
B) negotiable order of withdrawal deposit.
C) term deposit.
D) certificate of deposit.
E) None of the above are correct.

Question 55

A tax free investment will always have a higher after-tax return than a taxable investment.

Question 56

NOW accounts offer an option to traditional demand deposits.All of the following are characteristics of NOW accounts except one.Which is it?

A) You must generally maintain high minimum balances.
B) There is a monthly fee associated with them.
C) The interest rate is generally higher than other savings accounts.
D) The interest rate is generally lower than other cash management alternatives.

Question 57

The National Credit Union Association is a federal agency that insures deposits at credit unions.

Question 58

Pick the advantage of a certificates of deposit from this list of possibilities.

A) The interest paid is compounded daily.
B) Early withdrawals after 30 days do not incur a penalty.
C) Interest rates are generally higher than typical savings accounts.
D) They earn the APY and not the APR.

Question 59

Money Market Deposit Accounts enjoy one advantage over savings accounts found in commercial banks.This advantage is

A) a variable rate that is generally higher.
B) lower fees and smaller minimum balances.
C) greater liquidity.
D) unlimited check-writing privileges.

Question 60

Money-market mutual funds (MMMFs)provide an alternative to traditional liquid investments offered by financial institutions.What are/is the advantage(s)of an MMMF?

A) High interest rates
B) Check-writing privileges
C) Minimal risk
D) Convenience-deposits made through payroll deductions
E) All of the above are correct.

Question 61

You have $5,000 in a 36 month Certificate of Deposit that has an APR of 3.75%.If inflation averages 4.25% during these 36 months,what is the real return on your CD?

A) 3.75 percent
B) 8.0 percent
C) Negative .50 percent
D) Negative 8.0 percent

Question 62

With online banking and EFT,many people don't really need checks anymore.If you seldom need a paper check for transactions,what option is available to you that may be cheaper than maintaining a checking account?

A) Certified checks
B) Cashiers checks
C) Money orders
D) Both B and C are good options.

Question 63

You are examining two different MMMFs.Fund A is tax-exempt and pays 7%.Fund B is taxable and pays 9.5%.You live in a state that imposes no income taxes and you are in the 25% federal tax bracket.Which of these two alternatives is better?

A) Find A is the better choice.
B) Fund B is the better choice.
C) Fund A and Fund B are equal so they both are a wise choice.
D) Neither Fund A nor Fund B are wise choices.

Question 64

Overdraft protection is an automatic loan made to your checking account whenever your account does not contain enough cash to cover the checks that you have written against it.

Question 65

Please choose the method to use when calculating the after-tax return.

A) Taxable return (1 + marginal tax rate) - nontaxable return
B) Taxable return (marginal tax rate - 1) - nontaxable return
C) Nontaxable return (1 - marginal tax rate) + taxable return
D) Taxable return (1 - marginal tax rate) + nontaxable return
E) Nontaxable return (1 + marginal tax rate) - taxable return

Question 66

What is the importance of the APY?

Question 67

You are considering the purchase of one of two different investments.Investment A is tax exempt and pays 6%.Investment B is taxable and pays 8.33%.You live in a state that imposes no income taxes and are in a 28% federal tax bracket and want to earn the highest after tax return possible.Which of the following is true? (round to two decimal places)

A) Investment A is preferred.
B) Investment B is preferred.
C) Investments A and B have identical after tax yields.
D) Investments A and B have identical APYs.
E) Not enough information has been provided.

Question 68

A money order is typically less liquid than a personal check.

Question 69

You are considering an MMMF.The fund is taxable and pays 8.5% interest.If your top federal tax bracket is 25% and you live in a state that doesn't impose income taxes,what after-tax return would you realize from this investment?

A) 6.38%
B) 2.13%
C) 7.44%
D) 8.25%

Question 70

When you use your debit card or ATM card,you should enter the transaction into your check register.

Question 71

You are examining two different MMMFs.Fund A is tax-exempt and pays 5%.Fund B is taxable and pays 6%.You live in a state that imposes no income taxes and are in a 28% federal tax bracket.At what tax rate would the two funds have identical yields?

A) 16.67%
B) 17.76%
C) 20.23%
D) 28.00%
E) Cannot determine from the information provided

Question 72

A traveler's check is a personal check that has been certified as being good by the financial institution on which it is drawn.

Question 73

What is the FDIC?

A) Federal Deposit Insurance Corporation
B) Federal Deposit Insurance Collective
C) Federal Depository Insurance Committee
D) Federal Department of Insurance and Compensation
E) None of the above are correct.

Question 74

For a consumer who does not have a checking account a prepaid debit card is a means of paying for goods and services.

Question 75

Your bank may offer a line of credit,a credit card,or a link to your savings account to cover transactions when you overdraw your account.

Question 76

Suppose that you go to a bank at which you have no account,give the bank cash,and in return obtain a check drawn against that bank which you will use to pay someone else.This is called a

A) cashier's check.
B) certified check.
C) traveler's check.
D) None of the above are correct.

Question 77

Many banks offer free checking accounts.What may be the opportunity costs associated with free checking?

A) Low interest rates
B) Overdraft protection
C) High minimum balance requirements
D) Both A and C are correct answers.

Question 78

Why is it important to convert interest rates into the APY on different accounts and with different banks?

A) Some banks and accounts pay higher advertised rates.
B) The same advertised rate will vary with different compounding periods.
C) The Truth in Savings Act of 1993 omits this comparison.
D) With FDIC Banks it is not necessary to convert interest rates for comparison.

Question 79

What is the name for an automatic loan made to your checking account whenever your account does not contain enough cash to cover the checks that you have written against it?

A) No fee checking coverage
B) Overdraft protection
C) Automatic check coverage (ACC)
D) Draft-free checking
E) None of the above are correct answers.

Question 80

If you only use your debit card and ATM card and rarely write paper checks,overdraft protection is still a good thing to have.