Deck 8: The Payment System and Financial Institution Relationships

Question 1

Drafts are very similar to checks; the main difference is that

A)the payee must authorize payment when drafts are presented
B)banks always charge more than twice as much to process drafts
C)checks are not always drawn on banks but drafts are
D)many more drafts bounce than checks

Answer 1

A

Question 2

Checks drawn on banks that do not participate in a bank's local clearing house or exchange are called

A)remote items
B)presentment items
C)courier items
D)transit items

Answer 2

D

Question 3

Interstate banking on an unlimited scale would make short-term financial management

A)less costly and more efficient
B)obsolete
C)more costly
D)less efficient and more dependent on computers

Answer 3

A

Question 4

Fed float occurs because the Fed

A)is no longer involved in the check clearing process
B)cannot immediately transfer funds to the pay in its wire transfer system
C)grants check availability to the clearing bank before debiting the pay bank
D)debits the pay bank for check amounts before granting availability to the clearing bank

Question 5

The numbers on the bottom area of a check which shows the bank identification number is also known as a

A)transit routing number
B)check imaging number
C)batch settlement number
D)scanning image number

Question 6

The bank of first deposit will select the clearing mechanism to use based on all of the following except:

A)the dollar amount of the check
B)the location of the draw bank
C)the desires of the party that wrote the check
D)the availability schedule the bank would be granted for each clearing alternative

Question 7

Some corporations have been reluctant to use the ACH system more than they do because

A)the payor loses some disbursement float and control
B)the mail offers greater security
C)the ACH system reduces funds availability forecasting
D)of the higher costs of banking,reconciliation and cash application

Question 8

Advantages of wire transfers include all of the following EXCEPT:

A)best method for quickly moving large sums of money
B)achieve immediate final transfer of money
C)inexpensive relative to automated clearing house transactions
D)can be completed in manner of minutes

Question 9

A central location where representatives of area banks meet and settle balances with only one institution is termed a (an)

A)automated clearing house (ACH)
B)Regional Check Processing Center
C)clearing house
D)communications and records center

Question 10

Knowledge of the regulatory system,and changes to it,is important to the cash manage because:

A)banking fees are only determined by federal banking regulations
B)inefficiencies introduced by the regulatory system enable the cash manager to create value
C)the regulatory environment has a strong influence on the credit line rates charged by banks
D)it helps them to better forecast interest rates

Question 11

_______________ is NOT an electronic means to transfer payments..

A)wire transfers
B)Time drafts
C)EDTs
D)Automated debits and credits

Question 12

Check clearing in the Federal Reserve System is handled by

A)the Board of Governors and the Federal Advisory Council
B)the Federal Reserve (district)Banks and Regional Check Processing Centers
C)the Federal Reserve (district)Banks and all member banks
D)all member banks and Regional Check Processing Centers

Question 13

The growing similarity of products and services offered by savings and loan associations,mutual savings banks,credit unions,and commercial banks is primarily the result of

A)the Depository Institutions Deregulation and Monetary Control Act
B)the Financial Institutions Reform,Recovery,and Enforcement Act
C)the Norris-La Guardia Act
D)the FDIC Improvement Act

Question 14

The three basic components to collection or disbursement float for mailed checks are:

A)mail float,Fed float,processing float
B)mail float,processing float,clearing float
C)mail float,bank float,processing float
D)mail float,bank float,clearing float

Question 15

Recently enacted international bank capital standards (the Basel standards)require banks to hold the most capital for ______________,less capital for ______________,and the least capital for ______________ due to the different risk weightings.

A)Treasury bonds,home mortgages,business loans
B)home mortgages,business loans,Treasury bonds
C)business loans,Treasury bonds,home mortgages
D)home mortgages,Treasury bonds,business loans
E)business loans,home mortgages,Treasury bonds

Question 16

From the payor's perspective,float adds value because of the delay between the point in time when a check _______________ and the point in time when the check ________________________.

A)is written,is debited to the payor's account
B)is mailed,is deposited by the payee
C)is deposited,is debited to the payor's account
D)is mailed,is processed by the bank of first deposit

Question 17

A ___________ draft is initiated by the payee,who has been approved to draw against the payor's account.

A)payable through
B)sight
C)preauthorized
D)depository

Question 18

The major paper-based payment (or funds transfer)mechanisms are

A)checks,CHIPs
B)checks,ACHs
C)checks,drafts
D)checks,Western Union transfers

Question 19

The most popular corporate ACH payment application to date has been

A)Consumer debits
B)Corporate trade payments
C)direct deposit of payroll
D)none of the above

Question 20

Recent evidence suggests that checks written in the U.S.are _________ popular than ACH payments with a _________ rate of 2% per year.

A)Less,declining
B)Less,growing
C)More,declining
D)More,growing

Question 21

Daylight overdrafts occur:

A)When a bank's Federal Reserve account is positive during the day
B)When a bank's Federal Reserve account is negative during the day
C)Mainly because of international funds transfers of government securities transactions
D)'a' and 'c'
E)'b' and 'c'

Question 22

Location,service quality and breadth,bank specialties,_____________,and _______________ are the major factors companies evaluate banks on when first establishing a banking relationship.

A)bank/company fit,price
B)knowledge of the bank's cash management personnel,price
C)existence of a lending arrangement with the bank,bank/company fit
D)bank size,how long the bank has been offering cash management services

Question 23

Cross-border check processing typically involves clearing delays of

A)one to three days.
B)three to five days.
C)several days to several weeks.
D)from one week to several months.

Question 24

Why is the availability schedule so important to a cash manager?

A)it shows the difference between ledger and available balances on a given deposit
B)it reveals the fee structure of the bank on a given deposit
C)it indicates whether compensating balances might be required on a given deposit
D)all of the above

Question 25

CHIPS refers to the payment system that

A)handles interbank transactions needed to settle international transactions
B)is equivalent to an ACH system but is solely used for security transactions
C)exclusively clears bounced checks that are drawn on foreign banks
D)handles only transactions between various countries' governments or their agencies

Question 26

"Double-counting"

A)never occurs at small banks
B)is consider unethical by cash managers
C)never occurs on intrabank transfers
D)can never be created by lateral transfers

Question 27

Out of the following,which cash management activity was altered the most as the U.S.allowed nationwide bank branching?

A)Concentration
B)Disbursements
C)Investments
D)Borrowing
E)Cash Forecasting

Question 28

In September,the Johnson Company utilizes direct sends for which its bank charges fees of $100.The bank's earned credit ratio and reserve requirement are 5% and 12%,respectively.What is the minimum balance required to compensate the bank for the September fees?

A)$2,000
B)$12,177
C)$24,333
D)$27,652

Question 29

Compensating balances have the following advantages EXCEPT:

A)Have the effect of increasing total deposits and assets
B)Can be re-loaned to another customer
C)Are directly comparable between banks
D)Form a cushion

Question 30

Value dating refers to the practice in which banks delay availability of deposited checks and

A)Delaying the availability of deposited checks
B)retroactively advance the debit date for cleared checks
C)results in easier monitoring by the company of its bank balance
D)'a' and 'b'
E)all of the above

Question 31

An insurance company has recently begun collecting its premiums electronically instead of by mailed checks.A predictable effect of this on the insurance company would be

A)higher per-item bank charges
B)high staffing expenses
C)more return items
D)more accurate cash forecasts