FINANCE (CHAPTER 4)

1. When Flo says she’s going to “the bank,” she may be implying that she is visiting a credit union or stopping at an ATM. TRUE
2. When Ted needs cash, his choices include liquidating savings and borrowing. TRUE
3. A savings account is also known as a demand deposit. FALSEA savings account is a time deposit. A checking account is a demand deposit.
4. If a bank allows online transactions, it must also allow face-to-face transactions at the bank. FALSEThere is no requirement to have a specific location. Some banks are known as “e-banks.”
5. Making transactions using a credit card will immediately reduce your bank balance. FALSEDebit cards affect bank balances. Credit cards are separate from bank accounts.
6. The only question you should ask yourself when selecting a financial service provider is “Where can I get the best return on my savings?” FALSEThis is only one of the basic questions to be asked.
7. A commercial bank is the same thing as a credit union. FALSEBoth are financial institutions; however, they are different types of organizations.
8. A loan from a pawnshop will be more expensive than one from a bank. TRUE
9. The best option for borrowing money at a low rate is to use a payday loan organization. FALSEPayday loans have exorbitant interest rates.
10. If you get a big-screen television from a rent-to-own center, you will be certain to own it after a period of time FALSEYou must complete a certain number of monthly or weekly payments in order to own the item.
11. A benefit of investing in a certificate of deposit is the penalty for early withdrawal. FALSEThis is a disadvantage of CDs.
12. A bump-up CD allows an investor to increase the amount invested. FALSEA bump-up CD has higher rates at various intervals.
13. A callable CD allows investors to ‘cash in’ their investment early. FALSEThe bank may call in the CD after a period of time.
14. If you think that rates will fall, you should buy a long-term CD to lock in your rate now. TRUE
15. All money market funds are not covered by federal deposit insurance. TRUEIn 2008, money market funds that paid a fee were covered by federal deposit insurance as a temporary move to restore confidence in money market funds. Prior to this time, money market funds were not covered.
16. I bonds earn interest based on a fixed rate plus inflation. TRUE
17. HH bonds are also known as Patriot Bonds. FALSEEE bonds are called Patriot Bonds after the September 11, 2001 terrorist attacks.
18. The Truth in Savings Act requires financial institutions to disclose the interest rate on loans. FALSEThis act requires disclosure on savings accounts.
19. As inflation rates increase, the interest rates offered to savers usually increases. TRUE
20. Liquidity and rate of return refer to the same thing. FALSELiquidity and rates are tradeoffs. Liquidity allows one to withdraw money quickly without significant fees or loss of value. Many people trade off liquidity for a higher return.
21. The ‘safety’ concern with banks and credit unions refers to the potential loss of money due to investors’ bad spending habits. FALSEInsurance prevents a loss of money due to the failure of an insured institution.
22. In October 2008, the FDIC announced the temporary Transaction Account Guarantee Program and increased coverage for accounts at insured institutions to $200,000 per depositor. FALSEThe limit is $250,000 until December 31, 2009. This question may be modified as the FDIC changes its coverage.
23. Two years ago, Sean deposited money into a certificate of deposit and received a toaster. The value of the toaster reduced the amount of interest he earned for the first year. FALSEIf Sean would have withdrawn his money before a certain time period, then some of the earnings may have been used to cover the cost of the toaster.
24. Each year, fewer and fewer checks are being written. FALSEAlthough paper checks account for a smaller portion of payments each year, they are still the common source for most debit card transactions and online payments.
25. A college ID that includes prepaid amounts for meals is called a debit card. FALSEA college ID that stores prepaid amounts as well as other information is a smart card.
26. Due to Check 21, the processing time for checks has increased. FALSECheck 21 shortened the processing time.
27. Lydia found a check that she was given for her birthday 9 months earlier. Her bank should refuse to cash the check. TRUEBanks usually do not honor checks with “stale” dates, usually 6 months old or more.
28. Reconciling a checking account is not really necessary since the bank statement includes all activity from the bank’s perspective. FALSEBanks sometimes make errors, so a bank reconciliation should be done each month.
29. Common payment choices for everyday activities include all except A. CashB. CheckC. Credit cardD. Short-term loan E. Debit card D. Short-term loan
30. Many people make mistakes when managing current cash needs. Which of these is NOT a frequently made mistake? A. Borrowing for current expensesB. Budgeting spendingC. Failing to put extra funds in an investment plan D. Having insufficient liquid assets to pay billsE. Overspending due to impulse buying on credit B. Budgeting spending
31. A time deposit is also known as D. A savings account
32. A demand deposit is also known as A. A checking account
33. A credit card is a type of C. Loan
34. A legal agreement that provides for the management and control of assets is known as B. A trust
35. Claudette’s grandchildren are 7 and 9 years old. When Claudette passed away, her grandchildren inherited her money. However, the will stipulated that they should not get control of the money until age 25. Which of the following should be set up to provide for the management and control of the funds? A. A checking accountB. A trustC. A loanD. A savings accountE. A certificate of deposit B. A trust
36. Franklin is planning for a purchase of a vehicle in two years. Since he wants to be certain that his fundsare safe, which of the following should he use? A. A checking account B. A trustC. A loanD. A savings accountE. Home mortgage D. A savings account
37. Investments and tax assistance, both tools for financial planning, are also known as E. Financial services
38. An account that provides a complete financial services program for a single fee is known as A. A cash management account
39.Brenda lost her debit card. When she realized it was gone, her account had $173 in unauthorized charges. She notified her financial institution within two days. How much is she potentially liable for? C. $50
40. Brandon lost his debit card. When he realized it was gone, his account had $238 in unauthorized charges. Since he was embarrassed about his loss, he didn’t contact his financial institution for 45 days. What is the most that he liable for? D. $238
41. ATM stands for C. Automatic teller machine
42. Which of the following is NOT a financial publication that can provide information about financial services and economic conditions? A. The Wall Street Journal B. The Financial TimesC. The Daily MarketD. Business WeekE. Forbes C. The Daily Market
43. When you select a financial service provider, you should ask all of the questions except A. Will I be able to borrow money if I need it?B. How can I minimize the cost of checking and payment services? C. Where can I get the best return on my savings?D. All of the questions above should be asked.E. None of these questions are needed. D. All of the questions above should be asked.
44. When you select a financial service provider, you may find all of the following to be major factors except A. Company logoB. ConvenienceC. Fee structure and other chargesD. Personal serviceE. Rates for savings and borrowed funds A. Company logo
45. All of the following are deposit institutions except A. Commercial bankB. Credit unionC. Finance companyD. Mutual savings bankE. Savings and loan association C. Finance company
46. All of the following are non-deposit institutions except A. Credit card companyB. Investment companyC. Life insurance company D. Mortgage companyE. Payday loan company E. Payday loan company
47. Which of the following usually offers mutual funds? A. Credit card companyB. Investment companyC. Life insurance company D. Mortgage companyE. Payday loan company B. Investment company
48. Which of the following primarily provides loans for home purchases? A. Credit card companyB. Investment companyC. Life insurance company D. Mortgage companyE. Payday loan company D. Mortgage company
49. When Angela wanted to provide financial security for her dependents, she considered purchasing a specific type of account at a ______ C. Life insurance company
50. Billy accepted a job at a company that specializes in providing money for short-term retail lending. Where did he go to work? A. Credit card company
51. Which of the following will likely provide the most expensive access to funds? A. Credit card companyB. Investment companyC. Life insurance company D. Mortgage companyE. Payday loan company E. Payday loan company
52. Cathy wanted to buy some investments. To which of the following should she go? A. Commercial bank
53. Which of the following offers checking, savings, lending, and other services? A. Commercial bankB. Check-cashing outlet C. PawnshopD. Payday loan facility E. Rent-to-own center A. Commercial bank
54. In which of the following are most of the investments insured? A. Commercial bankB. Check-cashing outlet C. PawnshopD. Payday loan facility E. Rent-to-own center A. Commercial bank
55. Harvey needed some cash quickly, so he received a short-term loan based on the value of an old ring. Where did he go? C. Pawnshop
56. When Imogene brought a necklace to a _______, she received a loan based on its value. C. Pawnshop
57. When Jack picked up a personal computer from the _____, he really was leasing it. E. Rent-to-own center
58. Louise got caught in a cash flow trap and needed money quickly. Unfortunately, she didn’t shop around and she went to a _____. As a result, her annual percentage rate was higher than 375%! D. Payday loan facility
59. Why are some financial service operations referred to as financial supermarkets? A. They offer a combination of services from one source
60. A drawback of a savings account is D. Low rate of return
61. A drawback of a regular savings account is A. Low rate of return
62. Another name for a regular savings account is a E. Statement account
63. A certificate of deposit that has different interest levels based on market performance is called a E. Stock-indexed CD
64. Karen wanted a certificate of deposit that would definitely be available until the maturity date. She would NOT want to consider a A. Bump-up CDB. Callable CDC. Portfolio CDD. Promotional CD E. Stock-indexed CD B. Callable CD
65. Wanda bought a certificate of deposit and automatically received a free bike. She purchased a D. Promotional CD
66. Xavier bought a certificate of deposit whose interest rate changes. In fact, he might even earn 0% interest on his investment for a time. He purchased a E. Stock-indexed CD
67. Zach wants to open up an account, but he doesn’t know which kind is appropriate. He is interested in earning a higher interest rate and knows that he might not be able to write many checks from his account. In addition, he plans to keep at least $1,000 in his account so he can avoid paying a fee. He definitely wants to have federal deposit insurance. What kind of account should he open? C. Money market account
68. Amber wants to open up an account, but she doesn’t know which kind is appropriate. She is interestedin earning a higher interest rate and plans to keep at least $1,000 in her account so she can avoid paying a fee. Amber wants to open her account at an investment company. What kind of account should she open? A. Certificate of depositB. Interest-earning checking account C. Money market accountD. Money market fundE. Regular savings account D. Money market fund
69. Will wants to open up an account that will allow him easy access to his funds from many locations and would pay at least a low interest rate. What kind of account should he open? A. Certificate of depositB. Interest-earning checking accountC. Money market accountD. Money market fundE. Regular savings accountATMs or debit card usage. B. Interest-earning checking accountA checking account would provide easy access via checks,
70. The text discusses several types of bonds. Which bond is also called a Patriot Bond? B. Series EE
71. The text discusses several types of bonds. Which bond pays interest for 30 years that is exempt from state and local taxes? B. Series EE
72. The text discusses several types of bonds. Which bond electronically deposits interest into your bank account? C. Series HH
73. The text discusses several types of bonds. Which bond is purchased at face value and has two components to the rate of interest earned – a fixed rate as well as a rate that adjusts twice a year? D. Series I
74. Justin needs to have access to his money in 5 months. The best option for his savings is B. Money market account
75. If you want to buy U.S. savings bonds, you may purchase them at A. BanksB. Financial institutionsC. OnlineD. All of the aboveE. None of the above D. All of the above
76. Earnings on savings can be measured by the D. Rate of return
77. Earning interest on interest is called A. Compounding
78. The Truth in Savings Act requires financial institutions to disclose _____ on savings accounts. A. Annual percentage yield (APY)
79. Which of the following is correct about inflation? A.If inflation is 7%, and your rate of return in your savings account is 4%, you will experience an overall gain in buying powerB. As inflation rates increase, interest rates offered to savers decreasesC. Inflation does not affect interest rates for savings accountsD. In order to increase buying power, you need to earn a rate higher than the rate of inflation E. If you earn 5% and inflation is 10%, your buying power will increase D. In order to increase buying power, you need to earn a rate higher than the rate of inflation
80. Which of the following refers to the opportunity to withdraw money on short notice without incurring a loss in value? A. CompoundingB. LiquidityC. Minimum deposit D. Rate of returnE. Safety B. Liquidity
81. Which of the following provides deposit insurance for credit unions? A. FDCUB. FDICC. NCUAD. SAIFE. None of the above C. NCUA
82. The FDIC temporarily increased its coverage in October 2008 to ________ per depositor. D. $250,000This question may need to be modified as the FDIC changes its coverage levels.
83. Which of the following is a type of electronic payment? A. Certified checkB. Interest-earning checking account C. Money orderD. Smart cardE. Traveler’s check D. Smart card
84. Jennifer received a $50 gift card for her favorite retailer. What kind of card did she receive? C. Stored-value card
85. Aidan wants to be able to complete his payment transactions electronically. Which of the following tools should he use? A. Debit cardB. Online payment C. Stored-value card D. Smart cardE. All of the above E. All of the above
86. Quentin wants his retail purchases to be deducted directly from his checking account. Which of the following tools should he use? A. Debit cardB. Online payment C. Stored-value card D. Smart cardE. All of the above A. Debit card
87. Patrick is interested in opening a different account that will allow him to write checks, but he doesn’t want to maintain a minimum balance. He should open a(n) ________ B. Activity account
88. Preston never opened his bank statements, so he was surprised to see that he received a service charge that exceeded the interest he earned for the month. What kind of account does Preston have? C. Interest-earning checking account
89. Ursula has an account that will allow her to waive the minimum balance if she keeps a certain amount in savings. What kind of account does she have? A. Regular checking account
90. Which of the following is NOT correct? A. Check 21 decreases the processing time for checks.B. Check 21 allows a substitute check to be an equivalent of the original check.C. A substitute check is a digital reproduction of the original paper check.D. Check 21 increases the fees banks can charge for checking accounts.E. All of the above are correct. D. Check 21 increases the fees banks can charge for checking accounts.
91. In general, which fees have recently decreased for checking accounts? A. Overdraft feesB. Stop-payment ordersC. Check printingD. All of the above have decreased E. All of the above have increased E. All of the above have increased
92. Which of the following is correct? A. Canceled checks are typically returned to customers.B. Overdraft protection is a loan banks make for their checking customers whose balances are positive. C.Bank customers typically are provided with online access to view and print checks that have beenpaid.D. Overdraft protection is usually more costly than fees charged for checks with insufficient funds. E Checking account packages with many services included for a single fee usually are a good value . evenifyoudon’tusemanyoftheservicesinthepackage. C.Bank customers typically are provided with online access to view and print checks that have beenpaid.
93. Nora bought a used car and was told that she needed a check with guaranteed payment. She obtained a A. Certified check
94. Kylie went to a post office to obtain a ___________ C. Money order
95. Logan paid a bill with a special form. He received this form at his financial institution and had to pay a fee. He used a _____ B. Cashier’s check
96. Anders went to Norway and went shopping. He had to sign his name a second time on this document at the store. Anders used a _______ E. Traveler’s check
97. A joint account with Sara and Ean allows D. Ean and Sara to both write checks on the account
98. Chloe signed the back of her check with nothing else by it. She used a(n) A. Blank endorsement
99. Zoe signed the back of her check with the words “for deposit only.” She used a(n) B. Restrictive endorsement
100. Margaret signed the back of her check with the words “pay to the order of Penelope.” She used a(n) D. Special endorsement
101. Which of the following is NOT required when writing a check? A. Amount of check written in wordsB. Date writtenC. Driver’s license numberD. Person or organization receiving payment E. Signature C. Driver’s license number
102. If a check is lost or stolen, you should use a A. Stop-payment order
103. Nancy invested $10,000 in a certificate of deposit earning 6 % per year. Unfortunately, she needed to withdraw it before the maturity date. If the penalty involved two months of interest, what was her total penalty? D. $100Penalty = investment interest rate 2 months/12 months = $10,000 6% 2/12 = $100
104. Neil invested $10,000 in a certificate of deposit earning 12% per year. Unfortunately, he needed to withdraw it before the maturity date. If the penalty involved two months of interest, what was his total penalty? D. $200Penalty = investment interest rate 2 months/12 months = $10,000 12% 2/12 = $200
105. What is the APY for a savings account with a $500 balance that receives $24 interest for the year? B. 4.8%APY = 100 (interest/principal) = 100 (24/500) = 4.8%
106. What is the APY for a one-year $8,000 Certificate of Deposit with $1,120 interest? E. 14%APY = 100 (interest/principal) = 100 (1120/8000) = 14%
107. Nicholas earned 10% in his savings account. If he is in the 25% tax bracket, what is his after-tax savings rate of return? C. 7.5%After-tax rate = Return (1 – tax rate) = 10% (1 – .25) = .075 = 7.5%
108. Opal earned 8% in her savings account. If she is in the 25% tax bracket, what is her after-tax savings rate of return? C. 6%After-tax rate = Return (1 – tax rate) = 8% (1 – .25) = .06 = 6%
109. Evan had three accounts as listed below. In 2009, how much was his total coverage by the FDIC? • Bank A: $100,000 • Bank B: $75,000• Bank C: $300,000 A. $100,000 B. $250,000 C. $375,000 D. $425,000 E. $475,000 Note: As the FDIC changes its maximum coverage, the solution for this problem may change.In 2009, the maximum coverage is $250,000 per insured institution. Therefore, he will receive full coverage for Banks A and B and coverage to $250,000 at Bank C. His total coverage equals: $100,000 + $75,000 + $250,000 = $425,000D. $425,000
110. Gwen had three accounts as listed below. In 2009, how much was her total coverage by the FDIC? -Bank A: $275,000 • Bank B: $25,000• Bank C: $350,000 C. $525,000Note: As the FDIC changes its maximum coverage, the solution for this problem may change.This calculation is the same as #110. It is included to allow the same type of problem to be asked on two versions of an exam.The maximum coverage is $250,000 per insured institution. Therefore, she will receive full coverage for Bank B and coverage to $250,000 at Banks A and C. Her total coverage equals: $250,000 + $25,000 + $250,000 = $525,000

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