WISE Personal Finance Study Questions- Banking

If a person makes a deposit of $10,000 or more into a bank account, the bank must notify theA) US Treasury Department. B) Federal Deposit Insurance Corporation. (FDIC). C) State Banking Commission. D) Federal Reserve Board. A (In order to track large deposits, the federal government requires that deposits of $10,000 or more be reported to the Treasury Department. Some concerns may be that a person might be trying to avoid paying taxes on game winnings or perhaps illegal gains.)
Joan wants to open a checking account and wonders if checking accounts pay interest. How would you answer her question?A) All checking accounts pay interest B) Some types of checking accounts pay interest C) Checking accounts never pay interest D) Checking accounts pay interest if the account balance does not fall below $300.00 B (Regular checking accounts do not earn interest. NOW (negotiable order of withdrawal) accounts do earn interest but tend to have higher minimum balance requirements than regular checking accounts and often limit the number of checks that can be written each month without a fee.)
A bank Certificate of Deposit is a:A) Savings instrument that requires a deposit for a period of time during which the saver can withdraw money from the plan at any time without a penalty B) Savings instrument that requires a deposit for a period of time during which there is a penalty for withdrawals C) Cash deposit in a savings account that earns interest D) Certificate for deposits that are issued for half the face value B (A certificate of deposit (CD) is a savings instrument that requires a deposit for a period of time (term) during which the saver cannot withdraw money from the plan without a penalty. CDs are issued with terms from 31 days up to eight years. The longer the consumer agrees to loan the money to the bank or credit union, generally the higher the interest rate. It is considered a form of savings because the consumer is paid interest based on the dollar amount and term of the CD. If the consumer does not collect his/her money at the end of the term, the money may be rolled over into another CD.)
Pat has a savings account and a car loan from a not-for-profit financial institution owned by its members. She is probably a member of what type of financial institution?A) Credit union B) Commercial bank C) Savings and loan association D) Investment club A (Credit unions are not-for-profit savings and lending financial institutions. Membership in a credit union is made up of individuals who have something in common, such as a place of employment, membership in a professional organization, or residence in the same geographic area. Loans are made to its members from the savings of other members. Loan costs tend to be lower and savings interest rates higher at credit unions than at other types of financial institutions.)
The financial institution where Ms. Sanchez has her checking account will continue to pay out money for the checks she writes as long as:A) She uses checks from her checkbook B) The financial institution has sufficient funds C) There is enough money in Ms. Sanchez’s account to cover the amount of the checks D) She maintains a good record of deposits and handles her account responsibly C (The financial institution is not obligated to honor a check if it is written for more money than the current checking account balance. The customer will be charged an insufficient funds penalty for each check not covered by a sufficient balance in the account.)
Travelers checks, often used for vacations:A) Are equivalent to credit cards B) Are free at most banks C) Function as cash and are easily replaced if lost D) Are FDIC insured C(Traveler’s checks are documents that function as cash, can be replaced if lost or stolen, and are generally accepted throughout the world. For these reasons, they are often used on vacations and other trips. The purchaser signs a traveler’s check immediately after purchasing it and again when paying for a purchase with it.)
Which financial product may pay a dividend?A) Savings account B) Money market account C) Certificate of deposit D) Common stock D (All of these types of accounts and financial products except for common stock earn interest. Some companies declare and pay dividends to their common stock shareholders.)
Financial services and products generally offered by banks and credit unions include:A) Real estate listings B) Savings and loans C) Legal services D) Business plans B
Frankie’s savings account has earned a lot of interest. He wants to know if he must pay taxes on the interest earned. What would the IRS tell him?A) Interest earned on savings accounts is not taxable B) A sales tax will be charged on the interest earned C) Savings account interest is taxable D) If the interest is under $50, it is not taxable C (Savings account interest is taxable. If Jerry’s total earnings, including savings account interest, are high enough that he must pay income tax on them, the savings account interest is added to his other income and it is all taxed at the same rate.)
Safe-deposit boxes are:A) A free benefit for accounts with deposits starting at $50,000 B) Safe and can be accessed only by the owner of the box C) Available at all banks D) Convenient and accessible at any hour of the day or evening B
Patty is selling her car through a newspaper advertisement. When she finds a buyer, she wants a form of payment which is guaranteed to be good. Which form of payment should she avoid?A) Cash B) Certified check C) Cashiers check D) A check D
The term used to describe the ease and speed with which you can convert savings or an investment to cash is:A) Convertibility B) Principal C) Liquidity D) Rate of return C
A blank endorsement on a check:A) Has no effect on the check B) Cancels the check C) Creates a check that can be cashed by anyone D) Restricts the use of the check C (A blank endorsement is your signature only and is like cash. Anyone who holds the check can present it for payment at a bank or credit union. Therefore, a blank endorsement should not be used unless you are in the financial institution when you endorse the check. Some banks and credit unions are asking for a picture ID before they will cash a check.)
A person is depositing $20 in cash and a check for $50. On the checking account deposit slip, the person shouldA) include the reason that both cash and a check are being deposited. B) indicate what bank issued the check that is being deposited. C) indicate the amount of money that is currently in the checking account as well as in a savings account to cover the check. D) list the cash deposit separately from the check as well as the total of the deposit. D (Deposit slips have columns for the depositor to list cash and each check that is being deposited separately. Aside from this information, the depositor lists the total of the deposits, the date and the account number (if it is not a preprinted slip taken from the individual?s check book) on the deposit slip.)
Banks use savings account deposits to:A) Make their services and products attractive for new depositors B) Pay for employee special projects C) Give loans to consumers and businesses D) Improve the quality of life in low-income communities C
Which financial product has the most predictable income?A) Stock B) Real estate C) Certificate of deposit D) Option/future contract C
Which financial product can you buy for $25, is safe, and will be worth $50 at a future date?A) Series EE savings bond B) Certificate of deposit C) 50 shares of ABC Co. stock D) ABC Co. bond A
The most liquid type of investment is:A) A corporate bond B) A certificate of deposit C) Real estate holding D) A money market account D (The most liquid type of savings is a statement savings account. You can withdraw money from it quickly and easily at any time without penalty. Stocks, bonds, and real estate have less liquidity than statement savings accounts because these investments must first be sold before they can be converted to cash. Typically, the greater the liquidity and flexibility, the lower the interest rate paid. The cost of this flexibility and liquidity is a lower interest rate than is paid on certificates of deposit and other investments.)
A teenage boy has opened a checking account. He is surprised to find that though he is getting a written bank statement each month he is not getting his canceled checks returned. The teenager should be aware that the reason canceled checks are NOT returned is toA) protect him from providing opportunities for forgery. B) insure that he does not receive important materials he is likely to lose. C) lessen the bank?s need to maintain records of check transactions. D) save the bank money associated with returning copies of these checks. D (The bank must keep the original or copies of all checks written. If the bank does not have to make and mail copies of checks there is a savings of time and money.)
What action should a person take who must make a tuition payment at the end of August each year?A) Decide how much money will be needed and then place 1/12th of that amount in a separate account each month. B) Divide the total amount of money that will be needed into 12 equal parts and invest that amount in stocks. C) Obtain a short- term collateralized loan for the needed amount of money. D) Plan to open a new credit card account that will be used to charge the needed amount of money. A (This is an example of ‘pay yourself first.’ The best way to save in order to make a yearly purchase, in this case a tuition payment, is to immediately deposit a portion of the payment in a form of savings account (so it can earn interest throughout the year) as soon as the person is paid each payroll period.)
When a person is reconciling a checking account and notices that the balance in the checkbook does not match the balance on the statement from the bank, which action is it appropriate for the person to take first?A) Determine that checks already written have cleared. B) Deposit sufficient funds to adjust the balance in the checkbook to match the bank’s balance. C) Adjust the balance in the checkbook so it is the same as the bank’s balance. D) Notify the bank in writing to adjust the statement. A
Doug wants to buy a car in two months, but does not have enough money. What is the best way for Doug to get the money he needs?A) Purchase a certificate of deposit B) Take out a cash loan C) Open a money market account D) Apply for a thirty year mortgage B
Margaret wants to store a valuable coin collection and important papers. Generally, consumers should:A) Store valuables in a cabinet at home B) Rent a safe deposit box for their valuables C) Hand valuables over to their attorney D) Store valuables in locked drawer B
When James received his paycheck, he planned to cash it at a check cashing store. You advise him to cash it at his own bank if possible. Why?A) They typically require a two day waiting period before giving cash B) They typically charge high fees C) There is likely to be a ceiling on the size of the check he can cash D) They generally require a co-signor B (Check-cashing stores usually charge high fees to cash checks and sometimes encourage consumers to take out high interest rate payday loans.)
How can individuals be prepared for losing their job or having a large medical expense?A) Maintain a checking account with sufficient funds B) Pay credit card bills on time C) Prepare a budget D) Save at least three months of income D (People generally need three to six months’ of income in a savings account to cover unknown and unexpected events and expenses.)
Money orders are:A) Distributed by the Treasury Department B) Available for no fee at banks and retail stores C) A purchased certificate to pay a specified amount to a specific payee D) A certified check used to pay a specified amount to a specific payee C
You have a checking account balance of $100 and you deposit a personal $200 check from your brother in your checking account. When will you be able to withdraw $150 in cash?A) The same day as the $200 deposit B) 3 to 7 days later, depending on your bank’s check clearance policy C) After receiving a checking account statement at the end of the month D) On the day you make your next deposit B
The National Credit Union Administration (NCUA) insures accounts in:A) Credit unions B) Commercial banks C) Brokerage firms D) Savings banks A
The best reason for depositing money in a bank or credit union savings account instead of keeping your money “under the mattress” is that:A) Money deposited in savings accounts are F.D.I.C. insured B) Most savings accounts earn a guaranteed rate of interest C) Most savings accounts come with a free credit card D) Money in a savings account can be accessed any time during the day or night A
“The Fed” is short for:A) The Federal Reserve System B) Congress C) FBI D) The Federal Deposit Insurance Corporation A
Which is the best example of a way to reduce fees paid for ATM transactions?A) When making supermarket purchases with a debit card, a person adds $50 in cash to the transaction instead of using an ATM machine. B) When using an ATM machine, a person takes only $20 each time out of the ATM machine located in a neighborhood store. C) A person uses any nearby bank ATM machine rather than going to a branch of the issuing bank to make ATM withdrawals. D) A person uses any convenient ATM machine but only at night and on the weekends. A
Troy has $50 a month transferred electronically from his checking account to his savings account. This is an example of:A) An installment payment B) A savings plan C) An ATM transaction D) A debit card transaction B
Employees prefer direct deposits because:A) There is a small fee for the service B) The danger of losing a paycheck is slightly reduced C) The money is generally deposited in their checking account sooner than it would be if they had to deposit it in person D) Direct deposits earn a higher rate of interest C
Which documents should be stored in a safe-deposit box?A) Checkbook statements. B) Copies of current and past budgets. C) Current paycheck stubs. D) Mortgage loan papers. D
Consumer finance companies, which are often advertised on TV, are also known as:A) Banks B) Savings and loan associations C) Small loan companies D) Purchase loan lenders C (Consumer finance companies specialize in making small loans to individuals or businesses. They primarily make loans to people who cannot qualify for credit elsewhere because of a poor credit history, low income, or minimal assets. For these reasons, interest rates are usually higher than loans from a bank or credit union.)
The phrase used for putting money into a savings account is:A) Verifying the account B) Balancing the account C) Making a deposit D) Making a withdrawal C (Putting money into an account is “making a deposit” and taking money out is “making a withdrawal.” An account owner can deposit additional money into the account at any time.)
Which financial product typically pays the highest rate of interest?A) Savings account B) Money market account C) Certificate of deposit D) Common stock C (All of these types of accounts and financial products earn interest except for common stock. They all earn interest at different rates. Generally, certificates of deposit have the highest interest rate and savings accounts the lowest. Some companies declare and pay dividends to their shareholders.)
The best suggestion you gave a friend who is writing a check for the first time is:A) Date the check because it is usually proof of payment B) Use pencil to permit changes C) Make the check payable to cash D) Use the checkbook stub or register to keep a record of the date you write the check D (Date the check because checks are proof of payment. Checks written in pencil or erasable ink can be changed to pay a different payee or amount than the check writer intended to pay. Keep a record of the check written in the checkbook register or stub and deduct the amount from your checkbook balance so you know how much money you have left and you can reconcile your checking account against the bank statement. In addition, it is harder for a forger to change the dollar amount if, on the second line, it is printed rather than written in cursive.)

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