Chapter 5, FIN 269 Personal Finance chapter 4

A restrictive endorsement is comprised of:

"for deposit only" and your signature

A special endorsement is comprised of:

"pay to the order of," the name of the payee and your signature.

What is the face value dollar limit for electronic purchase of I and EE bonds per person per year?

$20,000

The bank balance of the checking account is $500, the current balance in the checkbook is $325, bank fees are $25, and the outstanding checks are the only additional item. How much are the outstanding checks?

$200 $500 - (325 - 25) = $200

Using compounding, how much interest will be earned in the second year of a savings account that has an original balance of $100 and earns 5% interest per year?

$5.25

Place the steps to writing a check in rank order from first to last.

(1) Record the date. (2) Write the name of the person receiving the funds. (3) Record the amount of the check in figures or numbers. (4) Write the amount of the check in words. (5) Sign the check. (6) Note the reason for the payment.

Banks and other financial institutions offer services in four main categories:

-Savings -Cash availability and payment services -Borrowing -Investments and other financial services

Check-cashing outlets usually charge fees of:

1% - 20% of the face value of the check

check writing procedure

1) record the date, (2) write the name of the person or organization receiving the payment, (3) record the amount of the check in figures, (4) write the amount of the check in words (checks for less than a dollar should be written as "only 79 cents," for example, and cross out the word dollars on the check), (5) sign the check, (6) note the reason for payment.

A $200 savings account that earned $8 after a year would have a rate of return, or yield, of _____ percent.

4. (8/200)

Financial institutions consider checks that are older than ______ to be "stale dated."

6 months

You are in the 25% tax bracket. So, the yield on the savings account is 8%, and the after-tax savings rate of return is:

6% 1-.25 = .75 .08 * .75 = 0.06

If you lose your debit card and report it after more than _____ days, your liability may be the total amount in your bank account.

60

Trusts are typically created by which of the following?

A lawyer and a commercial bank

Bob wrote a check to Linda in the amount of $160. When she deposited the check, she accidently wrote $180 on her deposit slip (or mobile device) and the bank did not catch the error. The resulting $180 debit in Bob's account went unnoticed by both Bob and Linda. This bank error resulted from:

Bob and Linda's failure to reconcile their checking accounts.

Cash availability and payment services

Checking accounts

_____ is a process that calculates interest based on previously earned interest.

Compounding

Borrowing

Credit cards, cash loans

Which deposit-type institution is user-owned, nonprofit, cooperative organization?

Credit union

This type of card is a plastic access card used in computerized banking transactions.

Debit card

_____ deposits include checking accounts and other payment methods.

Demand

True or false: Bouncing a check can be very inexpensive.

False

True or false: Debit cards allow you to wait to deduct the amounts from your account.

False

True or false: Interest-earning checking accounts normally pay high rates

False

True or false: The ability to transfer money is not a necessary part of daily business activites

False

True or false: Typically each person is insured up to $100,000 deposited in to each financial institution.

False

True or false: Web-only banks have declined in recent years.

False

Which of the following are good sources of information for economic trends?

Fortune Magazine; Business Week; The Wall Street Journal

Select the types of federal savings bonds that are currently sold.

I; EE

deposit institutions

Include commercial banks, savings & loan associations, mutual savings banks, and credit unions.

A reduction in long-term financial security can be caused by:

Increased borrowing; using savings

What type of financial institution typically does not have federal deposit insurance

Investment companies

In April 2006, FDIC coverage was increased for:

Keogh plans, SEP IRAs, Roth IRAs, and traditional IRAs

What three actions should you NOT take if you are a victim of identity theft?

Leave the area until the problem is resolved; Call your friends and neighbors; Locate the person who stole your identity.

Which of the following institutions offer financial services?

Life insurance companies; Mortgage companies; Investment companies; Credit card companies; Finance companies

An institution that is owned by depositors and specializes in savings accounts and mortgage loans is a:

Mutual savings bank

_____ protection is less costly than paying a fee for an unfunded check.

Overdraft.

Which type of service is not generally offered by a credit union?

Real estate brokerage

Which of the following is NOT a typical type of CD?

Reduction-rate

_____ checking accounts usually have a monthly service charge that you can avoid by keeping a minimum balance in the account.

Regular

Which of the following is not an example of type of financial service that is focused on payment services? In other words, which of the following does not involve payment of money on your part?

Regular savings account

Which of the following services do savings and loans offer?

Savings accounts; Lending; Checking accounts

Savings

Selection of a savings plan is commonly based on the interest rate earned, liquidity, safety, and convenience, which are discussed later in the chapter.

The Truth in Savings law requires the following items to be disclosed:

The annual percentage yield (APY), the interest rate, fees on deposit accounts, and other terms and conditions of the savings plan.

What is the main function of a finance company?

To make loans to consumers and small businesses

What is the main purpose of life insurance?

To provide financial security for dependents.

What is the main function of a mortgage company?

To provide loans to purchase homes

Financial services can change due to such factors as changing interest rates and rising consumer prices.

True

True or false: A current shortage of cash will require two basic choices: liquidate savings or borrowing.

True

Another name for an automated teller machine (ATM) is:

a cash machine

The rent to own process is:

a lease and buy option

A regular savings account usually offers:

a low or no minimum balance requirement

Accounts that charge a flat fee for a package of services (i.e., safe deposit boxes, travelers checks, and travel insurance) are only valuable to:

a small group of customers.

asset management account

also called a cash management account or a wealth management account provides a complete financial services program for a single fee.

The _____ is the percentage rate expressing the total amount of interest that would be received based upon time and compounding.

annual percentage yield

On an interest-bearing checking account, always compare the interest earned with:

any service fees

A _____ check is a check drawn on a financial institution.

cashier's

A savings plan that requires a certain amount of money to be left for a specified amount of time is a:

certificate of deposit

A _____ check is a personal check with guaranteed payment

certified

A _____ bank is a financial institution that offers a full range of services.

commercial

Credit alternatives to be used for borrowing if an individual needs more cash than is available include:

credit cards and personal loans

Common payment choices include:

credit cards, checks, debit cards, and cash

Using savings for paying _____ expenses is one of the mistakes people make when managing current cash needs.

current

A _____ ticket or slip is used to add funds to a checking account.

deposit

Mutual savings banks are owned by:

depositors

mutual savings banks are owned by

depositors

Benefits of online banking include:

e-mail notices for due dates; convenience for transactions; time savings.

Activity accounts charge a fee for each check written and sometimes a fee for:

each deposit transaction

The biggest advantage of using APY is:

easy to compare rates

Parents who set aside funds for their children will often intend for the money to be used for:

education

When you sign the back of the check, this is an:

endorsement

Money market accounts at commercial banks are insured by _____, whereas money market funds are not.

federal deposit insurance

Drawbacks of money market accounts include:

fees for low balances and higher minimum balances required.

There is no penalty on redemption of Series EE bonds if redeemed after _____ years.

five

The benefits of creating a portfolio with CDs with multiple maturities are:

flexibility and liquidity

Benefits of U.S. savings bonds include:

government guarantee, low minimum deposit, and exemption from state and local taxes

A money order:

guarantees payment

If a customer "rolls over" her or his payday loan, it is easy to:

have fees that exceed the amount borrowed.

Asset management accounts are commonly offered by:

investment companies

Additional financial services that may be needed for successful financial management include

investments, trust services, insurance, financial planning, and tax assistance.

trust

is a legal agreement that provides for the management and control of assets by one party for the benefit of another.

A blank endorsement is comprised of:

just a signature

When interest rates are falling, you should:

lock in current rates by choosing long-term savings options and prefer short-term loans over long-term loans.

A trust is a legal agreement that provides for:

management of assets; created by one party for benefit of another; control of assets

Smart cards offer electronic services such as:

medical history, banking activities, transaction records, transaction records, and insurance information

Drawbacks of CD (certificate of deposit) accounts include:

minimum deposit and early withdrawal penalty

A _____ fund is an account used for savings offered by investment companies.

money market

commercial banks

offer the entire range of banking services, such as checking and savings accounts, loans, and financial advice

EE bonds have a minimum holding period before it can be cashed of:

one year

high cost financial services typically include:

payday loans, pawn shops, check cashing outlets, rent to own centers

Which of the following are considered demand deposits:

payment accounts and checking accounts

Benefits of online banking include all of the following except:

possibility of "phishing"

When the number of days is 365 in the term, the APY formula can be expressed as: APY = 100 (interest/_____)

principal

Comparing your checkbook balance to the bank balance is called:

reconciliation

Share accounts are the same as:

regular savings accounts

High cost financial services typically include:

rent to own centers; payday loans; check cashing outlets; pawn shops

The rate of _____ is the percentage increase in the value of savings as a result of interest earned.

return

Saving funds for future use is necessary for financial:

safety

A _____ and loan association traditionally specializes in savings accounts and mortgage loans.

savings

A _____ card is the document that records the official signatures of the person or persons authorized to write checks on the account.

signature

Online payments do NOT include:

smart cards

The three main types of endorsements are:

special, restrictive, blank

Indexed CDs have rates that vary with the:

stock market

A credit union is owned by:

the members

Your maximum liability for a lost or stolen debit card will be $50 if you notify the financial institution within _____ days.

two

A joint account means:

two or more owners

credit unions

user-owned, nonprofit, cooperative financial institution

Which of the following is the maximum amount of liability if a card issuer uses the same rules for lost or stolen debit cards as for debit cards?

$50

If you lose your debit card and report it lost after the time period of 2 days, but before 60 days, your liability may be as high as:

$500

Which of the following is not true regarding ATM's?

All financial institutions charge the same ATM fees

Which of the following is a service not offered by savings and loans?

Trip planning services

True or false: An effective management plan is needed for buying groceries, paying the rent, a nd other routine spending.

True

True or false: Banking online and electronic banking have expanded in recent years.

True

True or false: EE bonds continue to earn interest past their maturity date.

True

Share draft accounts at a credit union:

are interest bearing till a minimum balance is maintained

EE bonds are exempt from state and local taxes, but federal income tax is typically due:

at redemption

Traveler's checks allow you to make payments when you are

away from home for any reason.

When comparing savings accounts rates of return, you should choose one that:

beats the rate of inflation

A challenge of rising-rate CDs include:

high interest rates at end of the term-maybe only for a couple of months

life insurance

includes investment options, savings alternatives, providing for dependents

The two parts of interest on an I bond are an:

inflation rate that changes semiannually and fixed rate of interest for the life of the bond.

All of the following are deposit-type institutions that serve as financial intermediaries except:

insurance companies

For callable CDs, banks may "call" these instruments if:

interest rates drop

A customer should compare and select a financial service provider if:

its cost of checking and payment services is minimum; money can be borrowed when needed; the return of savings is the best

The savings alternative that offers more liquidity is:

money market accounts

Pawnshops are regulated by:

the state

the interest rates charged by pawnshops are regulated by:

the state

Overdraft protection is an automatic loan made to checking account customers to cover checks written in excess of:

their balance

Certified checks, cashier's checks, and money orders allow you to make a payment that the recipient knows is _____

valid

The typical customer of an activity account:

writes a few checks each month; does not maintain a minimum balance

Debit cards are different from credit cards because:

you are spending your own money when you use a debit card.

Payday loans are typically used by people who:

are trapped by debts

check-cashing outlets

charge high fees (sometimes 2 or 3 percent) just to have a paycheck or government check cashed. offer private postal boxes, utility bill payment, prepaid debit cards

When interest rates are rising you should:

choose short-term savings vehicles, use long-term loans

There is a trade-off between liquidity and:

higher return

time deposit

include money in savings accounts and certificates of deposit

Depositors with federal deposit insurance have:

more security than non-insured accounts, not lost money in recent years.

savings and loan associations

most of these organizations offer financial services comparable to a bank

Redeemed EE bonds may be exempt from federal income tax if the funds are used to pay tuition and fees at a college or qualified technical school for yourself or for a dependent.

True

True or false: Asset management accounts are a collection of financial services offered for a single fee.

True

True or false: One criterion for choosing a saving plan is the interest rate.

True

money market fund

A combination savings-investment plan in which the deposit holder (brokerage firm) invests your money in a variety of financial instruments

A major concern with prepaid debit cards is

The high fees often charged

Which of the following is true about mobile transfers?

They are expanding. They can be made through wireless devices such as smartphones.

What is the purpose of liquidity?

To allow you to withdraw money on short notice