PFIN Test 2 Chapter 4

Cash is the only kind of liquid asset. True False

False

Extremely low interest rates favor investors and boost the incentive to save True False

False

Low interest rates create economic distortions, especially when real, inflation-adjusted interest rates are positive True False

False

Negotiable order of withdrawal (NOW) accounts manage and administer the investments in a trust account or from an estate. T/F

False

Nondepository institutions are referred to as banks T/F

False

The FDIC covers consumer accounts at credit unions True False

False

A certified check is a personal check that a bank certifies to guarantee that the funds are available. T/F

True

Cash management helps in personal financial planning. True False

True

Compound interest means that a savings account earns interest on the interest previously earned. T/F

True

Debit cards are a form of electronic funds transfer system T/F

True

You are buying a large amount of merchandise through the mail from a dealer several hundred miles from you with whom you have never dealt before. The dealer will probably require that you pay him with: a. a certified check. b. a credit card. c. overdraft protection. d. cash. e. traveler's checks.

a

_____ offer banking services but do not accept deposits like traditional banks. a. Nondepository institutions b. Stock brokerage firms c. Nonprofit organizations d. Credit bureaus e. Mutual funds

a

. Kate tends to issue checks quite often without having a sufficient balance in her account. She should look for an account with a(n) _____ facility. a. ATM b. overdraft protection c. trust services d. mutual fund management e. balance tracking

b

Interest rates are the lowest on: a. savings accounts. b. regular checking accounts. c. money market deposit accounts. d. certificates of deposit. e. money market mutual funds.

b

Jane is a college student who withdraws cash at least five times a week to meet her everyday expenses. Jane should have a checking account with good: a. asset management facilities. b. automated teller machine facilities. c. money market deposit facilities. d. trust services. e. mutual fund management facilities.

b

Low interest rates result in: a. facilitating a greater supply of money for borrowers. b. reducing the cost of financing the federal budget deficit. c. encouraging a higher savings rate. d. bringing more investment avenues. e. improving the standard of living.

b

Mary has calculated her adjusted balance as $500. She notices that her bank's service charges are $20 for this period. Mary's ending balance in her bank account is: a. $520. b. $480. c. $600. d. $500. e. $510.

b

Money market deposit accounts: a. allow free unlimited check writing every month. b. are federally insured. c. have floating maturity dates. d. are offered only by credit unions. e. pay the lowest interest rates of any bank accounts with check-writing facility.

b

When doing an account reconciliation, interest earned on your account should be: a. deducted from your checkbook ledger. b. added to your checkbook ledger. c. ignored because the bank has already recorded it. d. listed as outstanding. e. treated like a loan.

b

Whenever you write a check or make a deposit, an entry should be made in your: a. deposit slip. b. checkbook ledger. c. overdraft booklet. d. balance sheet. e. personal check.

b

The more frequently a bank compounds interest, _____ for a given nominal rate will be. a. the higher the stated interest rate b. the lower the inflation rate c. the higher the effective rate d. the lower the yield rate e. the higher the normal rate

c

Which of the following statements regarding low interest rates is true? a. They encourage investors to search for investments like Treasury bills. b. They encourage the substitution of equity by debt. c. They encourage investors to search for stocks paying high dividends. d. They encourage individuals to save more. e. They encourage paying down the national debt.

c

_____ is the routine, day-to-day administration of liquid assets by an individual or family. a. Depository management b. Resource management c. Cash management d. Bond management e. Treasury management

c

Low interest rates that have persisted since the financial crisis of 2008-2009 have been beneficial to: a. students. b. retirees. c. big banks. d. savers. e. share investors.

c. big banks

. Christina's bank allows her employer to directly deposit her paycheck into her personal bank account. This service provided by Christina's bank is called a(n): a. ATM service. b. Federal Deposit Insurance Corporation (FDIC) service. c. money market service. d. electronic funds transfer system (EFTS) service. e. overdraft service.

d

Brent had $450 in his checking account when his EFTS card and PIN were stolen almost a week ago. Because he has been ill, he didn't report the theft until today, five days after the theft occurred. The delay in notifying the bank means that he could lose: a. $0. b. $25. c. $50. d. $500 e. all the money in his account.

d

Factors that typically influence the choice of where to maintain a checking account are: a. inflation, tax rates, and cost. b. convenience, inflation, and services. c. cost, inflation, and tax rates. d. convenience, services, and cost. e. services, insurance, and cost.

d

Harry received a scholarship of $2,000. He plans to invest this money for 5 years at 8%, compounded annually. If he accomplishes this, Harry will have an ending balance of: (Use time value tables or a financial calculator. Select the closest answer.) a. $2,160. b. $2,520. c. $2,608. d. $2,938. e. $3,162.

d

Joe Gustafson is a very busy person who prefers to use one account to handle all his financial services needs like checking, investing, and borrowing. Which of the following types of accounts is most suitable for Joe? a. A checking account b. A money market deposit account c. A brokerage account d. An asset management account e. A savings account

d

John Anderson deposited $10,000 in a certificate of deposit (CD) for 3 years at 5%. At maturity, it will be worth: (Use time value tables or a financial calculator. Select the closest answer.) a. $10,500. b. $10,725. c. $11,400. d. $11,580. e. $12,400.

d

You are going on an overseas trip, and you want to carry checks. You should purchase: a. cashier's checks. b. certified checks. c. conditional checks. d. traveler's checks. e. guaranteed checks.

d

You had $800 in your checking account when your EFTS card and PIN were stolen. You didn't report the theft for two months after your periodic statement was mailed. How much could you lose? a. $0 b. $50 c. $400 d. $800 e. $800 plus a fee

d

Which of the following statements regarding safe-deposit boxes offered by banks is true? a. They can be opened only by the banker. b. They may increase a homeowner's insurance premiums. c. They are owned by the customers of the bank. d. They can be used to manage mutual funds. e. They can be used as a storage place for important documents.

e

Interest earned for a period should be added to the ending balance shown in your checkbook while reconciling your account. T/F

True

Keeping valuables in a safe-deposit box may reduce homeowner's insurance premium by eliminating the "riders" that are often needed to cover such items. T/F

True

One can hold a credit card issued by a stock brokerage firm T/F

True

The minimum amount that you must keep in an account every day is an important criterion when comparing the features and requirements of different checking accounts offered by a bank. T/F

True

Visa and MasterCard issue debit cards linked to your checking account. T/F

True

You can hold an account with a mutual fund that allows you to write a limited number of checks. T/F

True

Your savings will grow faster with monthly interest compounding than with quarterly interest compounding for a given nominal interest rate. T/F

True

A check you wrote to buy shoes last week has not yet been approved by the bank. It is said to be: a. outstanding. b. credited. c. endorsed. d. certified. e. deposited.

a

A(n) _____ account is called a demand deposit. a. checking b. savings c. asset management d. time deposit e. certificate of deposit

a

Banks must notify customers ______ days before lowering rates on deposit accounts or certificates of deposit. a. 30 b. 60 c. 15 d. 45 e. 10

a

Cash and near-cash resources are known as: a. liquid assets. b. long-lived assets. c. noncurrent assets. d. fixed assets. e. noncash assets.

a

Credit unions are: a. member-owned financial cooperatives. b. mortgage lenders. c. available to the general public. d. special commercial lenders. e. large institutions when compared with commercial banks.

a

In account reconciliation, one of the steps in calculating the adjusted bank balance is: a. deducting total withdrawals still outstanding from the bank balance. b. deducting total deposits still outstanding from the bank balance. c. adding the total credit card outstanding balance to the bank balance. d. adding bank service charges to the bank balance. e. subtracting interest paid on the account's balance for the period.

a

Individuals prefer to invest their savings in stocks rather than traditional instruments like Treasury bonds because bonds have: a. low interest rates. b. high tax rates. c. low GDP rates. d. high effective rates. e. high risk.

a

Liquid assets include your: a. money market deposit account. b. 10-year Treasury bond. c. 3-year certificate of deposit purchased in the current financial year. d. Series EE U.S. savings bond. e. I bonds.

a

Money market mutual funds: a. allow check writing above a stipulated minimum amount. b. are federally insured. c. have floating maturity dates. d. are offered by savings and loan associations (S&Ls) and credit unions. e. pay interest 1 to 3% lower than those paid by a regular savings account.

a

People who do not have checking accounts often use: a. cashier's checks. b. overdraft protection. c. certified checks. d. demand deposits. e. preauthorized deposits.

a

The Federal Deposit Insurance Corporation (FDIC) insures each _____ up to a stated maximum dollar amount at any given financial institution. a. depositor b. account c. shareholder d. bank e. financial transaction

a

The financial crisis of 2008-2009 followed by low interest rates has been beneficial to: a. borrowers. b. retirees. c. shareholders. d. investors. e. savers.

a

The interest earned on an individual's _____ is free of state and local income taxes. a. Series EE bonds b. certificates of deposit c. term deposits d. money market deposit accounts e. time deposits

a

The percentage of _____ out of disposable income has decreased due to low interest rates. a. savings b. expenditure c. taxable income d. insurance e. retirement funds created

a

Which of the following are protected by the Federal Deposit Insurance Corporation (FDIC)? a. Money market deposit accounts b. Money market mutual funds c. Asset management accounts d. Stocks and bonds e. Life insurance policies

a

Which of the following is a rented drawer in a bank's vault? a. Safe-deposit box b. ATM c. Debit card d. NOW account e. Trust service

a

A check you issued last week has been stolen. You can prevent the amount on the check from being withdrawn from your account by an unauthorized person by: a. writing a new check. b. depositing the correct amount of money. c. requesting a stop payment. d. tearing up the check. e. properly endorsing the check.

c

A lump-sum deposit of $8,000 left in a bank for 12 years at 9%, compounded annually, will result in an ending balance of: (Select the closest answer.) a. $11,600. b. $16,640. c. $22,504. d. $52,938. e. $96,000.

c

A safe-deposit box in a bank can be opened only when the: a. banker's key is used. b. account holder's key is used. c. keys of both the banker and the account holder are used. d. key issued to the insurance company is used. e. keys of both the banker and the insurance company are used.

c

Alice lost her EFTS card and reported it missing the next day. She found that $800 had been withdrawn from her savings account. Alice's loss is equal to: a. $0. b. $25. c. $50. d. $800. e. $800 plus a fee.

c

At maturity, a deposit of $6,000 in a certificate of deposit (CD) for 10 years at 3% will be worth: (Select the closest answer.) a. $7,340. b. $7,800. c. $8,064. d. $8,678. e. $9,005.

c

Funds in commercial banks are protected by the: a. National Credit Union Administration (NCUA). b. Federal Depositors Assurance Corporation (FDAC). c. Federal Deposit Insurance Corporation (FDIC). d. National Credit Union Share Insurance Fund (NCUSIF). e. Savings Association Insurance Fund (SAIF).

c

It costs financial institutions more if their customers perform: a. ATM transactions. b. Internet transactions. c. teller transactions. d. check transactions. e. electronic bill pay.

c

Laura has a $100,000 balance in her checking account at Best Bank, and she has purchased a certificate of deposit (CD) worth $50,000 issued by Best Bank. Laura is also thinking of investing $200,000 either in Best Bank or in Trust Bank. Which of the following is a suitable strategy for Laura if she wants her deposits to be completely insured? a. Laura should invest $200,000 in a money market deposit account (MMDA) of Best Bank. b. Laura should invest $100,000 in a money market deposit account (MMDA) of Best Bank and invest $100,000 in an asset management account of Best Bank. c. Laura should invest $100,000 in a money market deposit account (MMDA) of Best Bank and invest $100,000 in an asset management account of Trust Bank. d. Laura should invest $150,000 in a money market deposit account (MMDA) of Best Bank and invest $100,000 in an asset management account of Trust Bank. e. Laura should invest $150,000 in a money market deposit account (MMDA) of Best Bank and invest $200,000 in a money market deposit account (MMDA) of Trust Bank.

c

Low interest rates: a. increase the number of financial institutions. b. do not impact the supply of credit. c. increase the demand for lower-grade, riskier bonds. d. decrease employment opportunities. e. reduce asset prices in financial markets.

c

Macie has $25 in her checking account when her EFTS card and PIN are stolen. If Macie notifies her bank tomorrow, the day after the theft of her card, her loss is limited to: a. $0. b. $25. c. $50. d. $400. e. $500.

c

The least expensive method for banks to interact with their customers is through: a. a vendor. b. phone calls. c. the Internet. d. an ATM machine. e. a full-service teller.

c

The minimum denomination of T-bills is: a. $25. b. $50. c. $100. d. $500. e. $1,000.

c

When a savings bank is a mutual association, it is owned by the: a. borrowers. b. creditors. c. depositors. d. management. e. local government.

c

Which of the following is an interest-bearing checking account? a. Certificate of deposit b. Treasury bill c. Negotiable order of withdrawal (NOW) account d. Series EE U.S. savings bond e. Regular checking account

c

An investor receives the highest interest rate on his or her: a. asset management account. b. regular checking account. c. negotiable order of withdrawal (NOW) account. d. money market deposit account (MMDA). e. share draft account.

d

A customer withdraws funds by writing checks from his or her negotiable order of withdrawal (NOW) account and: a. certificate of deposit. b. savings account. c. term insurance deposit. d. time deposit. e. share draft account.

e

A(n) _____ is traditionally a non-interest-paying demand deposit account. a. money market mutual fund b. money market deposit account c. negotiable order of withdrawal (NOW)account d. asset management account e. regular checking account

e

Compared to other depository financial institutions, credit unions: a. are more beneficial to all kinds of consumers. b. pay lower interest on savings to their members. c. have a greater number of account holders. d. have a greater number of branches. e. charge lower rates on loans to their members.

e

Funds invested in a _____ should not be withdrawn for a stated period in order to avoid an interest penalty. a. savings account b. U.S. Treasury bill c. checking account d. negotiable order of withdrawal (NOW) account e. certificate of deposit

e

The _____ department of a bank provides investment and estate planning advice. a. safe-deposit b. electronic funds transfer c. debit card d. NOW account e. trust services

e

Which of the following is an aspect of asset management accounts? a. Limited free checking of available balance b. Sweeping of excess balances into money market deposit account (MMDA) c. Fixed annual fees and account charges on deposit account d. Borrowing and investing facility unavailable to accountholders e. Deposits protected by the Securities Investor Protection Corporation (SIPC)

e

Which of the following savings vehicles is free of state and local income taxes? a. Certificates of deposit b. Money market mutual funds c. Time deposits d. Money market deposit accounts e. I savings bonds

e