Banking

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?

Correct Answer : A: Credit union Reason : 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.

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?

Correct Answer : A: Determine that checks already written have cleared. Reason : Quite often, the balance reported on a checking account?s bank statement differs from the balance in the person?s checkbook. Reasons for that difference may be due to checks that have been written, and therefore are in the checkbook?s register, but that have not been cleared (returned to the bank for payment). Therefore, first, the person must looked at the bank?s statement and compare it to his/her checkbook register to see that all checks written have cleared.

The best reason for depositing money in a bank or credit union savings account instead of keeping your money "under the mattress" is that:

Correct Answer : A: Money deposited in savings accounts are F.D.I.C. insured Reason : Deposits in virtually all banks or credit unions earn interest. Banks send statements showing all deposits, withdrawals, and current account balances each month. Money earns a higher rate of interest in a savings account than in a checking account that pays interest. Money is easy to withdraw from a checking or a savings account. Money kept "under the mattress" could be stolen or lost in a fire and does not earn interest.

"The Fed" is short for:

Correct Answer : A: The Federal Reserve System Reason : The Federal Reserve, or "the Fed," provides banking services to depository institutions, serves as the U.S. Government's fiscal agent, supervises and regulates most large banks, and formulates and implements monetary policy.

If a person makes a deposit of $10,000 or more into a bank account, the bank must notify the

Correct Answer : A: US Treasury Department. Reason : 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.

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?

Correct Answer : B: 3 to 7 days later, depending on your bank's check clearance policy Reason : Checks deposited into checking accounts need to be on deposit for several days before the money can be withdrawn as cash because the check needs to clear.

Troy has $50 a month transferred electronically from his checking account to his savings account. This is an example of:

Correct Answer : B: A savings plan Reason : When a consumer requests that his or her bank or credit union electronically transfer money from a checking account to a savings account every month, it is a (forced) savings plan. If you manage your checking account so there are always enough funds to cover the transfer, a forced savings plan is a good option because you avoid the problem of not making regular deposits in your savings account and spending the money instead. Starting a (forced) savings plan with automatic deposits is one way to do what is known as "paying yourself first.

Margaret wants to store a valuable coin collection and important papers. Generally, consumers should:

Correct Answer : B: Rent a safe deposit box for their valuables Reason : Bank customers can rent safe deposit boxes from the bank. They are metal boxes kept in the bank vault where customers often keep valuable papers, financial records, jewelry, and collections.

Joan wants to open a checking account and wonders if checking accounts pay interest. How would you answer her question?

Correct Answer : B: Some types of checking accounts pay interest Reason : 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.

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?

Correct Answer : B: Take out a cash loan Reason : In order to get the money now, he could borrow the money by getting a car loan from an automobile dealer, bank, or credit union. Some people borrow money from family members or friends to buy a car or for the down payment on a car loan.

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?

Correct Answer : B: They typically charge high fees Reason : Check-cashing stores usually charge high fees to cash checks and sometimes encourage consumers to take out high interest rate payday loans

Money orders are:

Correct Answer : C: A purchased certificate to pay a specified amount to a specific payee Reason : A money order is a purchased certificate used to pay a specified amount to a specific payee. They are a safe, convenient way to send payment through the mail as an alternative to personal checks or cash. Money orders sold and backed by the U.S. Postal Service are called postal money orders. Private companies, such as banks, credit unions, supermarkets, convenience stores, and drug stores, also sell money orders for a fee.

Which financial product typically pays the highest rate of interest?

Correct Answer : C: Certificate of deposit Reason : 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.

Which financial product has the most predictable income?

Correct Answer : C: Certificate of deposit Reason : Most certificates of deposit (CDs) are issued with an interest rate that is fixed at a specified rate for the entire term of the deposit. The main virtue of a fixed-rate CD is its predictability. The investor knows exactly how much interest will be received annually and over the life of the CD.

Banks use savings account deposits to:

Correct Answer : C: Give loans to consumers and businesses Reason : The basic functions of banks and credit unions are to be an intermediary between savers and borrowers. Banks and credit unions pay interest on customers' savings accounts and hold customers' money through checking accounts and then lend most of that money to other consumers and businesses for a fee (interest).

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?

Correct Answer : D: A check Reason : A certified check is a check for which the bank guarantees payment. It is stamped by the bank as certified and becomes an obligation of the bank, and the funds to cover it are immediately withdrawn from the depositor's account.

The most liquid type of investment is:

Correct Answer : D: A money market account Reason : 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.

Which financial product may pay a dividend?

Correct Answer : D: Common stock Reason : 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.

Which documents should be stored in a safe-deposit box?

Correct Answer : D: Mortgage loan papers. Reason : The purpose of having a safe deposit box is to have a fireproof, secure place to store valuables and irreplaceable items including legal documents such as a birth certificate and precious jewelry.

How can individuals be prepared for losing their job or having a large medical expense?

Correct Answer : D: Save at least three months of income Reason : People generally need three to six months' of income in a savings account to cover unknown and unexpected events and expenses.