Chapter 5 Finn 3003 TRUE OR FALSE

3) A risk-free rate is a return on an investment that is guaranteed for a specified period.

TRUE

A certificate of deposit guarantees or locks in an interest rate for a specified time and rate.

TRUE

A debit card differs from a credit card in that it does not provide credit; instead, it deducts the purchase from your checking account immediately.

TRUE

A mutual fund is a means by which investors with only a small amount of money can invest in a portfolio of securities.

TRUE

A risk premium is the amount of interest you might receive over and above the risk-free return insured by the federal government.

TRUE

Bank ATM charges may be substantial if you make many transactions monthly and use outof-network machines.

TRUE

Because they have lower expenses, Web-based financial institutions tend to pay higher interest rates on deposits than institutions with physical branches

TRUE

Cashier's checks, money orders, and traveler's checks are secured check alternatives to a personal check and therefore are more risk-free for the payee.

TRUE

Convenience, deposit rates and insurance, and fees are primary considerations in choosing a financial institution for your needs

TRUE

Credit unions are nonprofit depository institutions that serve members who have a common affiliation (such as the same employer or same community).

TRUE

Depository institutions are financial institutions that accept deposits (that are insured up to a maximum level) from individuals or firms and provide loans

TRUE

Interest rate changes are affected by the relationship of the total supply of funds provided by all investors and the total demand for funds by all borrowers.

TRUE

Investments with a higher risk of default pay higher rates of interest than those that are less risky.

TRUE

Nondepository institutions are financial institutions that provide various financial services, but their deposits are not federally insured.

TRUE

Savings institutions differ from commercial banks in that they tend to focus less on providing commercial loans.

TRUE

To prevent an overdraft or "bounced check," it is always a good idea to record each check written in your check register and reconcile your account balance when you receive your monthly bank statement

TRUE

) The monetary policy of the Federal Reserve System (the Fed) has very little to do with the changes in interest rates a consumer will experience.

FALSE

ATM cards are declining in use because they are expensive and the machines are becoming more difficult to locate.

FALSE

An example of a depository financial institution is an insurance company.

FALSE

Bank fees for use of an automated teller machine (ATM) do not need to be considered when choosing a bank since fees are set by the federal government and are the same for all banks.

FALSE

Banks do not charge fees for safety deposit boxes

FALSE

Because of potential security concerns, it is unlikely that you will find a financial institution that offers mobile applications.

FALSE

Certificates of deposit (CDs) with shorter maturity dates tend to pay higher interest rates than those with longer maturity dates.

FALSE

Debit cards allow you to pay for a purchase later when the bill arrives

FALSE

Deposits in commercial banks that are members of the FDIC, are insured up to a maximum of $50,000 per account.

FALSE

Finance companies are more selective in choosing the borrowersthey serve, and therefore they usually charge lower interest rates than banks or credit unions

FALSE

Introductory high interest rates paid by financial institutions for new accounts are usually a good deal and you should therefore take advantage of them without question.

FALSE

It is illegal for a federally insured financial institution to charge those with poor credit records higher interest rates than those with good credit.

FALSE

Securities firms primarily sell insurance to protect individuals from adverse events.

FALSE

Since rates and fees differ only slightly between all national banks, there is little need to consider these when choosing your financial institution.

FALSE

The one-year loan rate for individuals is usually about the same as the one-year CD rate.

FALSE

You can be assured that if your ATM query shows you have a certain balance in your checking account, that figure is more accurate than the amount in your check register

FALSE