fin 108 ch.5-9

Advantages of using credit are all of the following except A) the ability to cover cash flow shortages. B) increases the number of checks written. C) the ability to buy large items earlier. D) convenience in making day-to-day transactions.

b) increases the number of checks written.

The ________ the maturity of a loan, the ________ the payments. A) longer; smaller B) shorter; larger C) Both A and B D) shorter; smaller

c

Which of the following is not a factor in the FICO credit scoring? A) Credit utilization B) Length of relationship with creditors C) Marital status D) Number of inquiries

c) Marital status

Credit cards are generally used for such purchases as A) cars. B) homes. C) meals, clothing, and groceries. D) stocks.

c) meals, clothing, and groceries.

In applying for a credit card, the potential creditor will look at which of the following as a source of future debt payments if necessary? A) Cash outflows B) Credit history C) Potential inheritances D) Balances in savings accounts

d) Balances in savings accounts

Which of the following may result in much of your personal financial information becoming part of the public record? A) Marriage B) Applying for financial aid at a college C) Purchasing a house with a mortgage D) Divorce

d) Divorce

Which of the following is not one of the three primary credit bureaus? A) Equifax B) Experian C) TransUnion D) Fair Isaac Corporation

d) Fair Isaac Corporation

All of the following situations are valid reasons to borrow funds except A) a medical emergency. B) a college education. C) purchasing a car in order to return to the workforce. D) borrowing for every day living expenses

d) borrowing for every day living expenses.

Which of the following items should not be removed from your wallet? A) Social Security card B) Birth certificate C) Infrequently used credit cards D) Drivers license

d) drivers license

The ________ method charges interest based on the balance at the beginning of the new billing period. A) new cycle B) adjusted balance C) average daily balance D) previous balance

d) previous balance

Obtaining information in order to steal your identity from documents discarded by your bank is an example of

dumpster diving.

Creditors prefer a ________ level of cash inflows and ________ level of cash outflows

high; low

In saving or investing, the ________ the risk, the ________ the return

higher; higher

When interest rates rise, individuals who make deposits will earn a ________ rate of interest, while individuals who need to borrow funds will have to pay a ________ rate.

higher; higher

The relationship between risk and return

is positive.

Which of the following is not true regarding a money market deposit account (MMDA)? A) A minimum balance is required. B) It has a maturity date. C) The account pays interest. D) A limited number of checks may be written monthly.

it has a maturity date

Your ability to cover any short-term cash deficiencies is called

liquidity.

Manipulating e-mail viruses and host files to redirect users from legitimate commercial Web sites to bogus Web sites to obtain log-in names and passwords is referred to as

pharming

Using e-mail messages from a legitimate source to obtain account information for the purpose of identity theft is referred to as

phishing

Posing as an employee of a brokerage firm to obtain information to allegedly update your account information is an example of

pretexting.

Which of the following methods of calculating finance charges on credit cards is least favorable to the cardholder?

previous balance method

An increase in spending by the U.S. government will result in all of the following except

reduction in government borrowing.

The ________ is an additional return beyond the risk-free rate that can be earned from a deposit guaranteed by the government.

risk premium

The ________ is the return on an investment that is guaranteed for a specified period.

risk-free rate

When you invest in a CD that has a maturity of one year, you are guaranteed the interest rate offered on that CD. Your return would be termed

risk-free return.

If the government borrows funds to finance a military build-up in the Middle East, this will cause a

shift in the demand for funds

The risk-free rate on borrowed funds is determined by

supply and demand.

An asset management account that moves any unused balance in the brokerage account into a money market investment at the end of each business day is called a(n) A) sweep account. B) asset management account. C) money market fund. D) secondary market.

sweep account.

The yield curve is typically ________, meaning that the annualized interest is higher for debt securities with longer terms to maturity.

upward sloping

When making purchases on line, you can take all of the following steps to recognize and avoid identity theft except A) use your cell phone to place credit card orders. B) use a secure browser. C) read the privacy policies of the web sites you visit. D) don't download files sent to you by strangers.

use your cell phone to place credit card orders.

A credit card whose interest rate changes as a specific market interest rate changes is said to have a

variable rate.

The term structure of interest rates is measured by a(n) ________, which shows the interest rate offered at each maturity level.

yield curve

The size of the monthly payment on a loan is dependent on all of the following except a) principal borrowed. B) interest rate. C) your age. D) maturity.

your age

Historical credit problems remain on a credit bureau's report for ________ years while a bankruptcy remains for ________ years.

7, 10

Which of the following is not a good, short-term money market investment? A) NOW account B) Savings account C) AT&T common stock D) Treasury bills

C) AT&T common stock

The Identity Theft and Assumption Deterrence Act has designated which federal agency as the central clearinghouse for all identity theft complaints? A) FBI B) CIA C) FTC D) WPA

C) FTC

Which of the following federal agencies should always be notified in the event of identity theft? A) Federal Bureau of Investigation B) Secret Service C) Federal Trade Commission D) Postal Inspection Service

C) Federal Trade Commission

Which of the following is not a fee that financial institutions charge? A) Checking account service charge B) ATM usage fee C) Depository insurance D) Safety deposit box rental

C. Depository insurance

Information such as ________ can be easily found on a variety of Web sites A) loan rates B) stock quotes and company information C) yields of Treasury securities D) All of the above.

D) All of these.

At your place of employment, which of the following is acceptable? A) Use of your Social Security number as an employee number on your time card B) Inclusion of your Social Security number on your employee identity badge C) Inclusion of your Social Security number on your payroll registry in the accounting office D) Inclusion of your Social Security number on your paycheck

D) Inclusion of your Social Security number on your payroll registry in the accounting office

For good financial management, you should treat a credit card as A) a source of funds. B) a means of convenience. C) a way to finance everything. D) an inexpensive form of financing

a means of convenience.

The average credit card balance of undergraduate students is between A) $3,000 and $7,000. B) $1,000 and $3,000. C) $7,000 and $10,000. D) $12,000 and $15,000.

a) $3,000 and $7,000.

Which of the following is not a disadvantage of using credit? A) Makes it easier to save B) The potential high cost C) The difficulty in paying back loans D) The potential for personal bankruptcy

a) Makes it easier to save

Checking accounts may offer all of the following except A) account balance insurance in excess of $250,000. B) stop payment services. C) overdraft protection. D) ATM privileges.

a) account balance insurance in excess of $250,000.

collateral A) gives the lender additional recourse if the payments are not made. B) is used on unsecured loans. C) increases the interest rate on loans. D) is required on all loans

a) gives the lender additional recourse if the payments are not made.

Because of the active bond market in Chicago, one risk that a corporate bond is less likely to expose you to is the A) liquidity risk. B) credit risk. C) default risk. D) interest rate risk.

a) liquidity risk

The minimum credit score required by financial institutions A) varies by institution. B) is 500. C) is 550. D) is 600.

a) varies by institution.

A commitment to cover credit repayments under adverse conditions such as accident or illness is called A) accident insurance. B) credit insurance. C) health insurance. D) unemployment insurance.

b) credit insurance.

Which of the following is the most common source of financing for personal loans? A) Family and friends B) Financial institutions C) Credit cards D) Sales finance companies

b) financial institutions

Your commercial bank is offering a one-year CD with an interest rate of 7 percent. A competing bank offers an interest of 10% on their one-year certificate. The risk premium offered by the competing bank is

3 percent.

The term structure of interest rates is the relationship between the maturities of ________ debt securities and the annualized yields offered on those securities. A) risk-free B) risk premium C) specific return D) nominal return

A) Risk-free

Which of the following is not a money market investment? A) Shares of corporate stock B) NOW account C) Savings account D) Treasury bills

A) Shares of corporate stock

Which of the following is not true about annual fees on credit cards? A) The fees are the same on all credit cards. B) The fees may be high, amounting to several hundred dollars per year for some prestige cards. C) Many cards do not have annual fees. D) Some cards may waive the fees for individuals who pay their credit card bills in a timely manner

A) The fees are the same on all credit cards.

Which of the following is not true regarding cash advances on credit cards? A) They are treated just like other charges on your credit card. B) There is a charge for interest from the time you take the advance to the time you pay it off. C) There is also a transaction fee on most cash advances. D) The grace period does not apply to cash advances.

A) They are treated just like other charges on your credit card.

Interest rates could change due to all of the following except A) United Nation's resolution to change the Fed fund rate. B) shift in savings by investors. C) shift in monetary policy of the Fed. D) shift in business demand for funds.

A) United Nation's resolution to change the Fed fund rate.

If the Federal Reserve buys or sells Treasury securities to affect the money supply, it uses A) open market operations. B) reserves at commercial banks. C) discount rate adjustments. D) federal funds adjustments.

A) open market operations.

Which of the following does money management not involve? A) A series of decisions B) A long-term time period C) Cash inflows D) Cash outflows

B) A long-term time period

Which of the following is not true regarding certificates of deposit (CDs)? A) The longer the term, the higher the interest rate paid. B) All banks offer the same rates on CDs. C) Early withdrawals of money are subject to a penalty. D) The investment of large amounts will pay higher interest than lower amounts.

B) All banks offer the same rates on CDs.

Of the following statements, which is not an advantage using credit? A) Credit creates stability and allows you to establish a favorable credit history. B) Buying today and paying tomorrow seems ideal, but continual spending can lead to financial problems. C) Using credit is safe since charge accounts and credit cards let you shop and travel without carrying large amounts of cash. D) Credit cards permit the purchase of goods even when cash funds are low.

B) Buying today and paying tomorrow seems ideal, but continual spending can lead to financial problems.

Making extra payments on a loan does all except which of the following? A) Reduces the total amount of interest paid B) Gives you extra income for living expenses C) Reduces the maturity of the loan D) Helps assure your good credit rating

B) Gives you extra income for living expenses

Which of the following accounts would tend to give you the higher interest combined with ease of access to your funds on a limited basis? A) Checking account B) MMDA C) NOW account D) CD

B) MMDA

You have $3,000 that you may need to use to replace the furnace in your home. If you need the funds, it would be on no less than a week's notice. Into which type of account would it be best for you to deposit the $3,000? A) Checking account B) Savings account C) NOW account D) All of the above would be equally acceptable.

B) Savings account

Which of the following is not true about a certificate of deposit (CD)? A) They pay higher interest than T-bills. B) They are long-term investments of two years or more. C) Funds are locked in for specific periods of time. D) A penalty is imposed for early withdrawal.

B) They are long-term investments of two years or more.

Which of the following should not affect your choice of a financial institution? A) Convenience B) Whether it is state or federally chartered C) Deposit rates and insurance D) Fees

B) Whether it is state or federally chartered

Credit has its advantages and disadvantages. Which of the following is false? A) Credit cards should be used with discipline. B) You should spend up to the limit on all your credit cards. C) Cash advances are available through a credit card. D) Bankruptcy is the worst-case scenario from poor credit management

B) You should spend up to the limit on all your credit cards.

In securing a credit card you should try to obtain A) the highest maximum limit possible. B) a maximum limit high enough to cover necessary monthly purchases. C) a maximum limit high enough to cover anything you might wish to purchase. D) the lowest maximum limit possible to restrict your usage.

B) a maximum limit high enough to cover necessary monthly purchases.

On a credit card, a finance charge is applied to A) any purchase. B) any balance not previously paid. C) current purchases. D) future purchases.

B) any balance not previously paid

Improper use of credit may A) increase your ability to save money. B) make it necessary to file for bankruptcy. C) increase your personal wealth. D) All of the above.

B) make it necessary to file for bankruptcy.

Personal loans include the following except A) car loans. B) mortgage loans. C) student loans. D) home equity loans

B) mortgage loans.

The interest rate is composed of the ________ and the ________. A) risk-free rate; risk discount B) risk-free rate; risk premium C) risk-free rate; default risk premium D) None of the above.

B) risk-free rate; risk premium

Money market funds (MMF) have all of the following characteristics except A) pooled money provided by individuals to invest. B) unlimited check writing. C) short-term maturity. D) a minimum investment amount.

B) unlimited check writing.

Which of the following is not true regarding a savings account? A) It does not provide checking services. B) It is less liquid than a checking account. C) It pays lower interest than a checking account. D) It is less convenient than a checking account.

C) It pays lower interest than a checking account.

Which of the following would not be contacted in all cases of identity theft? A) Local law enforcement B) Federal Trade Commission C) Postal Inspection Service D) The three major credit bureaus

C) Postal Inspection Service

Which of the following is a disadvantage of using credit? A) Ease of returning merchandise B) Shopping convenience C) Slowing of progress toward financial goals D) Capacity to access credit in the future

C) Slowing of progress toward financial goals

Which of the following is a feature of Treasury bills (T-bills)? A) They have a maturity of more than one year. B) They are available with a minimum value at maturity of $100. C) They are purchased at a discount from par value. D) They must be held to maturity.

C) They are purchased at a discount from par value.

Which of the following is true with regards to rising interest rates? A) Use short-term loans to take advantage of low interest rates. B) Select long-term savings options to lock in current interest rates. C) Use long-term loans to take advantage of current low rates. D) The term of the loan option is not affected by rising interest rates.

C) Use long-term loans to take advantage of current low rates.

Identity thieves that have systematically infiltrated corporations and financial institutions in order to facilitate large-scale identity thefts are usually a part of A) the Federal Trade Commission. B) The Internal Revenue Service. C) a well-organized crime ring. D) a political part

C) a well-organized crime ring.

The easiest way to establish credit is to A) purchase a new car with a car loan. B) purchase a house with a mortgage. C) obtain a credit card. D) pay cash for all your purchases.

C) apply for a credit card

If you purchase a bond that matures in 5 years but you may have to cash it in before that time, it exposes you to the A) credit risk. B) default risk. C) interest rate risk. D) liquidity risk.

C) interest rate risk.

To achieve both liquidity and an adequate return, you should consider investing in A) only one money market investment with a high return and low liquidity. B) only one money market investment with low return and high liquidity. C) multiple money market investments with varied returns and levels of liquidity. D) multiple money market investments with high returns and high liquidity.

C) multiple money market investments with varied returns and levels of liquidity.

On your credit card statement, the amount that you owe the financial institution now is called the A) previous balance. B) minimum payment. C) new balance. D) payments.

C) new balance

Risk management of money market investments involves all of the following except A) credit risk. B) interest rate risk. C) potential for default when backed by the federal government. D) liquidity risk.

C) potential for default when backed by the federal government.

________ risk is the risk that a borrower may not repay on a timely basis.

Credit

In comparing credit cards to other forms of credit, which of the following is false? A) Credit cards are generally the most expensive form of credit. B) You should pay the most expensive debt off first. C) Credit cards can be viewed as a source of funds. D) A home equity loan is a way of combining credit card and other debt

Credit cards can be viewed as a source of funds.

Generally, yields are ________ for securities that are exposed to ________ liquidity risk. A) higher; more B) higher; less C) lower; less D) Both A and C are correct

D

________ risk is the potential loss of converting an investment into cash.

Liquidity

Which of the following will not help you establish a good credit history?

Making as many purchases as possible with cash

________ is a movement that began in September 2011 to protest against large banks that are believed to receive excessive support from the government

Occupy Wall Street