Personal Finance Final CH 5
Discuss interest rates in general in the United States and the affects of rising and falling interest rates. Does the Federal Reserve take an active role in setting interest rates?
Falling interest rates or lower interest rates stimulate purchases and new home building. Rising interest rates have the opposite reaction. The Federal Reserve is active and regularly increases or decreases interest rates depending on the state of the economy.
(T/F) ATM cards are declining in use because they are expensive and the machines are becoming more difficult to locate.
False
(T/F) An example of a depository financial institution is an insurance company
False
(T/F) Debit cards allow you to pay for a purchase later when the bill arrives.
False
(T/F) Finance companies are more selective in choosing the lender they serve, and therefore usually charge lower interest rates than banks or credit unions.
False
(T/F) In order to have a safety deposit box at a bank, a person needs to also maintain another checking or savings account at that bank.
False
(T/F) 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
(T/F)Deposits in commercial banks which are members of the FDIC, are insured up to a maximum of $50,000 per account.
False
(T/F)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
(T/f) Securities firms primarily sell insurance to protect individuals from adverse events.
False
(T?F)Bank fees for use of an Automatic Teller Machine (ATM) are not usually a large consideration in choosing a bank with which to do business.
False
Your checkbook balance at the end of May is $1,041. When you receive May's bank statement, you discover the following additional items: Bank fees, $271; Interest earned, $163. Your adjusted checkbook balance after considering these items is
$933
Deposits at commercial banks are insured up to ________ per depositor by the Federal Deposit Insurance Corporation (FDIC).
250000
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%
Your great aunt Mary passed away and left you and inheritance of $5,000. Since you don't have a need for the money in the near future, which of the following would be the best place to put the $5,000?
A five-year CD paying 4.38% annually
Deposits at commercial banks are insured by a government owned insurance agency called
Federal Deposit Insurance Corporation.
List four types of financial institutions that you have made use of or plan to deal with in the future.
Finance companies, securities firms, insurance companies, investment companies, banks, and credit unions.
Which of the following is not a depository institution?
Securities Firm
(T/F) Bank ATM charges may be substantial if you make many transactions monthly and use out-of-network machines.
TRue
(T/F) Depository institutions are financial institutions that accept deposits (that are insured up to a maximum level) from individuals or firms and provide loans.
TRue
(T/F) Nondepository institutions are financial institutions that provide various financial services, but their deposits are not federally insured.
TRue
Which of the following will not vary at a commercial bank?
The limit on FDIC insurance on accounts
Describe how interest rates affect your personal budget, income statement, and balance sheet. What account groups do they affect? Give two specific examples.
This is a subjective answer. Interest rates affect the income and expense groups. On the income side, interest earned on an account varies. The interest rate affects the ability to purchase a home, car, or obtain a student loan.
The term structure is often based on rates of return or yields offered by ________ which are ________ issued by the U.S. Treasury with different maturities.
Treasury securities; debt securities
(T/F) 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
(T/F) A mutual fund is a means by which investors with only a small amount of money can invest in a portfolio of securities.
True
(T/F) 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
(T/F) Credit unions are nonprofit depository institutions that serve members who have a common affiliation (such as the same employer or same community).
True
(T/F) To prevent an overdraft or "bounced check," it is always a good idea to record your check written in your check register and reconcile your account balance when you receive your monthly bank statement.
True
(T/F)Savings institutions differ from commercial banks in that they tend to focus less on providing commercial loans.
True
Interest rates could change due to all of the following except
United Nation's resolution to change the Fed fund rate.
Which of the following is true with regards to rising interest rates?
Use long-term loans to take advantage of current low rates
risk-free rate
a return on an investment that is guaranteed for a specified period
You have $3,000 that you may need any day to replace the furnace in your house. Which of the following would be the best place to put the $3,000?
a saving account earning 2%
risk premium
additional risk
A ________ is a check that is written on behalf of a person to a specific payee and will be charged against a financial institution's account.
cashiers check
You are closing on the purchase of a new home and your closing costs including down payment are $10,500. To process the loan and be assured of funding, the title company would request your payment as a
cashiers check
The Act that allows banks to transmit electronic images of checks, thus allowing funds to be transferred immediately is known as
check 21
A(n) ________ card allows you to pay for a purchase at a later time when the bill arrives.
credit
A financial conglomerate offers a diverse set of services that include which of the following?
credit cards, personal loans, brokerage subsidiary
Which of the following is not a service that a depository institution might offer?
credit counseling
Which of the following is a nonprofit depository institution that provides services only to members who have a common affiliation?
credit union
A(n) ________ card allows you to pay for a purchase directly from your checking account without writing a check
debit
you wish to make purchases that are charged against your checking account without writing a check you need to have a(n) ________.
debit card
Financial institutions offering traditional checking and savings accounts as well as providing loans to both individuals and firms are called ________.
depository institutions
Financial institutions that accept deposits (that are insured up to a maximum level) from individuals and provide loans are called
depository institutions
Which of the following is not a fee that financial institutions charge?
depository insurance
Which of the following is not a disadvantage of using ATM cards?
difficulty withdrawing funds
If you were taking out a personal loan, the highest rate would probably be charged by a
finance companies
Which of the following financial institutions specializes in making personal loans to people who are perceived to have a higher risk of default?
finance companies
If you have $10,000 that you do not currently need for expenses and you wish to put it somewhere so that it will earn a return, which of the following financial institutions would you not choose?
finance company
Organizations that offer a diverse set of financial services to individuals and firms are ________.
financial conglomerates
depository institutions
financial institutions that accept deposits
financial conglomerate
financial institutions that offer a diverse set of services
Financial institutions loan funds at a ________ they pay depositors.
higher interest rate
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
In saving or investing, the ________ the risk, the ________ the return.
higher; higher or lower; lower
Which of the following is classified as a nondepository institution?
insurance companies
________ are nondepository institutions that facilitate the purchase or sale of securities by firms or individuals by providing investment banking services and brokerage services.
insurance companies
________ are nondepository institutions that provide insurance to protect individuals or firms against possible adverse events.
insurance companies
Which of the following characteristics is common to both commercial banks and credit unions?
insurance up to $250000
________ are nondepository institutions that sell shares to individuals and use the proceeds to invest in securities to create mutual funds.
investment companies
The relationship between risk and return
is positive
Information such as ________ can be easily found on a variety of Web sites.
loan rates stock quotes and company information yields of Treasury securities
A ________ is a check that is written on behalf of a person and will be charged against a nonfinancial institution's account.
money order
investment company
mutual fund or combination of investments
securities firms
nondepository institutions that sell and purchase securities
If the Federal Reserve buys or sells Treasury securities to affect the money supply, it uses
open markert operations
Lorenzo is considering two banks for his checking account. Suny Bank requires a minimum deposit of $100, charges a monthly fee of $8, plus 5 cents a check. Merchants Bank also requires a minimum deposit of $100, charges no monthly fee, but a per check charge of 15 cents. How many checks would Lorenzo need to write each month to make Suny Bank cheaper to use than Merchants?
over 80
insurance company
protection against adverse events
Which of the following is not a reason that your checking account balance might change from one month to another?
purchasing new shoes with a credit card
When the Federal Reserve wishes to ________ interest rates, it ________ the amount of funds at commercial banks.
reduce; increasing
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 term structure of interest rates is the relationship between the maturities of ________ debt securities and the annualized yields offered on those securities.
risk-free
The ________ is the return on an investment that is guaranteed for a specified period.
risk-free rate
The ________ is the return that is guaranteed on an investment for a specified period of time
risk-free rate
The interest rate is composed of the ________ and the ________.
risk-free rate; risk premium
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 returns
A nondepository institution facilitating transactions in stocks or bonds is a(n) ________.
securities firm
If the government borrows funds to finance a military build-up in the Middle East, this will cause a
shift in demand for funds
finance company
specializes in personal loans
The risk-free rate on borrowed funds is determined by
supply and demand.
The risk-free rate on borrowed funds is determined by the ________ and ________ of funds
supply; demand
Savings institutions accept deposits and provide mortgage and personal loans to individuals. Another name for these types of financial institutions is
thrift institution
A ________ is a check that is written on behalf of an individual and will be charged against a large well-known financial institution or credit card sponsor's account.
travelers check
Wanda Clark expects interest rates to decline in the next few months. To maximize her earnings, she should put her savings in a
two-year certificate of deposit.
The yield curve is typically ________, meaning that the annualized interest is higher for debt securities with longer terms to maturity.
upward sloping
Which of the following should not affect your choice of a financial institution?
whether it is state or federally chartered
The term structure of interest rates is measured by a(n) ________, which shows the interest rate offered at each maturity level.
yield curve
Which of the following is not an advantage of using ATM cards?
your local banking expenses are likely to be lower
To join a credit union, you need to
Be a member of a group with a common bond
Which of the following is not a depository institution?
Butterfield and Edwards brokrage firm
Which of the following is not true regarding certificates of deposit (CDs)?
All banks offer the same rates on CDs.
Which of the following financial institutions would be used the most by business customers wishing to borrow money?
Commercial banks
Allison is a recent college graduate and is looking for a bank in which to open a checking account. She has narrowed her choice to two. First National requires a $100 minimum deposit and charges 15 cents per check. City Bank requires a $500 minimum deposit, but charges only 5 cents per check. Both pay the same interest rate on the minimum deposit. Allison estimates that she will write 40 checks per month. Assuming that Allison could invest any funds not required for a minimum deposit in a one-year CD paying 6 percent, what would be the monthly cost to Allison for First National and City Bank? Which should she choose?
First National -$6.00; City Bank -$4.00
________ 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