Test Questions Banking

Consist of vault cash and the required percentage amounts on deposit at the Fed

Primary Reserves

Which of the following interest rates is given to someone with the best FICO score

Prime rate

Keynesian economics will do what to help the economy to move.

Raise or lower taxes

The last meeting of the Fed they decided not to raise interest rates again, what could be the fear of raising them?

Recession

Requires a bank to maintain adequate reserves for the funds they have on deposits

Regulation D

What is the regulation that oversees the automatic payments?

Regulation E

Documentation of most credit problems stay in a consumer's file for at least

Seven years

The difference between what a bank pays in interest and what it receives in interest is called

Spread

What is it called when a check has been dated for more than 6 months?

Stale check

Which of the following statements about open-end loans is true? Answers: An auto loan is probably the most common type of open-end loan The longer you use the money, the more you pay. The amount owed is fixed The term is fixed

The longer you use the money, the more you pay.

If you have invested $10,000 in a time deposit at a rate of 3.5% compounded semi annually how much will be in that account at the end of two years?

$10,718.59

Suppose you borrow $1,000 and pay the loan back in 12 equal payments of $95.50. What is the finance charge for this loan?

$146

Assume that a bank receives a $5,000 deposit from a customer and lends it to another to start a small business. The bank pays a straight 5% per year interest to the customer and charges 10% per year for the loan. Calculate the spread for one year.

$250

Goliath Bank has paid out $20,000 in interest and brought in $50,000. What is the bank spread?

$30,000

How many District Reserve Banks are there in the structure of the Federal Reserve?

12

What is the finance charge of a loan? Answers: total interest paid total interest and fees paid the charge for underwriting The amount you borrowed

Total interest and fees paid

True or False: A transaction account is also a demand deposit?

True

True or False: Record keeping is an important part of securing your money in a bank.

True

True or False: If you want to help slow down inflation you would want to raise interest rates under monetary policy

True

True or False: A good generic credit score is 700?

True

True or False: An increase in money supply and incomes often causes prices to go up as well.

True

True or False: Credit cards issued by a bank is a form of lending.

True

True or False: Fiscal policy is slower to make change in our economy than monetary policy

True

True or False: In your FICO score the number one thing they look at is do you pay your bills on time

True

True or False: Subprime rates are higher-than-normal interest rates offered to a less-than-perfect credit applicant

True

True or False: The Board of Governors serve a 14 year term and can only serve one term.

True

True or False: The higher the risk of an investment the higher the chance you will make a better return on you money

True

True or False:A lending policy is a written statement of the guidelines and standards a bank must follow in making credit decisions.

True

Which of the following is NOT a source of income for a bank? A. the interest earned by depositors B. investments C. loan income from interest D. fees for services

A

The rate of interest the Federal Reserve charges banks for short-term loans is called the

discount rate

What Monetary Policy tool would you use to help get the USA out of a recession

drop the discount rate

A ________ in financial terms is a cash obligation

liability

A(n) ___________ occurs when one or more banks join or acquire another bank or banks

merger

PITI-

principal, insurance, taxes, and interest

In the United States, banks and _______ work together to form the banking system and to ensure the money supply is adequate, appropriate, and trustworthy.

the government

One result of competition among banks is that A. more services are available to consumers B. more banks exist now than a decade ago C. the trend toward mergers in the banking industry has slowed D. none of the above

A.

What represents the effect of compounding interest on an investment?

APY

The concept that the borrowers who are most willing to accept a high interest rate are the same borrowers who are most likely to default on their loans is called

Adverse selection

Which of the following actions helps a consumer raise a low score or maintain a high one Answers: make all loan payments on time keep credit card balances under 25% of the limit avoid opening several credit card accounts at the same time all of these none of these

All of these

If the government restricts the flow of cash into the economy too severely. Answers: A. employment will rise dramatically B. consumers will spend more money C. It could put us in a recession D. Businesses will grow too fast

C

Which of the following statements about banks is NOT true? Answers: A. Banks are essential to maintaining the economy. B. Banks distribute the medium of exchange. C. All banks are organized as corporations. D. Banks may be chartered by either federal or state governments.

C

A legal approval to operate a bank as a business is called

Charter

What is the most common form of a transaction account?

Checking Account

About 60 percent of the deposit and loan business in the United States is done by

Commercial Banks

What type of money is backed by something of value (like gold)?

Commodity money

All of the following are considered installment loans except Answers: auto loans home equity loans Education loans credit card loans

Credit card loans

A bank evaluates the ____________ of all customers who apply for loans.

Creditworthiness

When the economy experiences high unemployment and little or no business growth the Federal government may attempt to stimulate business by "priming the pump." What does that mean?

Cut taxes

Banks move money between Answers: A. other banks B.banks and individual customers C. governments D. all of the above

D

How does the Federal Reserve influence the flow of deposits? A. Setting reserve requirements B. Creating or removing money with open market operations C. Influence the discount rate D. All of the above

D

Reserve requirements apply to what type of money supply Answers: A. M2 B. S7 C. MZM D. None of the above

D

Which of the following is NOT an example of a time deposit? Answers: A. CD B. Savings account C. Money market account D. Basic checking account

D

People who put money into banks are called ________________

Depositor

The loosening of government control is called __________

Deregulation

Total assets minus total liabilities equals

Equity

Which of the following attempts to protect the information that credit bureaus may collect?

Fair Credit Reporting Act

True or False: It is illegal for banks to charge higher interest rates for loans than they pay depositors.

False

True or False: State Farm Insurance company is an example of a depository institution.

False

True or False: The Truth in Lending Act prohibits bill collectors from using deceptive or abusive tactics.

False

True or False: A Financial intermediary will not take a deposit for a consumer.

False

True or False: A bank is a not-for-profit organization.

False

True or False: General speaking, banks offer customers fewer services today than they did 20 years ago.

False

True or False: One of the main functions of the Federal Reserve is to serve as a bank for the general population

False

True or False: Return on equity is the ratio of net income to total assets.

False

True or False: All banks are federally chartered?

False

True or False: By law, every bank in the United States must be part of the Federal Reserve System

False

True or False: Commercial banks offer their services only to businesses.

False

True or False: Fed Fund Rates are the rates that the best customer gets from a bank

False

True or False: If a credit applicant has opened many new accounts recently, that is probably a sign that the applicant is very creditworthy.

False

True or False: If the Federal Government wants to increase spending in our economy they could influence it by increasing income taxes.

False

True or False: Secured loans are sometimes called signature loans

False

True or False: The Chairman of the Federal Reserve serves no more than 2 terms for a total of 8 years.

False

True or False: The amount a borrower pays to use the principal of a loan is called a fee

False

True or False: The more diversified your portfilo is the more "risk" there is of lossing

False

True or False: The term moral hazard means that consumers with poor moral character are a high credit risk

False

If a bank wants to borrow money from another bank what is the interest rate they get called?

Federal Fund Rate

What is the danger of the money supply growing too fast?

Inflation

How is money made in our economy

It is borrowed into existence

If the discount rate moves up what will happen to the prime rate?

It will move up too

The risk that a bank will have to sell its assets at a loss to meet its cash demands is called

Liquidity risk

Money that can be spent immediately referred to as the "base" is called

M1

Money at zero maturity and represents all available liquid money is called

MZM

If the Federal Reserve increased reserve requirements for banks it would Answers: A. Put more money in the economy B. tighten the amount of money out there to lend out C. Have no real effect on the money supply D. increase inflation

B

One big difference between a commercial bank and a credit union is that Answers: A. a commercial bank is a non depository intermediary B. a credit union is owned by depositors, not stockholders C. commercial bank is owned by depositors, not stockholders D. none of the above

B

The money supply and the economy are linked closely to interest rates. So Generally when rates are high... Answers: A. money is said to be available , and spend will speed up B. money is said to be tight, and business will slow down C. money supply stays the same no effect really D. None of the above

B

The number one thing everyone needs to understand about investing is the compounding effect of money. Why is it important? A. You get paid interest B. The snowball effect of interest being added back to your principal C. APR is better than APY D. It is best to wait until you are older to save because you will be making more money then

B

What is the most liquid item listed here Answers: A. A house B. a checking account C. 6 month CD D. a savings account

B

Which of the following does the Federal Reserve require reserve requirement for? Answers: A. Time deposits B. Demand deposits C. Both A and B D. None of the above

B

Which of the following is NOT true about a basic checking account? A. Simple to use B. Pays interest C. Very liquid D. None of the above

B

Which of the following is a non depository intermediary? A. commercial bank B. insurance company C. savings and loan association D. credit union

B