Finance Exam 2 Homework 1

Phishing

"A type of pretexting."

Skimming

"Copy the information contained in the magnetic stripe on the credit or debit card and use it to create fake cards."

Dumpster Diving

"Go through the trash and take personal information that contains identifying numbers."

Pretexting

"Obtain personal information under false pretenses by posing as a survey taker."

Shoulder Surfing

"Stand over the shoulder of the victim and read the credit card number."

D (the maximum amount of credit you are allowed)

A credit limit is: A: on average, around $5,000 B: the highest interest rate credit card companies may charge C: the largest amount of money a bank can lend D: the maximum amount of credit you are allowed

B (the interest rates are high if you do not pay off the balance when due)

A disadvantage to using a credit card is that: A: not all credit card companies offer free classes to assist in personal financial planning B: the interest rates are high if you do not pay off the balance when due C: they will always decrease your credit rating D: they provide free financing until the statement arrives

A (the time between your statement closing and the due date on the bill)

A grace period is: A: the time between your statement closing and the due date on the bill B: a week or two after the due date on the bill C: a billing cycle, approximately 30 days D: the time between when you exceed your credit limit and when you can used the card again

D (credit history is reviewed to evaluate the amount of credit currently serviced and the timeliness of the past payments)

A weak credit report can affect you because: A: assets are reviewed to determine if personal information is accurate B: assets are reviewed to evaluate the amount of credit currently serviced and the timeliness of the past payments C: credit history is reviewed to evaluate the trustworthiness of the borrower. D: credit history is reviewed to evaluate the amount of credit currently serviced and the timeliness of pay payments.

C (reduced, and a larger portion of the payment is used to repay the principal)

As more principal is repaid, the amount of interest is: A: reduced, and a smaller portion of the payment is used to repay the principal B: increased, and a smaller portion of the payment is used to repay the principal C: reduced, and a larger portion of the payment is used to repay the principal D: increased, and a larger portion of the payments is used to repay the principal

B (assets are sued to back a loan in the event that the borrower defaults )

Collateral includes: A: liabilities used to back a loan in the event that the borrower defaults B: assets used to back a loan in the event that the borrower defaults C: promises used to back a loan in the event that the borrower defaults D: debts used to back a loan in the event that the borrower defaults

A (higher than rates on other debt)

Credit card interest rates tend to be: A: higher than rates on other debt B: equal to rates on other debt C: lower than rates on other debt D: within 3% of rates on other debt

A (merchants 2 to 4% of the payment)

Credit cards generate revenue by charging the: A: merchants 2 to 4% of the payment B: merchants 6 to 8% of the payment. C: cardholders 1 to 3% of the payment. D: cardholders 4 to 7% of the payment.

B (the higher the interest rate, the higher the credit payments)

How does the interest rate affect your credit payments? A: The lower the interest rate, the higher the credit payment B: The higher the interest rate, the higher the credit payment C: The higher the interest rate, the lower the credit payment D: There is not general relationship between interest rates and credit payments

A (the financial institution may claim your home and use the proceeds to pay off the loan)

If you default on a home equity loan: A: the financial institution may claim your home and use the proceeds to pay off the loan B: you can negotiate with the bank for lower payments over a longer period of time C: the financial institution will own your home and you have to pay them rent. D: the financial institution will fine you up to ten times your monthly payment

D (lower on secured loans because the lender has less to lose in the event the loan is not repaid)

Interest rates are usually: A: close to zero because the lender has less to lose in the event the loan is not repaid. B: variable on secured loans because the lender can not be sure when the loan will be repaid C: higher on secured loans because the lender has more administrative costs. D: lower on secured loans because the lender has less to lose in the event the loan is not repaid.

D (secured loans)

Loans backed by collateral are called: A: invested loans B: collateralized loans C: class A loans D: secured loans

C (seven years)

Missed payments or carrying of excess amounts of debt can remain on your credit report for A: fifteen years B: three years C: seven years D: as long as you are alive

D (they provide free financing until the statements arrives)

One advantage of using a credit card is that: A: there are usually not annual fees B: they can allow you to spend beyond your means C: the interest rates are high if you do not pay off the balance when due. D: they provide free financing until the statement arrives.

D (payment history is weighted at 35 percent)

One of the factors is used to determine your credit score and how it is weighted by FICO is: A: length of creditor relationship and number of inquiries is weighted at 35 percent B: payment history is weighted at 50 percent C: amount of monthly credit used is weighted at 35 percent D: payment history is weighted at 35 percent

A (an annual basis that excludes fees)

Simple interest is the percentage you would pay for credit on: A: an annual basis that excludes fees C: a monthly basis that includes all fees C: a quarterly basis that excludes fees D: an annual basis that includes fees

C (usually much lower than the interest on credit cards)

The amount of interest you earn on typical money market investments is: A: not consistently different from the interest on credit cards B: unpredictable and often equals the interest on credit cards C: usually much lower than the interest on credit cards D: usually much higher than the interest on credit cards

C (the simple interest rate charged after adding all fees)

The annual percentage rate (APR) is: A: the simple interest rate charged before adding all fees B: the simple interest rate charged for retail (or proprietary) cards only C: the simple interest rate charged after adding all fees D: The simple interest rate charged for only the fees

C (the merchant doesn't pay a percentage when retail cards are used)

The main difference between a credit card like MasterCard or Visa and a retail (or proprietary) card is that: A: cardholders receive more "rewards" when retail cards are used. B: cardholders don't have to sign receipts when proprietary cards are used. C: the merchant doesn't pay a percentage when retail cards are used. D: the merchant pays additional fees when retail cards are used.

C (equity invested and market value)

The two ways financial institutions might define equity to set credit limits are: A: Down payments and monthly payments on principal B: Down payments and market value C: Equity invested and market value D: Mortgage balance and equity invested

D (short-term credit builds a good credit rating for the consumer when payments are made timely)

This can help you establish a credit history because: A: this practice has extended to other industries B: long-term credit builds a good credit rating for the consumer when payments are made early C: this type of credit is the most reliable D: short-term credit builds a good credit rating for the consumer when payments are made timely

B (providing a service and billing at the end of the period)

Utilities extend credit by: A: helping borrowers negotiate with financial institutions B: providing a service and billing at the end of the period C: lending money to customers upon application and review of application D: accepting credit cards

B (it is limited in use to certain establishments)

What is the biggest disadvantage of proprietary card? A: the monthly balance may not be partially paid off. B: It is limited in use to certain establishments.

B (repaid through a series of equal loan payments)

When a loan is amortized it means that the principal is: A: exactly 50% of the monthly payment B: repaid through a series of equal loan payments C: repaid through a series of payments that continually increase D: repaid through a series of payments that continually decrease

B (Personal loans are based on APR standards and payday loans are not)

Which of the following explains the difference between a 10% rate charged on a payday loan and a 10% rate charged by a bank on a personal loan? A: Payday loans are based on APR standards and personal loans are not B: Personal loans are based on APR standards and payday loans are not C: They are different loans, but the interest rate is the same D: Both loans are based on APR standards, but there are usually additional fees on a payday loan.

D (collection agency account information, inquiries, public record information are all on a credit report)

Which of the following information is NOT included on a credit report? A: collection agency account information B: Inquiries C: Public record information D: all of the above are included on credit reports

C (Your equity in the car is limited to your lease payments)

Which of the following is NOT one of the disadvantages of leasing a car? A: Dealers may charge fees beyond the monthly lease payments for the additional insurance B: Dealers may charge fees beyond the monthly lease payments for excess milage charges C: Your equity in the car is limited to your lease payments D: Dealers may charge fees beyond the monthly lease payments for ending the lease prematurely

D (passport)

Which of the following items should you NOT carry in your wallet? A: Driver's license B: Frequently used credit card C: Lodge membership card D: Passport

B (you can avoid interest charges)

Why is paying your credit card balance in full so important? A: Your monthly minimum payment will not change B: You can avoid interest charges C: Your ability to borrow will improve D: your assets will not be seized

C

You can use a grace period to your advantage by making: A: cash withdraws during your grace period B: minimum monthly payment C: purchases earlier in the billing cycle, giving you a longer period of free credit. D: purchases later in the billing cycle, giving you a shorter period of free credit.

C (paying credit card bills on time)

You increase your credit limit by: A: signing up for a credit card and not using it B: maintaining a significant debt level C: paying credit card bills on time D: signing up for multiple credit cards