Personal Finance Ch. 5
4) An example of a depository financial institution is an insurance company.
FALSE
5) Deposits in commercial banks which are members of the FDIC, are insured up to a maximum of $50,000 per account.
FALSE
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
FALSE
1) 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
1) Certificates of deposit (CDs) with shorter maturity dates tend to pay higher interest rates than those with longer maturity dates.
TRUE
1) Convenience, deposit rates and insurance, and fees are the primary considerations in choosing a financial institution for your needs.
TRUE
1) 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.
Several answers are acceptable here such as a debit card, no service fee, ATM card, credit card, location, free checks, interest rate offered, and interest rate charged on loans.
10) Describe four factors you should consider when choosing a financial institution.
FALSE
10) Finance companies are more selective in choosing the lender they serve, and therefore usually charge lower interest rates than banks or credit unions
risk-free rate
10) The ________ is the return on an investment that is guaranteed for a specified period.
Credit counseling
10) Which of the following is not a service that a depository institution might offer? A) Checking services B) Credit counseling C) On line services D) The use of a debit card
FALSE
11) Securities firms primarily sell insurance to protect individuals from adverse events
Check 21.
11) The Act that allows banks to transmit electronic images of checks, thus allowing funds to be transferred immediately is known as
risk-free return.
11) 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
TRUE
12) A mutual fund is a means by which investors with only a small amount of money can invest in a portfolio of securities
risk premium
12) The ________ is an additional return beyond the risk-free rate that can be earned from a deposit guaranteed by the government.
Purchasing new shoes with a credit card
12) Which of the following is not a reason that your checking account balance might change from one month to another? A) Deposits to your account B) Cleared checks C) Purchasing new shoes with a credit card D) Bank fees
higher interest rate than
13) Financial institutions loan funds at a ________ they pay depositors
$933
13) 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 A) $933. B) $770. C) $1,204. D) $920.
3 percent.
13) 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
risk-free rate & risk premium
14) The interest rate is composed of the ________ and the ________.
Butterfield and Edwards Brokerage firm
14) Which of the following is not a depository institution? A) First National Bank of Chicago B) Butterfield and Edwards Brokerage firm C) American 1 Federal Credit Union D) New England Savings Bank
Your total banking expenses are likely to be lower.
14) Which of the following is not an advantage of using ATM cards? A) It is easy and convenient to withdraw funds. B) Your total banking expenses are likely to be lower. C) You have access to your account any time of the day. D) You can bank at remote locations all over the world.
depository institutions.
15) Financial institutions that accept deposits (that are insured up to a maximum level) from individuals and provide loans are called
A and B
15) In saving or investing, the ________ the risk, the ________ the return. A) higher& higher B) lower& lower C) higher& lower D) A and B
Difficulty of withdrawing funds
15) Which of the following is not a disadvantage of using ATM cards? A) Forgetting to record the transaction B) Fees from your bank and other banks for using out-of-network machines C) Increased fees if you make too many transactions per period D) Difficulty of withdrawing funds
cashier's check
16) 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.
is positive.
16) The relationship between risk and return
Securities firm
16) Which of the following is not a depository institution? A) Commercial bank B) Securities firm C) Savings institution D) Credit union
$250,000
17) Deposits at commercial banks are insured up to ________ per depositor by the Federal Deposit Insurance Corporation (FDIC)
One two-year CD returning $180 interest
17) Juan has $1,000 that he would like to invest in a CD. His bank offers two alternatives, i.e., a one-year CD paying 6% or a two-year CD paying 9 percent. Juan has been reading that interest rates are rising and, based on his research, he estimates that by year-end the rate on one-year CDs will increase to 10 percent. What alternative would give Juan the most interest and what would the total interest be? A) Two one-year CDs returning $120 interest B) Two one-year CDs returning $160 interest C) One two-year CD returning $180 interest D) One two-year CD returning $1,900 interest
cashier's check.
17) 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
money order
18) A ________ is a check that is written on behalf of a person and will be charged against a nonfinancial institution's account.
Federal Deposit Insurance Corporation.
18) Deposits at commercial banks are insured by a government owned insurance agency called
12 percent
18) Jack has $1,000 that he wishes to invest for the next two years. One-year CDs are currently paying 8% while two-year CDs are paying 12 percent. Economists are predicting that interest rates will rise by the end of the year. What is the minimum amount interest rates would have to increase to make the one-year CD better than the two-year? A) 16% B) 14 percent C) 12 percent D) 10 percent
traveler's check
19) 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.,
Commercial banks
19) Which of the following financial institutions would be used the most by business customers wishing to borrow money? A) Commercial banks B) Savings institutions C) Credit unions D) All are used equally by business customers
TRUE
2) A certificate of deposit guarantees or locks in an interest rate for a specified time and rate.
TRUE
2) Bank ATM charges may be substantial if you make many transactions monthly and use out-of-network machines
FALSE
2) Since rates and fees differ only slightly between all national banks, there is little need to consider these when choosing your financial institution.
FALSE
2) 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.
debit card
20) If you wish to make purchases that are charged against your checking account without writing a check you need to have a(n) ________.
be a member of a group with a common bond.
20) To join a credit union, you need to
thrift institution.
21) Savings institutions accept deposits and provide mortgage and personal loans to individuals. Another name for these types of financial institutions is
debit card
21) automatically deducts an amount from a checking account
insurance up to $250,000
22) Which of the following characteristics is common to both commercial banks and credit unions? A) lower fees B) lower credit card rates C) insurance up to $250,000 D) nonprofit
credit card
22) extends the payment time through credit
Credit unions
23) Which of the following is a nonprofit depository institution that provides services only to members who have a common affiliation? A) Commercial banks B) Savings institutions C) Credit unions D) Finance companies
Finance companies
24) Which of the following financial institutions specializes in making personal loans to people who are perceived to have a higher risk of default? A) Finance companies B) Commercial banks C) Savings institutions D) Credit unions
finance company.
25) If you were taking out a personal loan, the highest rate would probably be charged by a
Securities firms
26) ________ 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
27) ________ are nondepository institutions that provide insurance to protect individuals or firms against possible adverse events.
Investment companies
28) ________ are nondepository institutions that sell shares to individuals and use the proceeds to invest in securities to create mutual funds.
All of the above.
29) A financial conglomerate offers a diverse set of services that include which of the following? A) Credit cards B) Personal loans C) Brokerage subsidiary D) All of the above.
TRUE
3) A risk-free rate is a return on an investment that is guaranteed for a specified period.
FALSE
3) Debit cards allow you to pay for a purchase later when the bill arrives.
TRUE
3) Depository institutions are financial institutions that accept deposits (that are insured up to a maximum level) from individuals or firms and provide loans
FALSE
3) You should select only one financial institution for all of your checking, savings, and investing needs.
All of the above.
30) Which of the following is classified as a nondepository institution? A) Credit union D) All of the above. C) Commercial bank D) Savings and loan
Finance company
31) 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? A) Savings institution B) Finance company C) Securities firm D) Investment company
A savings account earning 2%
32) 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) A one-year CD earning 4% B) A common stock mutual fund earning 9% C) A savings account earning 2% D) Shares of stock in a high tech company that could double in 6 months
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) A savings account earning 1% interest B) A checking account C) A five-year CD paying 4.38% annually D) High risk stock in a producer of natural gas that is predicted to triple in the next year, C) A five-year CD paying 4.38% annually
33) Your great aunt Mary passed away and left you and inheritance of $5
A five-year CD paying 4.38% annually
33) 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) A savings account earning 1% interest B) A checking account C) A five-year CD paying 4.38% annually D) High risk stock in a producer of natural gas that is predicted to triple in the next year
Limit on FDIC insurance on accounts
34) Which of the following will not vary at a commercial bank? A) Interest rates B) Limit on FDIC insurance on accounts C) Loan conditions D) Service fees
depository institutions
35) Financial institutions offering traditional checking and savings accounts as well as providing loans to both individuals and firms are called ________.
securities firm
36) A nondepository institution facilitating transactions in stocks or bonds is a(n) ________.
financial conglomerates
37) Organizations that offer a diverse set of financial services to individuals and firms are ________.
depository institutions
38)financial institutions that accept deposits
securities firms
39) non-depository institutions that sell and purchase securities
TRUE
4) 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.
FALSE
4) An example of a depository financial institution is an insurance company
TRUE
4) Because they have lower expenses, Web-based financial institutions tend to pay higher interest rates on deposits than institutions with physical branches.
TRUE
4) Risk premium is the amount of interest you might receive over and above the risk-free return insured by the federal government.
insurance company
40) protection against adverse events
financial conglomerate
41) financial institutions that offer a diverse set of services
investment company
42) mutual fund or combination of investments
finance company
43) specializes in personal loans
Finance companies, securities firms, insurance companies, investment companies, banks, and credit unions.
44) List four types of financial institutions that you have made use of or plan to deal with in the future.
FALSE
5) Deposits in commercial banks which are members of the FDIC, are insured up to a maximum of $50,000 per account
FALSE
5) 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.
TRUE
5) Investments with a higher risk of default pay higher rates of interest than those which are less risky.
Whether it is state or federally chartered
5) 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
FALSE
6) ATM cards are declining in use because they are expensive and the machines are becoming more difficult to locate.
FALSE
6) It is illegal for a federally insured financial institution to charge those with poor credit higher interest rates than those with good credit.
TRUE
6) Savings institutions differ from commercial banks in that they tend to focus less on providing commercial loans
Depository insurance
6) 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
TRUE
7) 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
7) Credit unions are nonprofit depository institutions that serve members who have a common affiliation (such as the same employer or same community)
FALSE
7) The one-year loan rate for individuals is usually about the same as the one-year CD rate.
Occupy Wall Street
7) ________ is a movement that began in September 2011 to protest against large banks that are believed to receive excessive support from the government.
credit
8) A(n) ________ card allows you to pay for a purchase at a later time when the bill arrives.
Bank ATM charges may be substantial if you make many transactions monthly and use out-of-network machines.
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
First National -$6.00& City Bank -$4.00
8) 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? A) First National -$6.00& City Bank -$2.00 B) First National -$6.00& City Bank -$4.00 C) First National -$6.00& City Bank -$26.00 D) First National -$6.00& City Bank -$8.00
FALSE
8) 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
two-year certificate of deposit.
8) Wanda Clark expects interest rates to decline in the next few months. To maximize her earnings, she should put her savings in a
debit
9) A(n) ________ card allows you to pay for a purchase directly from your checking account without writing a check.
over 80
9) 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? A) over 50 B) over 60 C) over 70 D) over 80
TRUE
9) Nondepository institutions are financial institutions that provide various financial services, but their deposits are not federally insured
All banks offer the same rates on CDs.
9) 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.
