Chapter 4 Savings and Payment Services

62. Based on the following information, what amount would be SUBTRACTED from the BANK BALANCE side of a checking account reconciliation? Service charge $12, Outstanding checks $145, Interest $3.50, Deposit in transit $80 A) $145 B) $12 C) $157 D) $148. 50 E) $80

A) $145

40. ____________ specialize in helping people save money in a manner than provides high liquidity. A) Investment companies B) Life insurance companies C) Commercial banks D) Consumer finance companies E) Credit unions

A) Investment companies

45. A saver will usually earn the highest rate with which of the following types of savings plans? A) certificate of deposit B) debit account C) passbook account D) share account E) demand deposit account

A) certificate of deposit

50. Savings compounded ____________ would have the highest effective yield. A) daily B) annually C) semi-annually D) monthly E) weekly

A) daily

43. A savings account at a credit union is called a ____________ account. A) share B) debit C) club D) certificate E) money market

A) share

30. When interest rates are rising, a person would be best served by A) short-term savings instruments. B) long-term savings instruments. C) short-term loans. D) variable-rate loans.

A) short-term savings instruments.

55. Kevin Friedman only needs to write a couple of checks each month. Which type of checking account would best serve his needs? A) an interest-earning checking account B) an activity account C) an EFT account D) a share draft account E) a NOW account

B) an activity account

27. An all-purpose account that provides several services is a(n) A) NOW account. B) asset management account. C) EFT account. D) mutual fund. E) money market account.

B) asset management account.

53. The Federal Deposit Insurance Corporation provides deposit insurance for A) credit unions and mutual savings banks. B) commercial banks and savings and loan associations. C) investment companies and finance companies. D) insurance companies and credit unions.

B) commercial banks and savings and loan associations.

37. In recent years, membership in credit unions has A) become more difficult due to higher taxes. B) continued to increase. C) been limited to government employees. D) declined due to poor credit union management. E) stayed at about the same level.

B) continued to increase.

47. An advantage of U.S. savings bonds is A) interest earned is exempt from federal income taxes. B) interest earned is deferred for federal tax purposes. C) a constant rate of earnings. D) they can be converted to other types of investments.

B) interest earned is deferred for federal tax purposes.

38. An advantage credit unions may have over other financial institutions is A) interest-bearing checking accounts. B) low-cost personal loans. C) flexible-rate loans. D) credit cards. E) variable-rate savings plans.

B) low-cost personal loans.

24. The convenience of using a financial institution with 24-hour banking frequently requires a trade-off with A) safety. B) personal service. C) growth of savings. D) liquidity. E) a lower rate of return.

B) personal service.

60. When preparing a bank reconciliation, outstanding checks should be A) added to the bank statement balance. B) subtracted from the bank statement balance. C) added to the checkbook balance. D) subtracted from the checkbook balance.

B) subtracted from the bank statement balance.

Brad Kellog maintains a monthly balance in his checking account of approximately $150, writes about 25 checks a month, and makes three deposits each month. How would Brad decide which of the following checking accounts to use? (1) a regular checking account with a monthly fee of $4.50 for an unlimited number of checks and no monthly balance required; no interest earned (2) an interest-bearing checking account paying 4 percent interest on balances over $300; monthly service charge of $6 when the balance is below $300 (3) a special checking account that charges 35 cents a check and 20 cents for each deposit; no interest earned (4) a minimum-balance account that requires a $200 minimum balance to avoid the $10 monthly fee; interest earned when balance is above $400.

Brad should compare the expected monthly cost for each situation (service charges, costs per check, other fees) with any earnings for interest. In addition to the financial aspects of each account, he should also consider the convenience, location, and other services offered by the financial institution.

33. Direct deposit and automatic monthly payments are features of A) savings accounts. B) checking accounts. C) electronic banking. D) investments. E) reserve funds.

C) electronic banking.

28. Joan Zemke expects interest rates to decline over the next few months. To maximize her earnings she should use a(n) A) regular savings account. B) interest-bearing checking account. C) five-year certificate of deposit. D) six-month certificate of deposit. E) money market fund

C) five-year certificate of deposit.

44. A certificate of deposit usually has A) high interest-rate risk. B) low safety for savers. C) limited liquidity. D) a variable rate of return. E) no minimum deposit amount

C) limited liquidity.

35. To avoid high fees for loans, a person should not borrow from a A) credit union. B) savings and loan association. C) pawnshop. D) commercial bank. E) mutual savings bank.

C) pawnshop.

51. The Truth-in-Savings law requires that financial institutions A) provide insurance for savings accounts. B) send customers monthly bank statements. C) report annual percentage yield on savings. D) offer adjustable rate savings accounts. E) become members of the Federal Reserve System.

C) report annual percentage yield on savings.

32. Time deposits consist of A) checking accounts. B) loans and charge accounts. C) savings accounts. D) government securities. E) profits earned by a financial institution.

C) savings accounts.

57. The purpose of a "special" endorsement is to A) cash a check. B) deposit a check. C) transfer a check to another person. D) withdraw cash from your account. E) reduce the charge for service fees.

C) transfer a check to another person.

48. The rate of return on a savings account is also referred to as A) liquidity. B) compounding. C) yield. D) insolvency. E) asset management.

C) yield.

58. A ____________ endorsement would be used if a person is presenting a check in order to obtain cash. A) restrictive B) common C) special D) blank E) documented

D) blank

36. The profits from a mutual savings bank go to the A) creditors. B) loan applicants. C) stockholders. D) depositors. E) community in which it operates.

D) depositors.

25. A trust has the purpose of A) solving a person's financial problems. B) obtaining low-interest loans. C) handling daily money management activities. D) managing the assets of a person. E) improving a person's budgeting skills.

D) managing the assets of a person.

41. A financial institution organized for the main purpose of providing loans to purchase homes is a A) credit union. B) mutual savings bank. C) consumer finance company. D) mortgage company. E) commercial bank.

D) mortgage company.

26. The storage of funds for future use is the purpose of ____________ services. A) trust B) borrowing C) credit card D) savings E) cash checking

D) savings

54. A service designed for people who write only a few checks each month is a(n) ____________ account. A) debit B) regular checking C) share draft D) special or activity

D) special or activity

61. In the bank reconciliation process, service fees should be A) added to the bank statement balance. B) subtracted from the bank statement balance. C) added to the checkbook balance. D) subtracted from the checkbook balance.

D) subtracted from the checkbook balance.

42. The business hours and location of a financial institution refer to the ____________ factor of selecting a financial institution. A) safety B) cost C) compounding D) liquidity E) convenience

E) convenience

31. Checking accounts are frequently referred to as ____________ deposits. A) common B) time C) current D) loan E) demand

E) demand

39. The major service offered by investment companies is A) interest-bearing checking accounts. B) variable-rate loans. C) credit card accounts. D) savings bonds. E) mutual funds.

E) mutual funds.

29. The purpose of a debit card is to A) obtain a discount on consumer purchases. B) make credit card purchases. C) quickly obtain a cash loan. D) make investments with an investment company. E) transfer money electronically.

E) transfer money electronically.

What are the main types of financial institutions used by consumers?

The major types of financial institutions are commercial banks, savings and loan associations, mutual savings banks, credit unions, life insurance companies, investment companies, finance companies and mortgage companies.

Evan Kostakis is living in this country while going to school. He is not familiar with the operation of savings plans available to consumers. What factors would you recommend that he consider when evaluating and comparing different savings plans?

When evaluating a savings plan, consider the rate of return (yield), the interest method, liquidity, safety, restrictions, and costs of the account.

18. A certificate of deposit is usually considered to be very liquid.

false

19. The liquidity of a savings account refers to the rate of earning a person will receive.

false

20. The more frequent the compounding, the less a person will earn on a savings account.

false

21. Activity accounts are designed for people who write many checks each month.

false

23. When preparing a bank reconciliation, interest earned on your checking account is added to the bank statement balance.

false

3. Consumers will usually obtain the best overall value of their dollar by having all financial services with the same institution.

false

6. Direct deposit usually requires a waiting period for a availability of funds.

false

7. A lost debit card results in potential losses similar to a lost credit card.

false

8. Savers should always attempt to obtain an interest rate that is less than the inflation rate.

false

15. The money market fund offered by investment companies is a relatively liquid financial service.

true

2. A "free" checking account with a minimum balance of $500 has an opportunity cost of lost interest.

true

4. An asset management account combines several financial services for a single fee.

true

56. The funds deposited in a checking account can be restricted for use by A) a holding period. B) outstanding checks. C) interest earned. D) service charges. E) electronic banking.

A) a holding period.

59. The first information to be recorded when writing a check is the A) date. B) check stub or check register. C) payee. D) amount. E) signature.

B) check stub or check register.

63. A personal check with guaranteed payment is called a A) traveler's check. B) bank draft. C) certified check. D) money order. E) cashier's check.

C) certified check.

46. Which of the following savings plans is not covered by federal deposit insurance? A) a passbook account B) a regular checking account C) a money market account D) a money market fund E) a certificate of deposit

D) a money market fund

52. Comparison of earnings for different savings plans can best be accomplished using the A) discounted present value. B) compounded rate of return. C) net present value. D) annual percentage yield. E) after-tax rate of return.

D) annual percentage yield.

49. A $200 savings account that earns $13 interest in a year has a yield of ____________ percent. A) 6 B) 13 C) 7 D) 11. 25 E) 6. 5

E) 6. 5

34. Traditionally, the greatest variety of financial services have been offered by a(n) A) credit union. B) investment company. C) mutual savings bank. D) savings and loan association. E) commercial bank.

E) commercial bank.

10. The use of electronic banking adds to the "float" time for financial services customers.

false

12. Traditionally, a mutual savings bank offered the widest variety of financial services.

false

16. Consumer finance companies specialize in home mortgages.

false

17. A regular savings account usually offers a higher rate of return to savers than other savings plans.

false

5. ATM fees are about the same in different geographic areas.

false

11. Demand deposits is another term for checking accounts.

true

13. Savings and loan associations offer mortgages.

true

14. Credit unions frequently offer lower loan rates than other financial institutions.

true

22. A restrictive endorsement will usually include the words "for deposit only."

true

9. Using a "debit" card is basically the same as writing a check.

true

Higher returns on savings will usually result in less liquidity.

true