FINC 300 Ch. 6 Quiz

The FDIC and the National Credit Union Association insures accounts up to

$250,000

When you are considering different investment options and want to maximize your returns, be sure to compare the investments'

APYs

Which of the following is an advantage of online and mobile banking?

Accessibility to and management of your accounts

Comprehensive financial services packages that offer checking accounts, debit and credit cards, loans and brokerage services are known as?

Asset management accounts

Christopher Garcia Christopher just received his checking account statement from his bank. He has a NOW account with free checking that pays​ 0.75% APR on the balance and requires a​ $500 minimum balance. His statement shows that he currently has a balance of​ $3,950. In looking at his statement he notices that his car payment check for​ $400 is still​ outstanding, and that his recently received payroll deposit of​ $3,600 had not posted at the time the statement was created. His normal living expenses average​ $1,500 per month including his car payment. Other than his car​ loan, he rarely writes any checks as he prefers to use his debit card and ATM card for day−to−day living expenses. He pays his credit card balance in full every month. Other than his checking account he does not own any investments. He has always dreamed of owning a​ house, and would like to buy one within the next five years. He has access to a​ 401(k) pension plan at work where his employer will match contributions up to​ 6% of his salary. He currently contributes​ 2% of his salary to this plan. What recommendations would you give Christopher concerning his cash management?

Automate a savings plan using EFT; Create a budget and set some savings goals; Set up an account at a mutual fund company

When college students start saving early

By automating their savings, they are less likely to spend money; In an account earning interest, they immediately put their money to work; They can take advantage of the time value of money and achieve their financial goals

A check drafted on the financial institution's account is a(n)

Cashier's check

Suppose that you go to a bank at which you have no account, give the bank cash, and in return obtain a check drawn against that bank which you will use to pay someone else. This is called a

Cashier's check

Brenda White had her bank certify one of her personal checks as being good. Which type of check has been issued?

Certified check

Which of the following is not a liquid asset?

Credit cards

Which of the following financial institutions is a not-for-profit organization that is open only to members of that institution and tends to offer more favorable interest rates to borrowers and savers?

Credit union

John and Maile Johnson The Johnson family is very conservative financially. They have a retirement plan where John works and share a joint checking account at their bank. They keep a lot of money in their checking account to cover short-term needs and emergencies. Both of them want to step up to a higher interest rate than a checking or savings account pays, and at the same time stay with their bank. Which of the following is not an advantage of a CD as a cash management alternative for John and Maile?

Pays money market interest rates

Liquid assets or funds are important to

Prevent overdrafts in checking accounts; Cover unplanned expenses; Prevent interrupting your long-term investments; Cover some planned expenses

Pay yourself first refers to

Put money in a savings account

What are short-term notes of debt issued by the federal government commonly called?

T-Bills

How do you compare cash management alternatives to determine which is best for you?

Take into account their tax status; Compare returns using comparable interest rates; Consider their safety or risk

Please choose the method to use when calculating the after-tax return

Taxable return x (1 - marginal tax rate) + nontaxable return

NOW accounts offer an option to traditional demand deposits. All of the following are characteristics of NOW accounts except one. Which is it?

The interest rate is generally higher than other savings accounts

John and Maile Johnson The Johnson family is very conservative financially. They have a retirement plan where John works and share a joint checking account at their bank. They keep a lot of money in their checking account to cover short-term needs and emergencies. Both of them want to step up to a higher interest rate than a checking or savings account pays, and at the same time stay with their bank. What financial principle do they need to understand better?

The time value of money; Taxes affect personal finance decisions; Risk and return go hand in hand

Which of the following characteristics apply to liquid assets?

They involve low risk; The temptation to spend is greater; They are characterized by low returns

A debit card is something of a cross between a credit card and a checking account

True

Card-blocking occurs when you use a debit card (or credit card) to check into a hotel or rent a car and the anticipated expenses are blocked - in effect, placing a hold on the money

True

For a consumer who does not have a checking account a prepaid debit card is a means of paying for goods and services

True

Liquid assets allow you to cover unplanned expenses without having to interrupt your long-term investments or liquidate any tangible assests

True

Nondeposit-type financial institutions are commonly referred to as mutual funds and brokerage firms

True

One way to think of liquid assets is as a reservoir, with money moving in as wages are received and moving out as living expenses are paid

True

Online banking simplifies cash management and budgeting for consumers

True

The interest rate earned on a money market deposit account is generally higher than the interest earned on a Bank savings account

True

Virginia Tech's Hokie Passport is an example of a smart card

True

When comparing returns on cash management investment alternatives, it is important to make sure that the rates you compare are all on the same tax basis

True

When you automate your savings you are less likely to spend those dollars because they never become part of the funds in your checking account

True

Which of the following is not a common fee arrangement for checking accounts?

Variable interest rates to reflect fee activity

When using an ATM, keep in mind that

You should report electronic transaction mistakes to the bank immediately; It is never safe to deposit cash in an ATM; Human problems in handling the transactions can occur; Computer errors can occur

All of the following are advantages of MMDA's except

rates below alternatives

The APY is the APR after taxes

False

Christopher Garcia Christopher just received his checking account statement from his bank. He has a NOW account with free checking that pays​ 0.75% APR on the balance and requires a​ $500 minimum balance. His statement shows that he currently has a balance of​ $3,950. In looking at his statement he notices that his car payment check for​ $400 is still​ outstanding, and that his recently received payroll deposit of​ $3,600 had not posted at the time the statement was created. His normal living expenses average​ $1,500 per month including his car payment. Other than his car​ loan, he rarely writes any checks as he prefers to use his debit card and ATM card for day−to−day living expenses. He pays his credit card balance in full every month. Other than his checking account he does not own any investments. He has always dreamed of owning a​ house, and would like to buy one within the next five years. He has access to a​ 401(k) pension plan at work where his employer will match contributions up to​ 6% of his salary. He currently contributes​ 2% of his salary to this plan. After balancing his checking account, what will his current balance be today?

$7,150

Financial institutions that provide traditional checking and savings accounts are commonly referred to as

Deposit-type financial institutions

A money order is typically less liquid than a personal check

False

A traveler's check is a personal check that has been certified as being good by the financial institution on which it is drawn

False

Brick-and-mortar banks typically offer superior interest rates for borrowers and savers

False

Christopher Garcia Christopher just received his checking account statement from his bank. He has a NOW account with free checking that pays​ 0.75% APR on the balance and requires a​ $500 minimum balance. His statement shows that he currently has a balance of​ $3,950. In looking at his statement he notices that his car payment check for​ $400 is still​ outstanding, and that his recently received payroll deposit of​ $3,600 had not posted at the time the statement was created. His normal living expenses average​ $1,500 per month including his car payment. Other than his car​ loan, he rarely writes any checks as he prefers to use his debit card and ATM card for day−to−day living expenses. He pays his credit card balance in full every month. Other than his checking account he does not own any investments. He has always dreamed of owning a​ house, and would like to buy one within the next five years. He has access to a​ 401(k) pension plan at work where his employer will match contributions up to​ 6% of his salary. He currently contributes​ 2% of his salary to this plan. What would you recommend to Christopher concerning his cash management?

He should switch his current account to a Money Market Deposit Account; He should set up EFT payments for his auto loan; He should give up some liquidity

The Truth in Savings Act of 1993

Helps investors compare interest rates on investment options

Pick the advantage of a certificates of deposit from this list of possibilities

Interest rates are generally higher than typical savings accounts

Many banks offer free checking accounts. What may be the opportunity costs associated with free checking?

Low interest rates; High minimum balance requirements

Money-market mutual funds (MMMFs) provide an alternative to traditional liquid investments offered by financial institutions. What are/is the advantage(s) of an MMMF?

Minimal risk; Check-writing privileges; High interest rates; Convenience - deposits made through payroll deductions

What is another name for an interest-bearing checking account?

NOW