Banking Test - MoneyPower

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1 Banking Test - MoneyPower Multiple Choice Identify the choice that best completes the statement or answers the question. 1. If a person makes a deposit of $10,000 or more into a bank account, the bank must notify the a. U. S. Treasury Department. b. Federal Deposit Insurance Corporation. (FDIC) c. State Banking Commission. d. Federal Reserve Board. 2. Which financial product can you buy for $25, is safe, and will be worth $50 at a future date? a. Series EE savings bond c. 50 shares of ABC Co. stock b. Certificate of deposit d. ABC Co. bond 3. A blank endorsement on a check: a. Has no effect on the check b. Cancels the check c. Creates a check that can be cashed by anyone d. Restricts the use of the check 4. Patty is selling her car through a newspaper advertisement. When she finds a buyer, she wants a form of payment which is guaranteed to be good. Which form of payment should she avoid? a. Cash c. Cashier s check b. Certified check d. A check 5. Which financial product typically pays the highest rate of interest? a. Savings account c. Certificate of deposit b. Money market account d. Common stock 6. Safe-deposit boxes are: a. A free benefit for accounts with deposits starting at $50,000 b. Safe and can be accessed only by the owner of the box c. Available at all banks d. Convenient and accessible at any hour of the day or evening 7. Which financial product has the most predictable income? a. Stock c. Certificate of deposit b. Real estate d. Option/future contract 8. Employees prefer direct deposits because: a. There is a small fee for the service b. The danger of losing a paycheck is slightly reduced c. The money is generally deposited in their checking account sooner than it would be if they had to deposit it in person d. Direct deposits earn a higher rate of interest 9. The Fed is short for: a. The Federal Reserve System b. Congress c. FBI d. The Federal Deposit Insurance Corporation

2 10. Troy has $50 a month transferred electronically from his checking account to his savings account. This is an example of: a. An installment payment c. An ATM transaction b. A savings plan d. A debit card transaction 11. When a person is reconciling a checking account and notices that the balance in the checkbook does not match the balance on the statement from the bank, which action is it appropriate for the person to take first? a. Determine that checks already written have cleared. b. Deposit sufficient funds to adjust the balance in the checkbook to match the bank s balance. c. Adjust the balance in the checkbook so it is the same as the bank s balance. d. Notify the bank in writing to adjust the statement. 12. What action should a person take who must make a tuition payment at the end of August each year? a. Decide how much money will be needed and then place 1/12th of that amount in a separate account each month. b. Divide the total amount of money that will be needed into 12 equal parts and invest that amount in stocks. c. Obtain a short-term collateralized loan for the needed amount of money. d. Plan to open a new credit card account that will be used to charge the needed amount of money. 13. Joan wants to open a checking account and wonders if checking accounts pay interest. How would you answer her question? a. All checking accounts per interest b. Some types of checking accounts pay interest c. Checking accounts never pay interest d. Checking accounts pay interest if the account balance does not fall below $ A teenage boy has opened a checking account. He is surprised to find that though he is getting a written bank statement each month he is not getting his canceled checks returned. The teenager should be aware that the reason canceled checks are NOT returned is to a. protect him from providing opportunities for forgery. b. insure that he does not receive important materials he is likely to lose. c. lessen the bank s need to maintain records of check transactions. d. save the bank money associated with returning copies of the checks. 15. Pat has a savings account and a car loan from a not-for-profit financial institution owned by its members. She is probably a member of what type of financial institution? a. Credit union c. Savings and loan association b. Commercial bank d. Investment club 16. Which financial product may pay a dividend? a. Savings account c. Certificate of deposit b. Money market account d. Common stock 17. The financial institution where Ms. Sanchez has her checking account will continue to pay out money for the checks she writes as long as: a. She uses checks from her checkbook b. The financial institution has sufficient funds c. There is enough money in Ms. Sanchez s account to cover the amount of the checks d. She maintains a good record of deposits and handles her account responsibly

3 18. When James received his paycheck, he planned to cash it at a check cashing store. You advise him to cash it at his own bank if possible. Why? a. They typically require a two day waiting period before giving cash b. They typically charge high fees c. There is likely to be a ceiling on the size of the check he can cash d. They generally require a co-signor 19. The most liquid type of investment is: a. A corporate bond c. Real estate holding b. A certificate of deposit d. A money market account 20. The National Credit Union Administration (NCUA) insures accounts in: a. Credit unions c. Brokerage firms b. Commercial banks d. Savings banks 21. How can individuals be prepared for losing their job or having a large medical expense? a. Maintain a checking account with sufficient funds b. Pay credit card bills on time c. Prepare a budget d. Save at least three months of income 22. The best reason for depositing money in a bank or credit union savings account instead of keeping your money under the mattress is that: a. Money deposited in savings accounts are F.D.I.C. insured. b. Most savings accounts earn a guaranteed rate of interest. c. Most savings accounts come with a free credit card. d. Money in a savings account can be accessed any time during day or night. 23. You have a checking account balance of $100 and you deposit a personal $200 check from your brother in your checking account. When will you be able to withdraw $150 in cash? a. The same day as the $200 deposit b. 3 to 7 days later, depending on your bank s check clearance policy c. After receiving a checking account statement at the end of the month d. On the day you make your next deposit 24. Which is the best example of a way to reduce fees paid for ATM transactions? a. When making supermarket purchases with a debit card, a person adds $50 in cash to the transaction instead of using an ATM machine. b. c. d. When using an ATM machine, a person takes only $20 each time out of the ATM machine located in a neighborhood store. A person uses any nearby bank ATM machine rather than going to a branch of the issuing bank to make ATM withdrawals. A person uses any convenient ATM machine but only at night and on the weekends.

4 25. Consumer finance companies, which are often advertised on TV, are also known as: a. Banks b. Savings and loan associations c. Small loan companies d. Purchase loan lenders 26. Financial services and products generally offered by banks and credit unions include: a. Real estate listings c. Legal services b. Savings and loans d. Business plans 27. Traveler s checks, often used for vacations: a. Are equivalent to credit cards b. Are free at most banks c. Function as cash and are easily replaced if lost d. Are FDIC insured 28. Banks use savings account deposits to: a. Make their services and products attractive for new depositors b. Pay for employee special projects c. Give loans to consumers and businesses d. Improve the quality of life in low-income communities 29. A bank Certificate of Deposit is a: a. Savings instrument that requires a deposit for a period of time during which the saver can withdraw money from the plan at any time without a penalty b. Savings instrument that requires a deposit for a period of time during which there is a penalty for withdrawals c. Cash deposit in a savings account that earns interest d. Certificate for deposits that are issued for half the face value 30. The phrase used for putting money into a savings account is: a. Verifying the account c. Making a deposit b. Balancing the account d. Making a withdrawal 31. The term used to describe the ease and speed with which you can convert savings or an investment to cash is: a. Convertibility c. Liquidity b. Principal d. Rate of return 32. Margaret wants to store a valuable coin collection and important papers. Generally, consumers should: a. Store valuables in a cabinet at home b. Rent a safe deposit box for their valuables c. Hand valuables over to their attorney d. Store valuables in locked drawer 33. The best suggestion you gave a friend who is writing a check for the first time is: a. Date the check because it is usually proof of payment b. Use pencil to permit changes c. Make the check payable to cash d. Use the checkbook stub or register to keep a record of the date you write the check

5 34. A person is depositing $20 in cash and a check for $50. On the checking account deposit slip, the person should a. include the reason that both cash and a check are being deposited. b. indicate what bank issued the check that is being deposited. c. indicate the amount of money that is currently in the checking account as well as in a savings account to cover the check. d. list the cash deposit separately from the check as well as the total of the deposit. 35. Money orders are: a. Distributed by the Treasury Department b. Available for no fee at banks and retail stores c. A purchased certificate to pay a specified amount to a specific payee d. A certified check used to pay a specified amount to a specific payee 36. Frankie s savings account has earned a lot of interest. He wants to know if he must pay taxes on the interest earned. What would the IRS tell him? a. Interest earned on savings accounts is not taxable b. A sales tax will be charged on the interest earned c. Savings account interest is taxable d. If the interest is under $50, it is not taxable 37. Which documents should be stored in a safe-deposit box? a. Checkbook statements. c. Current paycheck stubs. b. Copies of current and past budgets. d. Mortgage loan papers.

6 Banking Test - MoneyPower Answer Section MULTIPLE CHOICE 1. ANS: A In order to track large deposits, the federal government requires that deposits of $10,000 or more be reported to the Treasury Department. Some concerns may be that a person might be trying to avoid paying taxes on game winnings or perhaps illegal gains. 2. ANS: A Series EE savings bonds, which are issued and backed by the U.S. Treasury, are purchased for onehalf of their face value. These bonds earn interest monthly, and a $50 Series EE bond, which is purchased for $25, is guaranteed to reach face value within 17 years, and may reach face value sooner. 3. ANS: C A blank endorsement is your signature only and is like cash. Anyone who holds the check can present it for payment at a bank or credit union. Therefore, a blank endorsement should not be used unless you are in the financial institution when you endorse the check. Some banks and credit unions are asking for a picture ID before they will cash a check. 4. ANS: D A certified check is a check for which the bank guarantees payment. It is stamped by the bank as certified and becomes an obligation of the bank, and the funds to cover it are immediately withdrawn from the depositor's account. 5. ANS: C All of these types of accounts and financial products earn interest except for common stock. They all earn interest at different rates. Generally, certificates of deposit have the highest interest rate and savings accounts the lowest. Some companies declare and pay dividends to their shareholders. 6. ANS: B Safe-deposit boxes are metal boxes in a bank's vault. Taking two keys, one owned by the bank and one by the customer, to open the safe-deposit box provides more safety for the customer. Only the owner can access the box. The bank customer pays a small annual rental fee to the bank for use of the safe-deposit box.

7 7. ANS: C Most certificates of deposit (CDs) are issued with an interest rate that is fixed at a specified rate for the entire term of the deposit. The main virtue of a fixed-rate CD is its predictability. The investor knows exactly how much interest will be received annually and over the life of the CD. 8. ANS: C Instead of a negotiable check, the wage earner receives a pay stub which lists the amount that was directly deposited and the amounts withheld for taxes, health insurance, etc. Through direct deposit, earnings are transferred electronically into the recipient's bank account. Direct deposit is more convenient, safer, and usually faster than receiving and manually depositing a paycheck. 9. ANS: A The Federal Reserve, or "the Fed," provides banking services to depository institutions, serves as the U.S. Government's fiscal agent, supervises and regulates most large banks, and formulates and implements monetary policy. 10. ANS: B When a consumer requests that his or her bank or credit union electronically transfer money from a checking account to a savings account every month, it is a (forced) savings plan. If you manage your checking account so there are always enough funds to cover the transfer, a forced savings plan is a good option because you avoid the problem of not making regular deposits in your savings account and spending the money instead. Starting a (forced) savings plan with automatic deposits is one way to do what is known as "paying yourself first." 11. ANS: A Quite often, the balance reported on a checking account s bank statement differs from the balance in the person s checkbook. Reasons for that difference may be due to checks that have been written, and therefore are in the checkbook s register, but that have not been cleared (returned to the bank for payment). Therefore, first, the person must look at the bank s statement and compare it to his/her checkbook register to see that all checks written have cleared. 12. ANS: A This is an example of pay yourself first. The best way to save in order to make a yearly purchase, in this case a tuition payment, is to immediately deposit a portion of the payment in a form of savings account (so it can earn interest throughout the year) as soon as the person is paid each payroll period.

8 13. ANS: B Regular checking accounts do not earn interest. NOW (negotiable order of withdrawal) accounts do earn interest but tend to have higher minimum balance requirements than regular checking accounts and often limit the number of checks that can be written each month without a fee. 14. ANS: D The bank must keep the original or copies of all checks written. If the bank does not have to make and mail copies of checks there is a savings of time and money. 15. ANS: A Credit unions are not-for-profit savings and lending financial institutions. Membership in a credit union is made up of individuals who have something in common, such as a place of employment, membership in a professional organization, or residence in the same geographic area. Loans are made to its members from the savings of other members. Loan costs tend to be lower and savings interest rates higher at credit unions than at other types of financial institutions. 16. ANS: D All of these types of accounts and financial products except for common stock earn interest. Some companies declare and pay dividends to their common stock shareholders. 17. ANS: C The financial institution is not obligated to honor a check if it is written for more money than the current checking account balance. The customer will be charged an insufficient funds penalty for each check not covered by a sufficient balance in the account. 18. ANS: B Check-cashing stores usually charge high fees to cash checks and sometimes encourage consumers to take out high interest rate payday loans. 19. ANS: D The most liquid type of savings is a statement savings account. You can withdraw money from it quickly and easily at any time without penalty. Stocks, bonds, and real estate have less liquidity than statement savings accounts because these investments must first be sold before they can be converted to cash. Typically, the greater the liquidity and flexibility, the lower the interest rate paid. The cost of this flexibility and liquidity is a lower interest rate than is paid on certificates of deposit and other investments.

9 20. ANS: A The National Credit Union Association (NCUA) insures each depositor's accounts up to $100,000 in one credit union. For example, if a customer has a checking account of $1,000 and a savings account of $8,000 in the same credit union, the customer will have total insurance coverage of $9, ANS: D People generally need three to six months' of income in a savings account to cover unknown and unexpected events and expenses. 22. ANS: A Deposits in virtually all banks or credit unions earn interest. Banks send statements showing all deposits, withdrawals, and current account balances each month. Money earns a higher rate of interest in a savings account than in a checking account that pays interest. Money is easy to withdraw from a checking or a savings account. Money kept "under the mattress" could be stolen or lost in a fire and does not earn interest. 23. ANS: B Checks deposited into checking accounts need to be on deposit for several days before the money can be withdrawn as cash because the check needs to clear. 24. ANS: A Most supermarkets have a policy permitting patrons to add a cash withdrawal to a purchase made with a debit card or check without charging a fee. All of the other choices (using store ATMs, banks other than the issuing bank, and using any machine at night or the weekend) will most likely result in the person incurring ATM fees. 25. ANS: C Consumer finance companies specialize in making small loans to individuals or businesses. They primarily make loans to people who cannot qualify for credit elsewhere because of a poor credit history, low income, or minimal assets. For these reasons, interest rates are usually higher than loans from a bank or credit union. 26. ANS: B

10 The basic financial functions offered by banks and credit unions are checking accounts, savings accounts, and personal and business loans. Insurance is sold only by insurance companies, stocks and bonds are sold by brokerage firms, and legal services are provided by attorneys. Banks can sell financial products if they sell the products on behalf of a partner or affiliate investment firm. 27. ANS: C Traveler's checks are documents that function as cash, can be replaced if lost or stolen, and are generally accepted throughout the world. For these reasons, they are often used on vacations and other trips. The purchaser signs a traveler's check immediately after purchasing it and again when paying for a purchase with it. 28. ANS: C The basic functions of banks and credit unions are to be an intermediary between savers and borrowers. Banks and credit unions pay interest on customers' savings accounts and hold customers' money through checking accounts and then lend most of that money to other consumers and businesses for a fee (interest). 29. ANS: B A certificate of deposit (CD) is a savings instrument that requires a deposit for a period of time (term) during which the saver cannot withdraw money from the plan without a penalty. CDs are issued with terms from 31 days up to eight years. The longer the consumer agrees to loan the money to the bank or credit union, generally the higher the interest rate. It is considered a form of savings because the consumer is paid interest based on the dollar amount and term of the CD. If the consumer does not collect his/her money at the end of the term, the money may be rolled over into another CD. 30. ANS: C Putting money into an account is "making a deposit" and taking money out is "making a withdrawal." An account owner can deposit additional money into the account at any time. 31. ANS: C The ease and speed with which you can convert savings or an investment to cash is called liquidity. Checking and statement savings accounts are highly liquid because deposits and withdrawals can be made at any time. A certificate of deposit has less liquidity because it has a fixed term - a period during which money must be kept on deposit. There can be substantial penalties for cashing in a certificate of deposit before the end of its term, perhaps losing up to three to six months' interest.

11 32. ANS: B Bank customers can rent safe deposit boxes from the bank. They are metal boxes kept in the bank vault where customers often keep valuable papers, financial records, jewelry, and collections. 33. ANS: A Date the check because checks are proof of payment. Checks written in pencil or erasable ink can be changed to pay a different payee or amount than the check writer intended to pay. Keep a record of the check written in the checkbook register or stub and deduct the amount from your checkbook balance so you know how much money you have left and you can reconcile your checking account against the bank statement. In addition, it is harder for a forger to change the dollar amount if, on the second line, it is printed rather than written in cursive. 34. ANS: D Deposit slips have columns for the depositor to list cash and each check that is being deposited separately. Aside from this information, the depositor lists the total of the deposits, the date and the account number (if it is not a preprinted slip taken from the individual s check book) on the deposit slip. 35. ANS: C A money order is a purchased certificate used to pay a specified amount to a specific payee. They are a safe, convenient way to send payment through the mail as an alternative to personal checks or cash. Money orders sold and backed by the U.S. Postal Service are called postal money orders. Private companies, such as banks, credit unions, supermarkets, convenience stores, and drug stores, also sell money orders for a fee. 36. ANS: C Savings account interest is taxable. If Frankie's total earnings, including savings account interest, are high enough that he must pay income tax on them, the savings account interest is added to his other income and it is all taxed at the same rate. 37. ANS: D The purpose of having a safe deposit box is to have a fireproof, secure place to store valuables and irreplaceable items including legal documents such as a birth certificate and precious jewelry.

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