Question 1

Financial institutions loan funds at ________ they pay depositors.

Accepted Answer

A)  a lower interest rate than 
B)  a higher interest rate than 
C)  a rate equal to what 
D)  a cost plus 3% of what 
A)  a lower interest rate than 
B)  a higher interest rate than 
C)  a rate equal to what 
D)  a cost plus 3% of what

Question 2

Nondepository institutions are financial institutions that provide various financial services,but their deposits are not federally insured.

Accepted Answer

A) True 
 B)False

Question 3

The relationship between risk and return is positive because

Accepted Answer

A)  the longer the term of the investment, the more exposed it is to negative inflation effects. 
B)  investors need to be compensated with additional return on investment to bear additional risk. 
C)  not every investment has risk, so there is really no distinct relationship. 
D)  Both A and B are correct. 
A)  the longer the term of the investment, the more exposed it is to negative inflation effects. 
B)  investors need to be compensated with additional return on investment to bear additional risk. 
C)  not every investment has risk, so there is really no distinct relationship. 
D)  Both A and B are correct.

Question 4

A risk premium is the amount of interest you might receive over and above the risk-free return insured by the federal government.

Accepted Answer

A) True 
 B)False

Question 5

Use the following two columns of items to answer the matching questions below:
-financial conglomerates

Accepted Answer

A) financial institutions that accept deposits and provide loans 
B) a nondepository institution that sells shares to individuals and uses the proceeds to invest in securities and create a mutual fund 
C) a nondepositary institution that provides insurance to protect against adverse events 
D) a nondepository institution that specializes in providing personal loans 
E) nondepository institutions that facilitate the purchase and sale of securities by firm or individuals
F)financial institutions that offer a diverse set of services 
A) financial institutions that accept deposits and provide loans 
B) a nondepository institution that sells shares to individuals and uses the proceeds to invest in securities and create a mutual fund 
C) a nondepositary institution that provides insurance to protect against adverse events 
D) a nondepository institution that specializes in providing personal loans 
E) nondepository institutions that facilitate the purchase and sale of securities by firm or individuals
F)financial institutions that offer a diverse set of services

Question 6

Bank fees for use of an automated teller machine (ATM)do not need to be considered when choosing a bank since fees are set by the federal government and are the same for all banks.

Accepted Answer

A) True 
 B)False

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

Use the following two columns of items to answer the matching questions below:
-insurance company

Accepted Answer

A) financial institutions that accept deposits and provide loans 
B) a nondepository institution that sells shares to individuals and uses the proceeds to invest in securities and create a mutual fund 
C) a nondepositary institution that provides insurance to protect against adverse events 
D) a nondepository institution that specializes in providing personal loans 
E) nondepository institutions that facilitate the purchase and sale of securities by firm or individuals
F)financial institutions that offer a diverse set of services 
A) financial institutions that accept deposits and provide loans 
B) a nondepository institution that sells shares to individuals and uses the proceeds to invest in securities and create a mutual fund 
C) a nondepositary institution that provides insurance to protect against adverse events 
D) a nondepository institution that specializes in providing personal loans 
E) nondepository institutions that facilitate the purchase and sale of securities by firm or individuals
F)financial institutions that offer a diverse set of services

Question 9

If the government borrows funds to finance a military build-up in the Middle East,this will cause a

Accepted Answer

A)  shift in the demand for funds. 
B)  shift in the supply of funds. 
C)  shift in monetary policy. 
D)  shift in open-market operations. 
A)  shift in the demand for funds. 
B)  shift in the supply of funds. 
C)  shift in monetary policy. 
D)  shift in open-market operations.

Question 10

Deposits at commercial banks are insured by a government-owned insurance agency called the

Accepted Answer

A)  Federal Deposit Insurance Corporation. 
B)  National Credit Union Share Insurance Fund. 
C)  Federal Deposit Interest Company. 
D)  Insurance Regulatory and Development Authority. 
A)  Federal Deposit Insurance Corporation. 
B)  National Credit Union Share Insurance Fund. 
C)  Federal Deposit Interest Company. 
D)  Insurance Regulatory and Development Authority.

Question 11

An example of a depository financial institution is an insurance company.

Accepted Answer

A) True 
 B)False

Question 12

Use the following two columns of items to answer the matching questions below:
-credit card

Accepted Answer

A) automatically deducts an amount from a checking account 
B) extends the payment time through credit 
A) automatically deducts an amount from a checking account 
B) extends the payment time through credit

Question 13

An increase in borrowing by the U.S.government will result in all of the following except

Accepted Answer

A)  upward pressure on interest rates. 
B)  reduction in government regulation. 
C)  an increase in the demand for funds. 
D)  an increase in the issuance of Treasury securities. 
A)  upward pressure on interest rates. 
B)  reduction in government regulation. 
C)  an increase in the demand for funds. 
D)  an increase in the issuance of Treasury securities.

Question 14

When interest rates rise,individuals who make deposits will earn a ________ rate of interest,while individuals who need to borrow funds will have to pay a ________ rate.

Accepted Answer

A)  higher; lower 
B)  lower; higher 
C)  higher; higher 
D)  lower; lower 
A)  higher; lower 
B)  lower; higher 
C)  higher; higher 
D)  lower; lower

Question 15

Which of the following is not a reason that your checking account balance might change from one month to another?

Accepted Answer

A)  Deposits to your account 
B)  Cleared checks 
C)  Purchasing new shoes with a credit card 
D)  Bank fees 
A)  Deposits to your account 
B)  Cleared checks 
C)  Purchasing new shoes with a credit card 
D)  Bank fees

Question 16

Wanda Clark expects interest rates to decline in the next few months.To maximize her earnings,she should put her savings in a

Accepted Answer

A)  two-year certificate of deposit. 
B)  six-month certificate of deposit. 
C)  cashier's check. 
D)  savings account. 
A)  two-year certificate of deposit. 
B)  six-month certificate of deposit. 
C)  cashier's check. 
D)  savings account.

Question 17

Certificates of deposit (CDs)with shorter maturity dates tend to pay higher interest rates than those with longer maturity dates.

Accepted Answer

A) True 
 B)False

Question 18

The term structure of interest rates states that

Accepted Answer

A)  terms of the loan have major effects on the interest rate. 
B)  the long term interest rate is the geometric mean of the series of short term rates covering the same period. 
C)  the long term rate would be higher than the individual short term rates in a rising interest rate environment. 
D)  Both B and C are correct. 
A)  terms of the loan have major effects on the interest rate. 
B)  the long term interest rate is the geometric mean of the series of short term rates covering the same period. 
C)  the long term rate would be higher than the individual short term rates in a rising interest rate environment. 
D)  Both B and C are correct.

Question 19

Which of the following financial institutions specializes in making personal loans to people who are perceived to have a higher risk of default?

Accepted Answer

A)  Finance companies 
B)  Commercial banks 
C)  Savings institutions 
D)  Credit unions 
A)  Finance companies 
B)  Commercial banks 
C)  Savings institutions 
D)  Credit unions

Question 20

The term structure of interest rates is measured by a(n)________,which shows the interest rate offered at each maturity level.

Accepted Answer

A)  economist 
B)  yield curve 
C)  pie chart 
D)  index 
A)  economist 
B)  yield curve 
C)  pie chart 
D)  index

Exam 5: Banking and Interest Rates

Financial institutions loan funds at ________ they pay depositors.

Nondepository institutions are financial institutions that provide various financial services,but their deposits are not federally insured.

The relationship between risk and return is positive because

A risk premium is the amount of interest you might receive over and above the risk-free return insured by the federal government.

Use the following two columns of items to answer the matching questions below: -financial conglomerates

Bank fees for use of an automated teller machine (ATM)do not need to be considered when choosing a bank since fees are set by the federal government and are the same for all banks.

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.

Use the following two columns of items to answer the matching questions below: -insurance company

If the government borrows funds to finance a military build-up in the Middle East,this will cause a

Deposits at commercial banks are insured by a government-owned insurance agency called the

An example of a depository financial institution is an insurance company.

Use the following two columns of items to answer the matching questions below: -credit card

An increase in borrowing by the U.S.government will result in all of the following except

When interest rates rise,individuals who make deposits will earn a ________ rate of interest,while individuals who need to borrow funds will have to pay a ________ rate.

Which of the following is not a reason that your checking account balance might change from one month to another?

Wanda Clark expects interest rates to decline in the next few months.To maximize her earnings,she should put her savings in a

Certificates of deposit (CDs)with shorter maturity dates tend to pay higher interest rates than those with longer maturity dates.

The term structure of interest rates states that

Which of the following financial institutions specializes in making personal loans to people who are perceived to have a higher risk of default?

The term structure of interest rates is measured by a(n)________,which shows the interest rate offered at each maturity level.

Overview of a Financial Plan

Planning With Personal Financial Statements

Applying Time Value Concepts

Using Tax Concepts for Planning

Managing Your Money

Assessing and Securing Your Credit

Managing Your Credit

Personal Loans

Purchasing and Financing a Home

Auto and Homeowners Insurance

Health and Disability Insurance

Life Insurance

Investing Fundamentals

Investing in Stocks

Investing in Bonds

Investing in Mutual Funds

Asset Allocation

Retirement Planning

Estate Planning

Integrating the Components of a Financial Plan

Filters

When interest rates rise,individuals who make deposits will earn a rate of interest,while individuals who need to borrow funds will have to pay a rate.