Deck 2: Managing Your Financial Resources - Banking Services and Managing Your Money

Question 1

Credit unions and caisses populaires are non-for-profit depository institutions that offer similar services as chartered banks,but only to members.

Answer 1

True

Question 2

Mortgage companies pay more interest on deposits than a chartered bank.

Answer 2

False

Question 3

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

Answer 3

False

Question 4

Chartered banks are the only financial institutions which offer insurance on deposits.

Question 5

Katie's overdraft fee is five dollars with a interest rate 21 percent.When she wrote a cheque that put her account in a $5000 overdrawn position for two weeks,she still saved money compared with a $40 NSF fee.

Question 6

Because they have lower overhead,web-based financial institutions tend to pay higher interest rates on deposits than institutions with physical branches.

Question 7

Since rates and fees differ only slightly between all national banks,there is little need to consider these when choosing your financial institution.

Question 8

Because Sam wishes to invest in securities and has only $600 dollars available,a mutual fund would be a good option for him.

Question 9

Certified cheques,money orders,and traveller's cheques lower risk for the payee.

Question 10

A TFSA and a Term Deposit are essentially the same thing.

Question 11

Debit cards and credit cards both offer the benefit of short-term financing.

Question 12

Depository institutions are financial institutions that accept deposits (that are insured up to a maximum level)from individuals or firms and provide loans.

Question 13

Investments with a higher risk of default pay higher rates of interest than those that are less risky.

Question 14

Guaranteed investment certificates (GICs)with shorter maturity dates tend to pay higher interest rates than those with longer maturity dates.

Question 15

Finance companies should be the first place you go to try to get a loan because they specialize in financing.

Question 16

Deposits in commercial banks that are members of the CDIC are insured up to a maximum of $50 000 per account.

Question 17

Bank fees for using an automatic banking machine (ABM)are not usually a significant consideration in choosing a bank with which to do business.

Question 18

A total of $80 in charges for writing an NSF cheque is a real possibility.

Question 19

Non-depository institutions provide banking services,but their deposits are not CDIC insured.

Question 20

The interest on a Canada Savings Bond is not taxable as long as it is reinvested into the bond.

Question 21

A good investment for Emma's emergency fund might be a five-year cashable term deposit.

Question 22

You are charged by your bank,but not by the institution you wrote the cheque to,for writing an NSF cheque.

Question 23

Which of the following is a non-depository financial institution?

A)Credit union
B)Trust company
C)Investment dealer
D)Caisse populaire

Question 24

To join a credit union,you need to

A)have a steady job.
B)be a member of a group.
C)have established a good credit rating.
D)All of the above

Question 25

The difference between a bank and a trust company is that only the trust company can provide estate planning and administrative services.

Question 26

Which of the following companies would help to administer your will?

A)RBC Capital Markets
B)RBC Estate and Trust
C)RBC Insurance
D)Ontario Educational Credit Union

Question 27

Mutual fund investments such as a money market fund are guaranteed by the CDIC.

Question 28

If you were taking out a personal loan,the highest rate would probably be charged by a

A)commercial bank.
B)finance company.
C)caisse populaire.
D)credit union.

Question 29

Money market funds are insured investments that invest in very safe investments and have a very low risk of default.

Question 30

A Canada Savings Bond is a typical investment in a money market fund.

Question 31

Institutions that facilitate the purchase or sale of securities by firms or individuals by providing investment banking services and brokerage services are called

A)finance companies.
B)investment dealers.
C)mutual fund companies.
D)mortgage companies.

Question 32

Banks pay more interest on chequing accounts than they do on savings account deposits.

Question 33

Which of the following is a depository institution?

A)Manulife Securities
B)Bank of Nova Scotia
C)Capital One Bank
D)RBC Insurance

Question 34

Schedule I,II and III banks offer essentially the same services.

Question 35

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

A)Finance company
B)Commercial bank
C)Trust company
D)Credit union

Question 36

TFSAs allow you to withdraw funds tax free and then replace the funds,whenever you have more savings.

Question 37

Which of the following is a not-for-profit depository institution that provides services only to members who have a common affiliation?

A)RBC Financial Group
B)Scotiabank
C)Finnish Credit Union
D)National Mortgage Alliance

Question 38

Financial institutions loan funds at

A)lower interest rates than depositors receive.
B)higher interest rates than depositors receive.
C)rates similar to what savers receive.
D)prime plus three percent.

Question 39

A money market fund would be a good place to invest funds set aside for an emergency.

Question 40

There is no real difference between a chequing account and a savings account at the same bank.

Question 41

Regarding TFSA accounts,which of the following is true?

A)Using your TFSA for tuition savings makes sense as long as the funds are replaced before the next term.
B)If your TFSA investment deposit grows from $5000 to $10 000 you can withdraw only the $5000 deposit tax free.
C)Using a TFSA account for your everyday banking would be a good way to avoid paying tax on the interest from your bank account.
D)Using a TFSA account to hold a cashable GIC for an emergency will mean you do not have to pay tax on the interest earned.

Question 42

If you were accepting $22 000 payment for selling your car to a stranger,which form of payment should you request?

A)Bank draft
B)Money order
C)Certified cheque
D)Any of the above

Question 43

In planning a money management strategy,which of the following is most important?

A)Select a combination of investments with varying risk and return.
B)Select a combination of investments to achieve both adequate liquidity and return.
C)Ensure all short-term investments are fully liquid.
D)Shop around to find the institution paying the highest interest rates on GICs.

Question 44

The type of financing that allows you to pay for purchases at a later time with no interest charged is

A)a credit card.
B)a debit card.
C)an expense account.
D)a line of credit.

Question 45

Which of the following is a Schedule II chartered bank?

A)National Bank
B)Citibank
C)HSBC
D)Scotiabank

Question 46

Which of the following will not vary at a chartered bank?

A)Interest rates on similar GICs
B)CDIC insurance amounts on accounts
C)Interest rates charged on mortgages
D)Service fees charged to different customers

Question 47

To get a better rate on an emergency fund investment you should invest in a

A)five-year cashable GIC.
B)one-year non-cashable GIC.
C)money market fund.
D)one-year term deposit

Question 48

You have $5000 saved in case you may need to replace the furnace in your house which has been acting up.Which of the following would be the best place to put the $5000?

A)A one-year fixed-rate GIC earning four percent
B)A stock mutual fund which earned nine percent in the past year
C)A term deposit earning three percent held in a TFSA
D)A high interest savings account earning three percent

Question 49

Which of the following is true regarding guaranteed investment certificates (GICs)?

A)The longer the term,the lower the interest rate paid,all else equal.
B)All banks offer the same rates on GICs.
C)Early withdrawals of money are not subject to a penalty.
D)Much higher interest rates (than competitors)would likely reflect higher risk.

Question 50

A type of cheque 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,but has no payee designated on the cheque is called a

A)cashier's cheque.
B)money order.
C)traveller's cheque.
D)personal cheque.

Question 51

The Canada Deposit Insurance Corporation insures money on deposit at

A)insurance companies.
B)brokerage and securities dealers.
C)chartered banks.
D)all of the above.

Question 52

Rashid's monthly expenses are $4000 and he expects that his cash flow will always be sufficient to cover his expenses.How much should he ideally have in his emergency fund?

A)$12 000 using a combination of liquid investments and access to credit
B)$24 000 because it is always best to be safe
C)None,but he needs a $24 000 limit on his credit card.
D)$12,000 invested in two- to three-year GICs to earn a higher return

Question 53

Which of the following is a disadvantage of using debits cards over credit cards?

A)You will not have a good record of your transactions.
B)They charge higher interest rates than credit cards.
C)You cannot tell if your bank account will become overdrawn.
D)The fees charged to the cardholder can become significant.

Question 54

Which would be the least effective way to manage expenses when travelling internationally?

A)Credit card
B)Money orders
C)Traveller's cheques
D)Debit card

Question 55

Which of the following is an advantage of using a debit card?

A)Your total banking expenses are likely to be lower.
B)The overdraft protection is less expensive than borrowing from your credit card.
C)They have lower transaction fees than credit cards.
D)You have no risk of being charged for insufficient funds.

Question 56

Which of the following would normally offer the best rate of return?

A)A three-year GIC for $10 000
B)A money market fund
C)A four-year GIC for $1000
D)A four-year term deposit for $10 000

Question 57

Non-depository institutions that provide insurance to protect individuals or firms against possible adverse events are called

A)finance companies.
B)securities firms.
C)insurance companies.
D)investment companies.

Question 58

Your chartered bank is offering a one-year GIC with an interest rate of two percent,and a one-year cashable GIC at one and a half percent.Term deposits are paying one percent.You have $10 000 to invest of which you feel $5000 is ample for emergency fund purposes.How should you invest your funds given the scenario above?

A)$5 000 in the one-year GIC and $5 000 in a term deposit
B)$5 000 in the one-year GIC and $5 000 in the one-year cashable GIC
C)$10,000 in the one-year GIC
D)$10,000 in the one-year cashable GIC

Question 59

If you have $10 000 that you do not expect to need for expenses in the next few years and you wish to put it somewhere so that it will earn a return,which of the following financial institutions would be the best option?

A)A bank
B)A mutual fund company
C)A credit union
D)Any of the above

Question 60

Which of the following provides the least guarantee of payment to the payee?

A)Certified cheque
B)Money order
C)Traveller's cheque
D)Personal cheque

Question 61

John has overdraft protection which has a fee of five dollars per use and a 21 percent annual interest charge.NSF fees at his bank are $35.This month John's unexpected car expense caused his account to become overdrawn by $1200 for 14 days until his pay cheque was deposited.What was the total expense for John in this circumstance?

A)$35.00
B)$70.00
C)$14.67
D)$9.67

Question 62

Which of the following financial institutions are restricted in their ability to accept deposits?

A)Trust Companies
B)Schedule I banks
C)Schedule II banks
D)Schedule III banks

Question 63

The Canada Deposit Insurance Corporation (CDIC)insures

A)bank deposits and GICs to a specified limit.
B)your chequing accounts for a small charge to the depositor.
C)only guaranteed investment certificates.
D)GICs,Canada Savings Bonds,and Canada Premium Bonds.

Question 64

Lorenzo is deciding between two banks for his chequing account.Thrift Bank requires a minimum deposit of $100,charges a monthly fee of eight dollars,plus $0.50 per cheque.Merchants Bank also requires a minimum deposit of $100,charges no monthly fee,but charges $1.00 per cheque.How many cheques would Lorenzo need to write each month to make Thrift Bank less expensive to use than Merchants Bank?

A)16 cheques
B)8 cheques
C)24 cheques
D)12 cheques

Question 65

In general,when an investment is more liquid,the return you receive will be

A)lower.
B)higher.
C)less predictable.
D)Liquidity does not affect return.

Question 66

A 180-day GIC pays annualized interest at six and a half percent.How much interest will you earn on $5000 if you hold it to maturity?

A)$300
B)$160.27
C)$325.00
D)$162.50

Question 67

Mortgage companies

A)take deposits,savings,and term deposits and lend the money to home buyers.
B)act as intermediaries to provide mortgages for home buyers.
C)facilitate the purchase and sale of mortgages.
D)allow individual investors to achieve higher returns by direct investment in mortgages.

Question 68

Kelly deposits $1000 in a three year GIC with four percent interest compounded annually.How much interest would she earn by maturity?

A)$124.86
B)$120.00
C)$ 40.00
D)$1124.86

Question 69

Overdraft protection normally is available with

A)no fees and no interest.
B)low fees and high interest.
C)high fees and low interest.
D)high fees and high interest.

Question 70

Jeff put $50 into a chequing account with a balance of $600.He then withdrew funds using the ABM machine 14 times that month at a cost of $1.50 per withdrawal and wrote 12 cheques at a cost of $0.50 each.The account also has a monthly charge of five dollars.What are the total bank charges for the month?

A)$5.00
B)$27.00
C)$32.00
D)$33.50

Question 71

Which of the following is a true statement about overdraft protection?

A)Overdraft protection is an inexpensive form of short-term credit.
B)Your bank may charge you for having overdraft protection even if you don't use it.
C)Overdraft fees are already included in your regular monthly bank fees.
D)Overdraft interest may be as high as 29% compounded daily.

Question 72

Which short-term investment likely offers the highest return?

A)Savings account
B)Chequing account
C)GIC
D)Term deposit

Question 73

Using an ABM from another financial institution other than your own means

A)your debit card won't work.
B)you will be charged one ABM fee.
C)you will be charged fees by two ABM sponsors.
D)the branch is the same institution but not your banking branch.

Question 74

Foreign banks that have subsidiaries operating in Canada are classified as a

A)Schedule III bank.
B)Schedule II bank.
C)Schedule I bank.
D)foreign conglomerate.

Question 75

Which of the following is the better banking option for Jane who keeps a minimum bank balance of $1000,needs liquidity and does ten transactions per month?

A)Ace Bank pays no interest,has no ABM fees but charges a $7.00 monthly account fee.
B)Bee Bank charges a $60 annual fee for the account,pays interest at two percent on the average monthly balance,and has $1.00 ABM fees.
C)Sea Bank charges no fees as long as the account balance remains above $1000,pays two percent interest on the average monthly balance,charges $1.00 ABM fees,and requires no minimum balance.
D)Dee Bank requires no minimum balance,pays one percent interest on the average monthly balance,and allows 10 free ABM withdrawals a month,but charges $3 per withdrawal thereafter.

Question 76

A stop payment on a cheque

A)only applies when you write a cheque.
B)can only be accomplished if the payment has not cleared.
C)usually occurs in response to a request by the payee
D)is a regular service for most customers.

Question 77

Jack has $2000 that he wishes to invest for the next two years.One-year GICs are currently paying eight percent while two-year GICs are paying 12 percent compounded annually.Economists are predicting that interest rates will rise by the end of the year.What is the minimum interest rate Jack would need in year two,to make the one-year GIC better than the two-year GIC?

A)14.8 percent
B)16.2 percent
C)16.0 percent
D)16.8 percent

Question 78

Fred's after tax income is $3600 a month and his expenses are generally $3600 as well.Last month he had a car accident which resulted in a $2000 unexpected expense due to the deductible on his insurance and he covered that expense with his credit card.What is the best way to describe his situation?

A)Fred has a money management problem because he lives beyond his means.
B)Fred has a liquidity crisis because he has no emergency fund.
C)Fred is relying on short-term credit financing which can become very expensive.
D)Fred needs better insurance coverage with a lower deductible.

Question 79

Which of the following accounts would normally give you higher interest combined with access to your funds with a few days' notice?

A)Money market funds
B)Chequing account
C)Canada Savings Bond
D)Savings account

Question 80

You have $5000 saved which you may need for home repairs at any time in the next few years.If you did need the funds,you would have a weeks' notice to access the funds.Which of the following would likely give you the best return for your $5000?

A)A three-year cashable GIC outside a TFSA
B)A three-year cashable GIC in a TFSA account
C)A savings account
D)A three-year term deposit in a TFSA account