Deck 4: Managing Your Cash and Savings

Question 1

A certified check is a personal check that a bank certifies to guarantee that the funds are available.

Answer 1

True

Question 2

You can have an account with a mutual fund that allows you to write a limited number of checks.

Answer 2

True

Question 3

Low interest rates create economic distortions, especially when real, inflation-adjusted interest rates are positive.

Answer 3

False

Question 4

Extremely low interest rates favor investors and boost the incentive to save.

Question 5

_____  is the routine, day-to-day administration of liquid assets by an individual or family.

A) Depository management
B) Resource management
C) Cash management
D) Bond management
E) Treasury management

Question 6

Keeping valuables in a safe-deposit box may reduce your homeowner's insurance premium by eliminating the "riders" that are often needed to cover such items.

Question 7

Compound interest means that a savings account earns interest on the interest previously earned.

Question 8

Cash and near-cash resources are known as:

A) liquid assets.
B) long-lived assets.
C) noncurrent assets.
D) fixed assets.
E) noncash assets.

Question 9

Nondepository institutions are referred to as banks.

Question 10

The minimum amount that you must keep in an account every day is an important criterion when comparing the features and requirements of different checking accounts offered by a bank.

Question 11

Negotiable order of withdrawal (NOW) accounts manage and administer the investments in a trust account or from an estate.

Question 12

Your savings will grow faster with monthly interest compounding than with quarterly interest compounding for a given nominal interest rate.

Question 13

Cash is the only kind of liquid asset.

Question 14

One can hold a credit card issued by a stock brokerage firm.

Question 15

Visa and MasterCard issue debit cards linked to your checking account.

Question 16

Interest earned for a period should be added to the ending balance shown in your checkbook while reconciling your account.

Question 17

Liquid assets include your:

A) money market deposit account (MMDA).
B) 10-year Treasury bond.
C) 3-year certificate of deposit (CD) purchased in the current financial year.
D) Series EE U.S. savings bond.
E) I savings bonds.

Question 18

Debit cards are a form of an electronic funds transfer system (EFTS).

Question 19

Cash management helps in personal financial planning.

Question 20

The Federal Deposit Insurance Corporation (FDIC) covers consumer accounts at credit unions.

Question 21

Funds in commercial banks are protected by the:

A) National Credit Union Administration (NCUA).
B) Federal Depositors Assurance Corporation (FDAC).
C) Federal Deposit Insurance Corporation (FDIC).
D) National Credit Union Share Insurance Fund (NCUSIF).
E) Savings Association Insurance Fund (SAIF).

Question 22

Low interest rates result in:

A) facilitating a greater supply of money for borrowers.
B) reducing the cost of financing the federal budget deficit.
C) encouraging a higher savings rate.
D) bringing more investment avenues.
E) improving the standard of living.

Question 23

Credit unions are:

A) member-owned financial cooperatives.
B) mortgage lenders.
C) available to the general public.
D) special commercial lenders.
E) large institutions when compared with commercial banks.

Question 24

Which of the following is an interest-paying checking account?

A) Certificate of deposit (CD)
B) Treasury bill
C) Negotiable order of withdrawal (NOW) account
D) Series EE U.S. savings bond
E) Regular checking account

Question 25

Which of the following statements regarding low interest rates is true?

A) They encourage investors to search for investments like Treasury bills.
B) They encourage the substitution of equity by debt.
C) They encourage investors to search for stocks paying high dividends.
D) They encourage individuals to save more.
E) They encourage paying down the national debt.

Question 26

Low interest rates:

A) increase the number of financial institutions.
B) do not impact the supply of credit.
C) increase the demand for lower-grade, riskier bonds.
D) decrease employment opportunities.
E) reduce asset prices in financial markets.

Question 27

Convenience is a reason for the growth in popularity of:

A) Internet banks.
B) savings and loan associations (S&Ls).
C) mutual savings banks.
D) credit unions.
E) insurance companies.

Question 28

Money market mutual funds (MMMFs):

A) allow check-writing privileges above a stipulated minimum amount.
B) are federally insured.
C) have floating maturity dates.
D) are offered by savings and loan associations (S&Ls) and credit unions.
E) pay interest at rates of 1 to 3% lower than those paid by a regular savings account.

Question 29

A(n) _____ is called a demand deposit.

A) checking account
B) savings account
C) asset management account
D) time deposit
E) certificate of deposit (CD)

Question 30

Compared to other depository financial institutions, credit unions:

A) are more beneficial to all kinds of consumers.
B) pay lower interest on savings to their members.
C) have a greater number of account holders.
D) have a greater number of branches.
E) charge lower rates on loans to their members.

Question 31

A(n) _____ is traditionally a non-interest-paying demand deposit account.

A) money market mutual fund (MMMF)
B) money market deposit account (MMDA)
C) negotiable order of withdrawal (NOW) account
D) asset management account (AMA)
E) regular checking account

Question 32

Money market deposit accounts (MMDAs):

A) allow free unlimited check-writing privileges every month.
B) are federally insured.
C) have floating maturity dates.
D) are offered only by credit unions.
E) pay the lowest interest rates of any bank accounts with check-writing privileges.

Question 33

When a savings bank is a mutual association, it is owned by the:

A) borrowers.
B) creditors.
C) depositors.
D) management.
E) local government.

Question 34

Banks must notify customers _____ days in advance before lowering rates on deposit accounts or certificates of deposit (CDs).

A) 30
B) 60
C) 15
D) 45
E) 10

Question 35

Low interest rates that have persisted since the financial crisis of 2007-2008 have been beneficial to:

A) students.
B) retirees.
C) big banks.
D) savers.
E) share investors.

Question 36

_____  offer banking services but do not accept deposits like traditional banks.

A) Nondepository institutions
B) Stock brokerage firms
C) Nonprofit organizations
D) Credit bureaus
E) Mutual funds

Question 37

The Federal Deposit Insurance Corporation (FDIC) insures each _____  up to a stated maximum dollar amount at any given financial institution.

A) depositor
B) account
C) shareholder
D) bank
E) financial transaction

Question 38

In which of the following states would you most likely find a savings bank?

A) Massachusetts
B) Florida
C) Texas
D) California
E) Ohio

Question 39

Laura has a $100,000 balance in her checking account at Best Bank, and she has purchased a certificate of deposit (CD) worth $50,000 issued by Best Bank. Laura is also thinking of investing $200,000 either in Best Bank or in Trust Bank. Which of the following is a suitable strategy for Laura if she wants her deposits to be completely insured?

A) Laura should invest $200,000 in a money market deposit account (MMDA) of Best Bank.
B) Laura should invest $100,000 in a money market deposit account (MMDA) of Best Bank and invest $100,000 in an asset management account of Best Bank.
C) Laura should invest $100,000 in a money market deposit account (MMDA) of Best Bank and invest $100,000 in an asset management account of Trust Bank.
D) Laura should invest $150,000 in a money market deposit account (MMDA) of Best Bank and invest $100,000 in an asset management account of Trust Bank.
E) Laura should invest $150,000 in a money market deposit account (MMDA) of Best Bank and invest $200,000 in a money market deposit account (MMDA) of Trust Bank.

Question 40

The low interest rates after the financial crisis of 2007-2008 have been beneficial to:

A) borrowers.
B) retirees.
C) shareholders.
D) investors.
E) savers.

Question 41

Macie has $25 in her checking account when her electronic funds transfer system (EFTS) card and personal identification number (PIN) are stolen. If Macie notifies her bank tomorrow, the day after the theft of her card, her loss is limited to:

A) $0.
B) $25.
C) $50.
D) $400.
E) $500.

Question 42

Savings deposits are also known as:

A) time deposits.
B) negotiable order of withdrawal (NOW) accounts.
C) demand deposits.
D) share draft accounts.
E) direct deposits.

Question 43

Which of the following is an electronic funds transfer system (EFTS) service?

A) Overdraft protection
B) Automatic transfer program
C) Preauthorized payments
D) Stop payment
E) Cashier's checks

Question 44

A customer withdraws funds by writing checks from his or her negotiable order of withdrawal (NOW) account and:

A) certificate of deposit (CD).
B) savings account.
C) term insurance deposit.
D) time deposit.
E) share draft account.

Question 45

Which of the following statements regarding the cost of a checking account is true?

A) Most banks and other depository institutions allow unlimited free check-writing privileges.
B) Most banks charge a fee when a checking account balance drops below a required minimum.
C) Most banks use the daily balance in an account to determine whether to levy a service charge.
D) The average charge of a returned check is between $35 and $50.
E) Most banks do not charge for using the automated teller machine (ATM) of another bank that is not a member of the same network.

Question 46

Christina's bank allows her employer to directly deposit her paycheck into her personal bank account. This service provided by Christina's bank is called a(n):

A) automated teller machine (ATM) service.
B) Federal Deposit Insurance Corporation (FDIC) service.
C) money market service.
D) electronic funds transfer system (EFTS) service.
E) overdraft service.

Question 47

Kate tends to issue checks quite often without having a sufficient balance in her account. She should look for a checking account with:

A) no automated teller machine (ATM) access fees.
B) overdraft protection.
C) trust services.
D) mutual fund management.
E) balance tracking.

Question 48

Joe Gustafson is a very busy person who prefers to use one account to handle all his financial services needs like checking, investing, and borrowing. Which of the following types of accounts is most suitable for Joe?

A) A checking account
B) A money market deposit account (MMDA)
C) A brokerage account
D) An asset management account (AMA)
E) A savings account

Question 49

Which of the following are protected by the Federal Deposit Insurance Corporation (FDIC)?

A) Money market deposit accounts (MMDAs)
B) Money market mutual funds (MMMFs)
C) Asset management accounts (AMAs)
D) Stocks and bonds
E) Life insurance policies

Question 50

Which of the following statements regarding safe-deposit boxes offered by banks is true?

A) They can be opened only by the banker.
B) They may increase a homeowner's insurance premiums.
C) They are owned by the customers of the bank.
D) They can be used to manage mutual funds.
E) They can be used as a storage place for important documents.

Question 51

Alice lost her electronic funds transfer system (EFTS) card and reported it missing the next day. She found that $800 had been withdrawn from her savings account. Alice's loss is equal to:

A) $0.
B) $25.
C) $50.
D) $800.
E) $800 plus a fee.

Question 52

You had $800 in your checking account when your electronic funds transfer system (EFTS) card and personal identification number (PIN) were stolen. You didn't report the theft for 2 months after your periodic statement was mailed. How much could you lose?

A) $0
B) $50
C) $400
D) $800
E) $800 plus a fee

Question 53

Which of the following is a rented drawer in a bank's vault?

A) Safe-deposit box
B) Asset management account (AMA)
C) Debit card
D) Negotiable order of withdrawal (NOW) account
E) Trust service

Question 54

Which of the following is an aspect of asset management accounts (AMAs)?

A) Limited free checking of available balance
B) "Sweeping" of excess balances into money market deposit account (MMDA)
C) Fixed annual fees and account charges on deposit account
D) Borrowing and investing facility unavailable to accountholders
E) Deposits protected by the Securities Investor Protection Corporation (SIPC)

Question 55

An investor receives the highest interest rate on his or her:

A) asset management account (AMA).
B) regular checking account.
C) negotiable order of withdrawal (NOW) account.
D) money market deposit account (MMDA).
E) share draft account.

Question 56

The _____ department of a bank provides investment and estate planning advice.

A) safe-deposit
B) electronic funds transfer
C) debit card
D) planning
E) trust

Question 57

The least expensive method for banks to interact with their customers is through:

A) a vendor.
B) phone calls.
C) the Internet.
D) an automated teller machine (ATM).
E) a full-service teller.

Question 58

A safe-deposit box in a bank can be opened only when the:

A) banker's key is used.
B) account holder's key is used.
C) keys of both the banker and the account holder are used.
D) key issued to the insurance company is used.
E) keys of both the banker and the insurance company are used.

Question 59

Brent had $450 in his checking account when his electronic funds transfer system (EFTS) card and personal identification number (PIN) were stolen almost a week ago. Because he has been ill, he didn't report the theft until today, 5 days after the theft occurred. The delay in notifying the bank means that he could lose:

A) $0.
B) $25.
C) $50.
D) $500
E) all the money in his account.

Question 60

Jane is a college student who withdraws cash at least five times a week to meet her everyday expenses. Jane should have a checking account with:

A) mobile and online access.
B) no automated teller machine (ATM) access fees.
C) limited check-writing privileges.
D) trust services.
E) free automated calls.

Question 61

Factors that typically influence the choice of where to maintain a checking account are:

A) inflation, tax rates, and cost.
B) convenience, inflation, and services.
C) cost, inflation, and tax rates.
D) convenience, services, and cost.
E) services, insurance, and cost.

Question 62

When doing an account reconciliation, interest earned on your account should be:

A) deducted from your checkbook ledger balance.
B) added to your checkbook ledger balance.
C) ignored because the bank has already recorded it.
D) listed as outstanding.
E) treated like a loan.

Question 63

At maturity, how much will a deposit of $6,000 in a certificate of deposit (CD) for 10 years at 3% be worth? (Round the answer to the nearest dollar.)

A) $7,340
B) $7,800
C) $8,063
D) $8,678
E) $9,005

Question 64

Which of the following statements about U.S. Treasury bills (T-bills) is true?

A) T-bills can be sold at any time with no interest penalty.
B) T-bills are issued with 6-month and 12-month maturities.
C) T-bills earn interest at a fixed rate for 30 years.
D) T-bills pay interest by direct payment.
E) T-bills are sold at face value.

Question 65

Which of the following savings vehicles is free of state and local income taxes?

A) Certificates of deposit (CDs)
B) Money market mutual funds (MMMFs)
C) Time deposits
D) Money market deposit accounts (MMDAs)
E) I savings bonds

Question 66

People who do not have checking accounts often use:

A) cashier's checks.
B) overdraft protection.
C) certified checks.
D) demand deposits.
E) preauthorized deposits.

Question 67

You are going on an overseas trip, and you want to carry checks. You should purchase:

A) cashier's checks.
B) certified checks.
C) conditional checks.
D) traveler's checks.
E) guaranteed checks.

Question 68

Harry received a scholarship of $2,000. He plans to invest this money for 5 years at 8%, compounded annually. If he accomplishes this, what will Harry's ending balance be? (Round the answer to the nearest dollar.)

A) $2,160
B) $2,520
C) $2,608
D) $2,939
E) $3,162

Question 69

In account reconciliation, one of the steps in calculating the adjusted bank balance is:

A) deducting total withdrawals still outstanding from the bank balance.
B) deducting total deposits still outstanding from the bank balance.
C) adding the total credit card outstanding balance to the bank balance.
D) adding bank service charges to the bank balance.
E) subtracting interest paid on the account's balance for the period.

Question 70

A check you wrote to buy shoes last week has not yet been received and processed by the bank. It is said to be:

A) outstanding.
B) credited.
C) endorsed.
D) certified.
E) deposited.

Question 71

Maggie wants to open a checking account that will be the least expensive, given her normal financial transactions. She typically writes 15 checks a month and uses an automated teller machine (ATM) 35 times a month. Her monthly minimum checking balance falls to about $350 on an average. Which of the following accounts would be least expensive for Maggie? (Show all work.)
Account A:
No monthly fee is charged if a minimum balance of at least $300 is maintained.
A $5.00 fee is charged in any month the minimum balance falls below $300.
An ATM fee of $0.10 per transaction is charged on all transactions.
Account B:
No monthly fee is charged if a minimum balance of at least $500 is maintained.
A $3.00 fee plus $0.10 per check is charged in any month the minimum balance falls below $500.
There is no ATM fee on transactions.

Question 72

Whenever you write a check or make a deposit, an entry should be made:

A) on a deposit slip.
B) in your checkbook ledger.
C) in your overdraft booklet.
D) on your balance sheet.
E) on a personal check.

Question 73

If you write a check for an amount greater than your account balance, the result will be a(n):

A) endorsement.
B) stop payment.
C) overdraft.
D) share draft.
E) reconciliation.

Question 74

Mary has calculated her adjusted bank balance as $500. She notices that her bank's service charges are $20 for this period. Mary's ending balance in her bank account is:

A) $520.
B) $480.
C) $600.
D) $500.
E) $510.

Question 75

The interest earned on an individual's _____ is free of state and local income taxes.

A) Series EE bonds
B) certificates of deposit (CDs)
C) term deposits
D) money market deposit accounts (MMDAs)
E) time deposits

Question 76

The minimum denomination of T-bills is:

A) $25.
B) $50.
C) $100.
D) $500.
E) $1,000.

Question 77

The more frequently a bank compounds interest, _____ for a given nominal rate.

A) the higher the stated interest rate
B) the lower the inflation rate
C) the higher the effective rate
D) the lower the yield rate
E) the higher the normal rate

Question 78

Funds invested in a _____ should not be withdrawn for a stated period in order to avoid an interest penalty.

A) savings account
B) U.S. Treasury bill
C) checking account
D) negotiable order of withdrawal (NOW) account
E) certificate of deposit (CD)

Question 79

John Anderson deposited $10,000 in a certificate of deposit (CD) for 3 years at 5%. At maturity, how much will the CD be worth? (Round the answer to the nearest dollar.)

A) $10,500
B) $10,725
C) $11,400
D) $11,580
E) $12,400

Question 80

If a lump-sum deposit of $8,000 is left in a bank for 12 years at 9%, compounded annually, what will the ending balance be? (Round the answer to the nearest dollar.)

A) $11,600
B) $16,640
C) $22,501
D) $52,938
E) $96,000