Deck 5: Managing Your Financial Resources - Banking Services and Managing Your Money

Question 1

Securities firms primarily sell insurance to protect individuals from adverse events.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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 5

Katie's overdraft fee was five dollars the 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

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

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

Question 9

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

Question 10

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

Question 11

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

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

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

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

Because online banking offers great convenience to customers,banks tend to charge a fee for each transaction performed online.

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

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

Question 22

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 23

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 24

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

Question 25

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

Question 26

Credit unions focus on providing credit to members.

Question 27

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

Question 28

TFSAs are so flexible that you can contribute to them,withdraw the funds tax free and then replace the funds,whenever you have more savings.

Question 29

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

A)HSBC
B)Canada Trust
C)CIBC
D)Ontario Educational Credit Union

Question 30

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 31

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 32

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

Question 33

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 34

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 35

Which of the following is a depository institution?

A)Nesbitt Burns Investment Dealer
B)Bank of Nova Scotia
C)CIBC World Markets
D)Sun Life Assurance

Question 36

You are charged for writing an NSF cheque,but not the person you made the cheque payable to.

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

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 42

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 43

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 44

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 45

To get the 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 Canada Premium Bond.

Question 46

You have $3000 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 $3000?

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 TFSA cashable term deposit earning three percent
D)A high interest savings account earning three percent

Question 47

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 48

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)The higher interest rates than for credit cards.
C)You cannot tell if your bank account will become overdrawn.
D)The fees charged to the cardholder can become significant.

Question 49

Which of the following does not guarantee payment to the payee?

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

Question 50

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 51

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.Canada Savings Bonds (CSB)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 CSBs
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 52

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 53

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 54

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 55

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 56

Which of the following is a Schedule II chartered bank?

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

Question 57

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 58

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 59

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 60

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

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

Question 61

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 62

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 63

The key feature that makes Canada Savings Bonds better than Canada Premium Bonds is

A)they are virtually risk free.
B)they are cashable at any time.
C)they are on sale all year.
D)they pay a higher rate of interest.

Question 64

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 65

Illustrate how you would quantify the effective annual interest rate for someone who was charged two $40 NSF fees on their account due to bouncing a cheque (writing a cheque when there are not enough funds in their bank account to cover it)for $1000 which would have been covered by their pay cheque in five days' time.Explain the effective interest rate charged if they had overdraft protection with a 21 percent interest charge and a $5.00 fee.Comment on better ways to manage liquidity than either of these options.

Question 66

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 67

An out-of-network ABM 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 68

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 69

A 180-day GIC pays 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 70

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 71

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 72

Research two financial institutions on the web and compare them based on important factors you should consider when choosing a financial institution.What advantages do they each give to students? How does that change once one is no longer a student? Indicate and justify which institution you feel would be better for you.Cite your sources.

Question 73

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 74

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 week's 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 Canada Savings Bonds in a TFSA account

Question 75

The key feature that makes Canada Premium Bonds better than Canada Savings Bonds is

A)they are guaranteed by the government.
B)they are cashable at any time.
C)they are for smaller amounts.
D)they pay a higher interest rate.

Question 76

A stop payment on a cheque

A)only applies when you write a cheque.
B)can only be accomplished if the cheque has not cleared.
C)is free if your cheque book is lost or stolen.
D)is a regular service for most customers.

Question 77

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 78

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 79

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 80

Describe how interest rates affect your personal budget,income statement,balance sheet,and choices when managing money and liquidity.What kinds of accounts do they affect? Give two specific examples.