Deck 3: Budgeting and Cash Management

Question 1

A plan for future spending and saving that will enable you to achieve your financial goals is called a ______.

A) cash flow statement.
B) budget.
C) net worth statement.
D) balance sheet.

Answer 1

budget.

Question 2

Although an annual budget can help with the big picture, most people find it necessary to budget on a ______ basis covering the entire _____ to coincide with payment obligations.

A) daily; week
B) weekly; month
C) monthly; quarter
D) monthly; year

Answer 2

monthly; year

Question 3

The steps in the budgeting process are forecasting cash flows, __________ the budget, monitoring, and reevaluating over time.

A) adjusting
B) negotiating
C) selecting
D) implementing

Answer 3

implementing

Question 4

Which is a valid method to forecast future variable expenses?

A) Increase variable expenses by the difference from last year.
B) Increase variable expenses by the expected rate of inflation.
C) Increase variable expenses by the average of the past three years.
D) Increase variable expenses by the average of the past five years

Question 5

Which of the following budget categories is a fixed expense?

A) Transportation
B) Mortgage payment
C) Entertainment
D) Utilities

Question 6

Which of the following budget categories is a variable expense?

A) Mortgage payment
B) Car loan payment
C) Food costs
D) Health club dues

Question 7

Which of the following is a variable expense? (Select 2)

A) Rent payment
B) Property taxes
C) Clothing
D) Uninsured medical expenses
E) Student loan payment
F)Car insurance payment

Question 8

Whether its charity, gift giving, or lavish birthday parties for your kids, it makes no sense to be generous with money you can't afford to give. Which is not a budget solution for this mistake?

A) Budget for such expenditures
B) Consider ways to give your time instead of money
C) Use a credit card to balance your budget
D) Create an account to save for next year's donations and gifts

Question 9

Which is not a valid budget solution to buying stuff that you don't need?

A) Stick to a budget
B) Leave credit cards at home
C) Find lower interest credit cards
D) Stick to a "need" list

Question 10

Which is not a common budget mistake?

A) Having too little emergency cash.
B) Supersizing your house
C) Underusing credit cards.
D) Underinsuring.

Question 11

Simone spent an average of $500 each month on groceries last year for herself and her family. She is now forecasting the family budget for next year. She read that an inflation rate of 5% is expected. How much should Simone budget for the monthly grocery expense next year?

A) $500
B) $525
C) $750
D) $475

Question 12

A budget variance occurs when your actual expenses are ______ than your budgeted expenses.

A) less than
B) more than
C) different
D) all of the above

Question 13

Which of the following is (are) good reasons for tracking budget variances?

A) To ensure that large, irregular cash expenses do not cause financial hardship.
B) To determine the largest categories of expenditures for future reductions.
C) To identify small cash leakages before a major shortfall.
D) All of the choices are good reasons to track budget variances.

Question 14

If your projected net cash flow is negative, which of the following should you do first?

A) Make sure you have a large enough credit line to make up the difference.
B) Take steps to reduce your discretionary spending or increase your cash inflows.
C) Save more so that you can build up your emergency fund.
D) Apply for another credit card with a high credit limit.

Question 15

Naomi is in the implementation stage of budgeting. She needs to reduce expenses by $100 so that her forecasted expenses do not exceed forecasted income. Of the following expenses, which is the easiest to reduce, assuming an individual has all of the categories in their budget?

A) Student loan payment
B) Entertainment
C) Groceries
D) Rent payment

Question 16

If the reason you're exceeding your budget is that you're failing to control your discretionary spending in certain areas, you should

A) take the time to review your financial goals
B) evaluate your progress toward meeting your goals
C) weigh the benefits and costs of the purchases that are interfering with your plan
D) All these should be done

Question 17

Even though you can't necessarily anticipate unexpected events like layoffs and illness, you can lessen the impact by maintaining

A) good credit.
B) an emergency fund.
C) a revised budget.
D) a reconciled budget.

Question 18

______ a budget is the process of adjusting the budget for unexpected expenditures.

A) Reconciling
B) Revising
C) Replacing
D) Revoking

Question 19

The process of adjusting income, expenses, and savings so that you do not spend more than you earn in the future is known as ________ a budget.

A) monitoring
B) reevaluating
C) reconciling
D) adjusting

Question 20

In a committed relationship, when one partner hides purchases from the other partner, or makes a major purchase without consulting the partner, it is called

A) financial disregard
B) financial disrespect
C) financial infidelity
D) financial hardship

Question 21

Which asset in the following list is the most liquid?

A) Funds in a five-year certificate of deposit
B) Funds in a checking account
C) Funds in the stock market
D) A real estate investment

Question 22

Which is not a general reason for holding cash?

A) Managing transaction needs
B) Preparing for cash emergencies
C) Keeping up with inflation
D) Making a temporary investment

Question 23

The local credit union pays interest of 7% on amounts above $500 in a savings account. Because Gwen does not trust banks. She chooses not to have a savings account, and instead keeps $1,000 in cash in her home safe. What is Gwen's annual opportunity cost of keeping her money at home instead of putting it in a savings account at the credit union?

A) $70
B) $35
C) $3.50
D) There is no opportunity cost to Gwen.

Question 24

Which is not an appropriate transaction account?

A) Venmo
B) Bank of America checking account
C) PayPal
D) Valley National 3% Certificate of Deposit

Question 25

Janice's monthly expenses are $6,000, and she has $10,000 in checking and savings. Which of the following is true about her financial situation?

A) Janice needs to try to reduce her spending.
B) Janice needs to increase her emergency fund.
C) Janice has too much in liquid assets.
D) Janice should consider investing her $10,000 in a stock mutual fund to generate higher returns on her investment.

Question 26

A household with average household expenses of $3,000 a month should have a cash reserve for emergencies of at least

A) $4,000.
B) $5,000.
C) $6,000.
D) $10,000.

Question 27

Setting up automatic bill payment whenever possible will help ensure that

A) your bills are paid on time.
B) you avoid late payment fees.
C) your credit rating is not adversely affected.
D) All of the above

Question 28

The principle of paying yourself first means that you should

A) set aside the money necessary for achieving personal goals after you spend money on non-essentials during the month.
B) set aside the money necessary for achieving personal goals before you spend money on non-essentials during the month.
C) pay your bills prior to setting aside money necessary for achieving personal goals during the month.
D) pay your non-essential bills prior to setting aside money necessary for achieving personal goals during the month.

Question 29

You need $25,000 in four years to start your own business. If you can earn 8% on your funds, how much do you need to invest today in order to reach your goal?

A) $7,548
B) $15,854
C) $18,376
D) $34,012

Question 30

A depository institution differs from a nondepository institution in that it gets its funds from _______, and its primary source of income is from __________.

A) investors; investments
B) customer deposits; interest earned on loans made to customers
C) interest earned on loans made to customers; customer deposits
D) the Fed; interest earned on loans made to customers

Question 31

Of the following, which is not a depository institution? (Select 2)

A) Commercial bank
B) Mutual fund company
C) Life insurance company
D) Credit union
E) Online bank
F) Savings and loan association

Question 32

Depository institutions are considered less risky than nondepository institutions because ___________.

A) they don't make risky investments
B) limited deposits are insured by the federal government
C) unlimited deposits are insured by the federal government
D) investments are protected by the federal government

Question 33

Which of the following correctly describe credit unions? (Select 3)

A) Owned by depositors
B) Owned by investors
C) Not insured by the FDIC
D) Insured by the FDIC
E) Depository institution
F) Nondepository institution

Question 34

Credit unions are a unique type of depository institution because credit unions

A) are primarily mortgage lenders.
B) tend to charge higher fees than commercial banks.
C) are nonprofit.
D) are insured by FDIC.

Question 35

A ________ is an investment company that sells shares to investors, and then invests the pool of funds in stocks, bonds, or other assets.

A) mutual fund
B) life insurance company
C) brokerage firm
D) credit union

Question 36

The "Four Ps" to consider when choosing a financial institution include product, price, people, and

A) precision.
B) productivity.
C) profit.
D) place.

Question 37

Binh wants to earn interest on his savings account, and he is concerned about fees diluting his earnings. Of the four Ps, Binh is most concerned about

A) products.
B) price.
C) people.
D) place.

Question 38

For an account that compounds interest more often than once per year, the annual percentage yield will be

A) greater than the stated nominal yield.
B) less than the stated nominal yield.
C) equal to the stated nominal yield.
D) either greater than or less than the stated nominal yield, depending on the current interest rate environment.

Question 39

Bank A offers an account with a nominal yield of 2 percent, and it compounds interest monthly. Bank B offers an account with nominal yield of 2 percent, and it compounds interest daily. Which one has the higher APY?

A) Bank A has the higher APY.
B) Bank B has the higher APY.
C) They both have the same APY.
D) This cannot be solved from the given information.

Question 40

An account that pays a nominal rate of 3% and compounds monthly will have an APY of

A) 3.00%
B) 3.02%
C) 3.03%
D) 3.04%

Question 41

Compared with time deposits, demand deposits

A) place a greater limit on the number of checks you can write each month.
B) require you to leave the funds on deposit for a longer period of time.
C) allow you to withdraw money at any time.
D) pay higher rates of interest.

Question 42

A time deposit account will typically pay _____ rate of interest compared to a demand account.

A) a lower
B) a higher
C) the same
D) no

Question 43

Which is a time deposit account?

A) mutual fund
B) checking account
C) certificate of deposit.
D) money market account

Question 44

A certificate of deposit is a type of savings account that pays

A) an increasing rate of interest on funds left on deposit for a certain period of time.
B) a fixed rate of interest on funds left on deposit for a certain period of time.
C) a rate based on the depository bank's credit quality.
D) a rate that changes based on inflation.

Question 45

Citibank is offering a 5-year CD at 3.2% APY. If you invest $10,000, how much will you have when the CD matures?

A) $10,320.00
B) $11,600.00
C) $11,705.73
D) $11,732.61

Question 46

A money market mutual fund is a mutual fund that invests in

A) stocks of the 500 largest companies in the United States.
B) investment-quality corporate bonds.
C) short-term debt securities issued by the federal government, federal agencies, and large public corporations
D) long-term certificates of deposits and government bonds.

Question 47

Which of the following investments is FDIC insured?

A) Money Market Mutual Funds
B) US Government Bond Fund
C) Chase Certificate of Deposit
D) US Series EE Savings Bond

Question 48

Calista has saved $20,000, which she plans to use for a down payment on a home within the next year. She would like to earn interest on her savings and she is concerned about the safety of her money. She is considering the following options. Which option would you recommend for Calista?

A) A five-year certificate of deposit earning 2.15%
B) A money market deposit account earning 1.11%
C) A money market mutual fund earning 1.7%
D) A series I savings bond that pays 1.5% above inflation

Question 49

Which of the following types of accounts is not insured for $250,000 by the Federal Deposit Insurance Corporation (FDIC)?

A) Money market deposit account offered by commercial bank
B) U.S. Series I Savings Bonds purchased at a commercial bank
C) Checking account at an online bank
D) Certificate of deposit purchased at a savings and loan association

Question 50

Which of the following investments provides purchasing power protection?

A) Series I savings bonds
B) Series EE savings bonds
C) Certificates of deposit
D) Money market mutual funds

Question 51

U.S. government Series I bonds protect investors from the risk of

A) changing tax rates.
B) a global financial crisis.
C) outliving their assets.
D) inflation.

Question 52

Which of the following pays interest that is exempt from state and local taxation?

A) Certificate of deposit
B) NOW account
C) Series EE bond
D) Money market deposit account

Question 53

The Rule of 72 is used to

A) estimate annual percentage yield of an investment.
B) calculate the interest rate required to double the value of an investment.
C) estimate how long an investment will take to double in value at a given rate of interest.
D) calculate the amount of liquid assets to hold for emergencies.

Question 54

You have invested $1,000 in an account that promises a 3 percent APY. Assuming you leave the original investment and all earned interest in the account, and ignoring taxes, estimate how long will it take to double your money?

A) 72 years
B) 24 years
C) 12 years
D) 4.16 years

Question 55

Filmore has invested $10,000 in an account to help pay for his grandson's education. He expects the account to return 4.5% annually. Use the rule of 72 to estimate how long it will take the $10,000 to double in value.

A) 10 years
B) 12 years
C) 16 years
D) 20 years

Question 56

Ryan has $5,000 to invest, and he wishes to double his money in 9 years to pay for a vacation to celebrate his 20^th anniversary. Approximately what APY would he require to reach his goal?

A) 6%
B) 7%
C) 8%
D) 9%

Question 57

If you write a check or use your debit card when there isn't enough money in your account to cover the payment, this is known as a(n)

A) float.
B) skim.
C) stop payment.
D) overdraft.

Question 58

Overdraft protection is an

A) insurance program that will cover the penalty fees if you deposit a bad check.
B) insurance program that will protect you from check and debit card fraud.
C) automatic loan in the amount of the insufficient funds to cover an incoming check or debit.
D) automatic transfer of funds from your savings account to your checking account in the amount of the insufficient funds to cover an incoming check or debit.

Question 59

Sophie wrote a check to a contractor who did not complete the job. She would like to make sure the contractor is unable to cash her check. She should go to her financial institution and request a(n)

A) overdraft protection.
B) stop payment.
C) wire transfer.
D) ACH transfer.

Question 60

Which of the following are examples of ways that your identity might be stolen? (Select 3)

A) Dumpster diving
B) House monitoring
C) Phishing
D) Pretexting
E) Bank robbery
F)Installing fake security systems

Question 61

Which is not a recommended practice to avoid identify theft?

A) Check your credit card statements for accuracy before paying the bill
B) Shred all financial statements before throwing them away
C) Carry extra credit cards and IDs for verification
D) Do not click on links in or download attachments from suspicious emails.

Question 62

Ronnie received a suspicious email prompting her to enter her bank account number and password. Her financial institution has assured Ronnie that it will never request sensitive information via email. Ronnie appears to be the target of a ______ scheme.

A) pretexting
B) skimming
C) phishing
D) dumpster diving