Deck 12: Managing and Pricing Deposit Services

Question 1

The _________________________ Act was passed in 1991 and specifies the information that institutions must disclose to their customers about deposit accounts.

Answer 1

Truth in Savings

Question 2

A(n)_________________________ is a conditional method of pricing deposit services in which the fees paid by the customer depend mainly on the account balance and volume of activity.

Answer 2

deposit fee schedule

Question 3

_________________________ is a way of pricing deposit services in which the rate,or return,or the fees charged on the deposit accounts are based on the cost of offering the service plus a profit margin.

Answer 3

Cost plus pricing

Question 4

_________________________ are a stable base of deposited funds that are not highly sensitive to movements in market interest rates and tend to remain with the depository institution.

Question 5

Research suggests that _________ -income consumers appear to be more influenced by the size of the financial institution.

Question 6

Some people feel that everyone is entitled access to a minimum level of financial service,no matter what their income level is.This issue is called the issue of ________________________.

Question 7

A(n)_________________________ is a short-maturity deposit which pays a competitive interest rate.Only six preauthorized drafts per month are allowed but only three withdrawals can be made by writing checks.

Question 8

A(n)_________________________ requires a bank to honor withdrawals immediately upon request.

Question 9

When a customer is charged a fixed cost per check,per period,or both,it is called __________________ pricing.

Question 10

_________________________ is part of a new technology for processing checks where the bank takes a picture of the back and the front side of an original check and which can then be processed as if it were the original.

Question 11

A(n)_________________________ is a retirement plan that is designed for self-employed individuals.

Question 12

Research suggests that a depository institution's location is most important to _____ -income consumers.

Question 13

Depositors must send their customers the amount of interest earnings received,along with the _________________ earned.It is the interest rate the customer has actually earned on the account.

Question 14

When a customer is charged based on the number and kinds of services used,with the customers that use a number of services being charged less or having some fees waived,this is called __________________ pricing.

Question 15

The _________________________ is the added cost of bringing in new funds.

Question 16

_________________________ pricing is where a financial institution sets up a schedule of fees in which a customer pays a low or no fee if the deposit balance stays above some minimum level and pays a higher fee if the balance declines below that minimum level.

Question 17

A(n)_________________________ is a thrift account which carries a fixed maturity date and generally carries a fixed interest rate for that time period.

Question 18

When financial institutions tempt customers by paying postage both ways in bank-by-mail services or by offering free gifts such as teddy bears,they are practicing __________.

Question 19

_________________________ are designed to attract funds from customers who wish to set aside money in anticipation of future expenditures or financial emergencies.

Question 20

A(n)_________________________ is an interest bearing checking account that gives the offering bank the right to insist on prior notice before customer withdrawals can be honored.

Question 21

________________ is a process where merchants and utility companies take the information from a check an individual has just written,and electronically debit the individual's account instead of sending the check through the regular check clearing process.

Question 22

________________ CDs permit periodic upward adjustments in promised interest rates.

Question 23

Domestic deposits generate legal reserves.

Question 24

The volume of core deposits at U.S.banks has been growing in recent years relative to other categories of deposits.

Question 25

Legally imposed interest-rate ceilings on deposits were first set in place in the United States after passage of the Bank Holding Company Act.

Question 26

Gradual phase-out of legal interest-rate ceilings on deposits offered by U.S.banks was first authorized by the Glass-Steagall Act.

Question 27

Due to the fact that they may be perceived as more risky,________________ banks generally offer higher deposit rates than traditional brick and mortar banks.

Question 28

The implicit interest rate on checkable deposits equals the difference between the cost of supplying deposit services to a customer and the amount of the service charge actually assessed to that customer.

Question 29

The _______________,which was created under Tax Relief Act of 1997,allows individuals to make non-tax-deductible contributions to a retirement fund that can grow tax free and also pay no taxes on their investment earnings when withdrawn.

Question 30

________________ CDs allow the depositor to withdraw some funds without a withdrawal penalty.

Question 31

On October 28,2004,________________ became law,permitting depository institutions to electronically transfer check images instead of the checks themselves.

Question 32

Demand deposits are among the most volatile and least predictable of a bank's sources of funds with the shortest potential maturity.

Question 33

Deposits held by banks with others are called correspondent deposits.

Question 34

According to the textbook,the U.S.Treasury keeps most of its operating funds in TT&L deposits.

Question 35

Excess legal reserves are the sources out of which new bank loans are created.

Question 36

__________ CDs allow depositors to switch to a higher interest rate if market interest rates rise.

Question 37

________________ are accounts in domestic banking institutions where the U.S.Treasury keeps most of their operating funds.

Question 38

The contention that there are certain banking services (such as small loans or savings and checking accounts)that every citizen should have access to is usually called socialized banking.

Question 39

For decades,depository institutions offered only one type of savings plan-____________.One that could be opened with as little as $5 and withdrawal privileges were unlimited.

Question 40

IRA and Keogh deposits have great appeal for bankers principally because they can be sold bearing relatively low (often below-market)interest rates.

Question 41

According to the text,no-fee savings accounts are on the decline.

Question 42

The availability of a large block of core deposits decreases the duration of a bank's liabilities.

Question 43

A bank has full control over its deposit prices in the long run.

Question 44

Personal checking accounts tend to be more profitable for banks than commercial checking accounts.

Question 45

Deposits are usually priced separately from loans and other bank services.

Question 46

A Roth IRA allows an individual to accumulate investment earnings tax free and also pay no tax on their investment earnings when withdrawn provided the taxpayer follows the rules on this new account.

Question 47

Interest-bearing checking accounts,on average,tend to generate lower net returns for banks than regular (non-interest-bearing)checking accounts.

Question 48

Conditionally free deposits for customers mean that as long as the customers do not hold above a certain level of deposit,there are no monthly fees or per transaction charges.

Question 49

Competition tends to raise deposit interest costs.

Question 50

The Truth in Savings Act requires a bank to disclose to its deposit customers,the frequency with which interest is compounded on all interest-bearing accounts.

Question 51

Competition lowers the expected return to a bank from putting its deposits to work.

Question 52

NOW accounts can be held by businesses and individuals and are interest-bearing checking accounts.

Question 53

Nonprice competition for deposits has tended to distort the allocation of scarce resources in the banking sector.

Question 54

Web-centered banks with little or no physical facilities are known as virtual banks.

Question 55

In general,the longer the maturity of a deposit,the lower the yield a financial institution must offer to its depositors because of the greater interest-rate risk the bank faces with longer-term deposits.

Question 56

According to recent studies cited in this chapter,the number one factor that households consider in choosing a bank to hold their savings deposit is location.

Question 57

An MMDA is a short-term deposit where the bank can offer a competitive interest rate and which allows up to six preauthorized drafts per month.

Question 58

Under the Truth in Savings Act,customers must be informed of the impact of any early deposit withdrawals on the annual percentage yield they expect to receive from an interest-bearing deposit.

Question 59

According to recent studies cited in this chapter,the number one factor that households consider in selecting a bank to hold their checking account is low fees and low minimum balance.

Question 60

When a bank temporarily offers higher than average interest rates or lower than average customer fees in order to attract new business,they are practicing conditional pricing.

Question 61

Depository institutions selling deposits to the public in the United States must quote the rate of return pledged to the owner of the deposit,which reflects the customer's average daily balance kept in the deposit.This quoted rate of return is known as:

A)annual percentage rate (APR).
B)annual percentage yield (APY).
C)daily deposit yield (DDY).
D)daily average return (DAR).
E)None of the options is correct.

Question 62

A stable and predictable base of deposited funds that is not highly sensitive to movements in market interest rates and tend to remain with the bank is called:

A)TT&L deposits.
B)core deposits.
C)consumer CDs.
D)correspondent deposits.
E)None of the options is correct.

Question 63

__________ are often the most profitable deposit services for a bank.

A)Time deposits
B)Transaction deposits
C)Thrift deposits
D)Passbook savings deposits
E)Certificates of deposits

Question 64

The Federal law that requires U.S.depository institutions to make greater disclosure of the fees,interest rates,and other terms attached to the deposits they sell to the public is called the:

A)Consumer Credit Protection Act.
B)Fair Pricing Act.
C)Consumer Full Disclosure Act.
D)Truth in Savings Act.
E)None of the options is correct.

Question 65

Some people feel that all individuals are entitled to some minimum level of financial services,no matter what their income level is.This issue is often called:

A)lifeline banking.
B)preference banking.
C)nondiscriminatory banking.
D)lifeboat banking.
E)None of the options is correct.

Question 66

The deposit pricing method that favors large-denomination deposits because services are free if the deposit account balance stays above some minimum figure is called:

A)free pricing.
B)conditionally free pricing.
C)flat-rate pricing.
D)upscale target pricing.
E)marginal cost pricing.

Question 67

A deposit which offers flexible money market interest rates but is accessible for spending by writing a limited number of checks or executing preauthorized drafts is known as a(n):

A)demand deposit.
B)NOW account.
C)MMDA.
D)time deposit.
E)None of the options is correct.

Question 68

Research indicates that at least half of all households and small businesses hold their primary checking account at a depository institution situated within 3 miles of their location.

Question 69

Urban markets are more responsive to deposit interest rates and fees than rural markets.

Question 70

Interest payments on regular checking accounts were prohibited in the United States under terms of the:

A)Glass-Steagall Act.
B)McFadden-Pepper Act.
C)National Bank Act.
D)Garn-St.Germain Depository Institutions Act.
E)None of the options is correct.

Question 71

According to recent studies cited in this book,in selecting a bank to hold their checking accounts,which of the following factors do household customers rank first?

A)Safety.
B)High deposit interest rates.
C)Convenient location.
D)Availability of other services.
E)Low fees and low minimum balance.

Question 72

There are still a number of existing problems with online bill-paying services which has limited its growth.

Question 73

The types of deposits that will be created by the banking system depend predominantly upon:

A)the level of interest rates.
B)the state of the economy.
C)the monetary policies of the central bank.
D)public preference.
E)None of the options is correct.

Question 74

Deposit accounts whose principal function is to make payments for purchases of goods and services are called:

A)drafts.
B)second-party payments accounts.
C)thrift deposits.
D)transaction accounts.
E)None of the options is correct.

Question 75

Money market deposit accounts (MMDAs),offering flexible interest rates,accessible for payments purposes,and designed to compete with share accounts offered by money market mutual funds,were authorized by the:

A)Glass-Steagall Act.
B)Depository Institutions Deregulation and Monetary Control Act (DIDMCA).
C)Bank Holding Company Act.
D)Garn-St.Germain Depository Institutions Act.
E)None of the options is correct.

Question 76

The total dollar value of checks paid in the United States has grown modestly in recent years.

Question 77

The formula-operating expense per unit of deposit service plus estimated overhead expense plus planned profit from each deposit service unit sold-reflects which of the deposit pricing method listed below?

A)Marginal cost pricing
B)Cost plus pricing
C)Conditional pricing
D)Upscale target pricing
E)None of the options is correct

Question 78

Negotiable Order of Withdrawal (NOW)accounts-interest-bearing savings accounts that can be used essentially the same as checking accounts-were authorized by:

A)Glass-Steagall Act.
B)Depository Institutions Deregulation and Monetary Control Act (DIDMCA).
C)Bank Holding Company Act.
D)Garn-St.Germain Depository Institutions Act.
E)None of the options is correct.

Question 79

The depository institutions which tend to have the highest deposit yields are credit unions.

Question 80

Using deposit fee schedules that vary deposit prices according to the number of transactions,average balance in the deposit account,and maturity of the deposits represents which of the deposit pricing method listed below?

A)Marginal cost pricing
B)Cost plus pricing
C)Conditional pricing
D)Upscale target pricing
E)None of the options is correct.