Deck 4: The Banking Services of Financial Institutions

Question 1

In recent years, membership in credit unions has

A) become more difficult due to higher taxes.
B) continued to increase.
C) been limited to government employees.
D) declined due to poor credit union management.
E) stayed at about the same level.

Answer 1

continued to increase.

Question 2

The business hours and location of a financial institution refer to the ____________ factor of selecting a financial institution.

A) safety
B) cost
C) compounding
D) liquidity
E) convenience

Answer 2

convenience

Question 3

The storage of funds for future use is the purpose of ____________ services.

A) trust
B) borrowing
C) credit card
D) savings
E) cash chequing

Answer 3

savings

Question 4

Which of these is not a characteristic of the compound interest bond?

A) various purchase options
B) denominations of $100 up to $10,000
C) interest paid on November 1 of each year
D) can be purchased by cash
E) cashable at any time for their face value

Question 5

The major service offered by investment companies is

A) interest-bearing checking accounts.
B) variable-rate loans.
C) credit card accounts.
D) savings bonds.
E) mutual funds.

Question 6

A trust has the purpose of

A) solving a person's financial problems.
B) obtaining low-interest loans.
C) handling daily money management activities.
D) managing the assets of a person.
E) improving a person's budgeting skills.

Question 7

When interest rates are rising, a person would be best served by

A) short term loans
B) long-term savings instruments.
C) short-term savings instruments.
D) variable-rate loans.
E) short-term loans and long-term savings instruments.

Question 8

To avoid high fees for loans, a person should not borrow from a

A) credit union.
B) savings and loan association.
C) pawnshop.
D) commercial bank.
E) mutual savings bank.

Question 9

An advantage of Canada Savings Bonds is

A) interest earned is exempt from federal income taxes.
B) interest earned is deferred for federal tax purposes.
C) a guaranteed rate of return.
D) they can be converted to other types of investments.
E) they are sold twice a year.

Question 10

Time deposits consist of

A) savings accounts.
B) loans and charge accounts.
C) chequing accounts.
D) government securities.
E) profits earned by a financial institution.

Question 11

Direct deposit and automatic monthly payments are features of

A) savings accounts.
B) chequing accounts.
C) electronic banking.
D) investments.
E) reserve funds.

Question 12

Which of the following savings plans is not covered by federal deposit insurance?

A) a passbook account
B) a regular chequing account
C) a money market account
D) a money market fund
E) a GIC

Question 13

Joan Zemke expects interest rates to decline over the next few months. To maximize her earnings she should use a(n)

A) five-year GIC.
B) interest-bearing chequing account.
C) regular savings account.
D) six-month GIC.
E) money market fund

Question 14

A financial institution organized for the main purpose of providing loans to purchase homes is a

A) mortgage and loan company.
B) mutual savings bank.
C) consumer finance company.
D) credit union
E) commercial bank.

Question 15

The convenience of using a financial institution with 24-hour banking frequently requires a trade-off with

A) safety.
B) personal service.
C) growth of savings.
D) liquidity.
E) a lower rate of return.

Question 16

A saver will usually earn the highest rate with which of the following types of savings plans?

A) Guaranteed Investment Certificates
B) club account
C) passbook account
D) share account
E) NOW account

Question 17

An advantage credit unions may have over other financial institutions is

A) interest-bearing chequing accounts.
B) flexible-rate loans
C) low-cost personal loans.
D) credit cards.
E) variable-rate savings plans.

Question 18

A $400 savings account that earns $15 interest in a year has a yield of ____________ percent.

A) 6
B) 15
C) 4.75
D) 3.75
E) 6.5

Question 19

The rate of return on a savings account is also referred to as

A) liquidity.
B) compounding.
C) asset management.
D) insolvency.
E) yield.

Question 20

An all-purpose account that provides several services is a(n):

A) NOW account.
B) asset management account.
C) EFT account.
D) mutual fund.
E) money market account.

Question 21

When preparing a bank reconciliation, outstanding cheques should be

A) added to the bank statement balance.
B) subtracted from the bank statement balance.
C) added to the chequebook balance.
D) subtracted from the chequebook balance.
E) added to direct deposits.

Question 22

When interest rates are falling, a person would be best served by

A) short term loans
B) short-term savings instruments.
C) same approach as if interest rates are rising.
D) variable-rate loans.
E) long term loans.

Question 23

The funds deposited in a chequing account can be restricted for use by

A) a holding period.
B) outstanding cheques.
C) interest earned.
D) service charges.
E) electronic banking.

Question 24

Kevin Friedman only needs to write a couple of cheques each month. Which type of chequing account would best serve his needs?

A) an interest-earning chequing account
B) an activity account
C) an EFT account
D) a share draft account
E) a NOW account

Question 25

The first information to be recorded when writing a cheque is the

A) date.
B) cheque stub or cheque register.
C) payee.
D) amount.
E) signature.

Question 26

If the annual rate is 10%, and the interest is compounded quarterly, what is the effective annual rate?

A) 10.00%
B) 10.25%
C) 10.38%
D) 12.00%
E) 12.68%

Question 27

A personal cheque with guaranteed payment is called a

A) traveler's cheque.
B) bank draft.
C) certified cheque.
D) money order.
E) cashier's cheque.

Question 28

A service designed for people who write only a few cheques each month is a(n) ____________ account.

A) EFT
B) regular chequing
C) share draft
D) interest-bearing chequing
E) activity

Question 29

Which best describes the prime rate of interest?

A) The lending rate banks charge their most creditworthy clients
B) The yield on 91-day treasury bills
C) The yield on 30-year government bonds
D) The lending rate the Bank of Canada charges financial institutions.
E) The base rate for all mortgages

Question 30

If the annual rate is 10% and inflation is 4%, then the approximate real rate of return is:

A) 14.00%
B) 4.00%
C) 6.00%
D) 6.80%
E) 7.00%

Question 31

The "prime" rate is ___________________________.

A) The lending rate banks charge their most creditworthy clients
B) The yield on 91-day treasury bills
C) The yield on 30-year government bonds
D) The yield on 1-year government bonds
E) The yield on corporate bonds

Question 32

The purpose of a "special" endorsement is to

A) cash a cheque.
B) deposit a cheque.
C) transfer a cheque to another person.
D) withdraw cash from your account.
E) reduce the charge for service fees.

Question 33

Savings compounded ____________ would have the highest effective yield

A) monthly
B) annually
C) semi-annually
D) daily
E) weekly

Question 34

Comparison of earnings for different savings plans can best be accomplished using the

A) discounted present value.
B) compounded rate of return.
C) net present value.
D) effective annual rate.
E) after-tax rate of return.

Question 35

Briana Legett expects interest rates to decline over the next few months. To maximize her earnings she should use a(n):

A) regular savings account.
B) interest-bearing checking account.
C) five-year certificate of deposit.
D) six-month certificate of deposit.
E) money market fund

Question 36

In the bank reconciliation process, service fees should be

A) added to the bank statement balance.
B) subtracted from the bank statement balance.
C) added to the chequebook balance.
D) subtracted from the chequebook balance.
E) added to direct deposits.

Question 37

Which of these is not a characteristic of the compound interest bond?

A) various purchase options
B) denominations of $100 up to $10,000
C) cashable at any time for their face value
D) can be purchased by cash
E) A, B, C and D are all characteristics of the compound interest bond.

Question 38

A ____________ endorsement would be used if a person is presenting a cheque in order to obtain cash.

A) restrictive
B) common
C) special
D) blank
E) documented

Question 39

The yield on a savings account is also referred to as

A) liquidity.
B) compounding.
C) asset management.
D) insolvency.
E) rate of return.

Question 40

Based on the following information, what amount would be SUBTRACTED from the BANK BALANCE side of a chequing account reconciliation? Service charge $6, Outstanding cheques $260, Interest $3. 00, Deposit in transit $65

A) $260
B) $65
C) $71
D) $68
E) $266

Question 41

A $100 savings account that earns $5 interest in a year has a yield of ____________ percent.

A) 6
B) 5
C) 4.75
D) 3.75
E) 6.5

Question 42

The use of electronic banking does not add to the "float" time for financial services customers.

Question 43

Credit unions frequently offer lower loan rates than other financial institutions.

Question 44

Robert expects interest rates to rise over the next few months. To maximize his earnings he should use a:

A) regular savings account.
B) five year GIC.
C) five-year certificate of deposit.
D) six-month certificate of deposit.
E) money market fund

Question 45

If the annual rate is 3% and inflation is 2%, then the approximate real rate of return is:

A) 5.00%
B) 3.00%
C) 1.00%
D) - 1.0%
E) 0%

Question 46

If the annual rate is 8%, and the interest is compounded quarterly, what is the effective annual rate?

A) 8.00%
B) 10.25%
C) 10.38%
D) 7.85%
E) 8.24%

Question 47

If the annual rate is 2% and inflation is 3%, then the approximate real rate of return is:

A) 5.00%
B) 3.00%
C) 1.00%
D) - 1.0%
E) 0%

Question 48

Savings compounded ____________ would have the lowest effective yield

A) monthly
B) annually
C) semi-annually
D) daily
E) weekly

Question 49

Lower returns on savings will usually result in less liquidity.

Question 50

A regular savings account usually offers a higher rate of return to savers than other savings plans.

Question 51

A trust is a safe place for people to make large deposits for maximum security

Question 52

Mortgage and loan companies specialize principally in home mortgages and long-term loans.

Question 53

The money market fund offered by investment companies is a highly liquid financial service.

Question 54

If you think interest rates will increase, you should consider investing your money in a longer-term GIC.

Question 55

Time deposits are more commonly referred to deposits made to savings accounts and investment certificates.

Question 56

Store credit cards usually charge a higher interest rate than a bank credit card.

Question 57

If the annual rate is 8%, and the interest is compounded annually, what is the effective annual rate?

A) 8.00%
B) 10.25%
C) 10.38%
D) 7.85%
E) 8.24%

Question 58

ATM fees are about the same in different geographic areas.

Question 59

A "free" chequing account with a minimum balance of $500 has an opportunity cost of lost interest.

Question 60

If the annual rate is 8%, and the interest is compounded monthly, what is the effective annual rate?

A) 8.00%
B) 10.25%
C) 10.38%
D) 7.85%
E) 8.30%

Question 61

Evan Kostakis is living in this country while going to school. He is not familiar with the operation of savings plans available to consumers. What factors would you recommend that he consider when evaluating and comparing different savings plans?

Question 62

What are the main types of financial institutions used by consumers?

Question 63

When preparing a bank reconciliation, interest earned on your chequing account is subtracted from the bank statement balance.

Question 64

List the fees and charges that chequing accounts may have.

Question 65

If you think interest rates will decrease, you should consider investing your money in a longer-term GIC.

Question 66

A regular savings account usually offers a lower rate of return to savers than other savings plans.

Question 67

Activity accounts are designed for people who write many cheques each month.

Question 68

Brad Kellogg maintains a monthly balance in his chequing account of approximately $150, writes about 25 cheques a month, and makes three deposits each month. How would Brad decide which of the following chequing accounts to use?
I. a regular chequing account with a monthly fee of $4.50 for an unlimited number of cheques and no monthly balance required; no interest earned
II. an interest-bearing chequing account paying 4 percent interest on balances over $300; monthly service charge of $6 when the balance is below $300
III. a special chequing account that charges 35 cents a cheque and 20 cents for each deposit; no interest earned
IV. a minimum-balance account that requires a $200 minimum balance to avoid the $10 monthly fee; interest earned when balance is above $400.

Question 69

Store credit cards usually charge a lower interest rate than a bank credit card.

Question 70

List the 4 chequing account selection features discussed in the text.

Question 71

ATM fees may be different in different geographic areas.

Question 72

Savers should always attempt to obtain an interest rate that is less than the inflation rate.

Question 73

A "free" chequing account with a minimum balance of $500 has no opportunity cost.

Question 74

All financial institutions are able to process customer deposit and withdrawal transactions.

Question 75

The increase in purchasing power of an investment is not reflected in its real rate of return.

Question 76

A restrictive endorsement will usually include the words "for deposit only."

Question 77

Based on the following information, find the true balance of your chequing account and the sum, if any, of deposits in transit.
Balance on bank statement, $581
Total of outstanding cheques, $200
Service charges, $11
Interest earned on account, $7
Balance in your chequebook, $540

Question 78

The more frequent the compounding, the less a person will earn on a savings account.