Personal Finance 11th Edition by E. Thomas Garman - Test Bank

Personal Finance 11th Edition by E. Thomas Garman – Test Bank

 

Instant Download – Complete Test Bank With Answers

 

 

Sample Questions Are Posted Below

 

Chapter 5—Managing Checking and Savings Accounts

 

TRUE/FALSE

 

1. The goal of monetary asset management is to maximize interest earnings and minimizing fees while keeping funds safe and readily available.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 141

 

2. Monetary asset management includes setting money aside in a savings account for use later when making investments.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 141

 

3. Cash management focuses primarily on your investment assets.

 

ANS:  F

cash management focuses on monetary assets.

 

PTS:   1                    DIF:    moderate        REF:   p. 141

 

4. Liquidity is the speed and ease with which an asset can be converted to cash.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 141

 

5. Unlike other providers of financial services, depository institutions can both take deposits and make loans to consumers.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 142

 

6. Today, even stock brokerages and insurance companies provide certain products for use in cash management.

 

ANS:  T                    PTS:   1                    DIF:    moderate        REF:   p. 143

 

7. Credit unions typically offer the widest variety of financial services.

 

ANS:  F

commercial banks offer the widest variety.

 

PTS:   1                    DIF:    easy               REF:   p. 143

 

8. Commercial banks typically offer the widest variety of financial services.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 143

 

9. The primary focus of savings banks is to accept savings from consumers and provide mortgage and consumer loans.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 143

 

10. Deposits in credit unions with federal charters are insured through the National Credit Union Share Insurance Fund (NCUSIF).

 

ANS:  T                    PTS:   1                    DIF:    moderate        REF:   p. 143

 

11. Mutual savings banks are called “mutual” because the depositors own the institution and share in the earnings.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 143

 

12. Credit unions with federal charters have their accounts insured through the FDIC.

 

ANS:  F

they are insured through the National Credit Union Share Insurance Fund (NCUSIF).

 

PTS:   1                    DIF:    easy               REF:   p. 143

 

13. The total protection an individual might have with any institution, including all its branches, is $250,000 with no more than $125,000 each on single-ownership and joint accounts.

 

ANS:  F

the total protection can be $500,000¾$250,000 each on individual and joint accounts.

 

PTS:   1                    DIF:    difficult          REF:   p. 143

 

14. A mutual fund is an investment company that raises money by selling shares to the public and then invests that money in a diversified portfolio of investments.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 144

 

15. One can increase the amount of money covered by FDIC insurance by dividing his or her money among different branche offices of the same depository institution.

 

ANS:  F

you must spread funds across several institutions in order to expand your insurance coverage.

 

PTS:   1                    DIF:    moderate        REF:   p. 143

 

16. Money deposited in mutual funds is insured by the federal government.

 

ANS:  F

the federal deposit insurance programs only cover depository institutions.

 

PTS:   1                    DIF:    moderate        REF:   p. 143

 

17. A stock brokerage firm is a licensed financial institution that specializes in selling and buying stocks, bonds, and other investment alternatives.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 144

 

18. Stock brokerage firms are federally insured institutions.

 

ANS:  F

the federal deposit insurance programs only cover depository institutions.

 

PTS:   1                    DIF:    moderate        REF:   p. 143

 

19. Stock brokerage firms earn commissions on clients’ stock transactions.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 144

 

20. The only reason to have a checking account is so that one has an account for writing checks.

 

ANS:  F

checking accounts can earn interest.

 

PTS:   1                    DIF:    easy               REF:   p. 144

 

21. When you use a debit card, funds are instantaneously removed from your account.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 144

 

22. The interest rate you earn on your checking and savings account can vary with the amount you have in the accounts.

 

ANS:  T                    PTS:   1                    DIF:    moderate        REF:   p. 145

 

23. Interest-earning checking accounts are offered through savings banks and mutual savings banks as well as credit unions.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 144

 

24. A share draft account is the credit union version of a NOW account.

 

ANS:  T                    PTS:   1                    DIF:    moderate        REF:   p. 144-145

 

25. Share draft accounts at credit unions are generally more expensive than NOW accounts at commercial banks.

 

ANS:  F

credit unions generally charge the lowest fees of all depository institutions.

 

PTS:   1                    DIF:    moderate        REF:   p. 145

 

26. Costs for a share draft account are often higher than for those for a checking account at a bank or savings bank.

 

ANS:  F                    PTS:   1                    DIF:    moderate        REF:   p. 145

 

27. NOW accounts get their name because they are considered demand deposits.

 

ANS:  F

NOW stands for negotiable order of withdrawal and is the type of checking account that pays interest.

 

PTS:   1                    DIF:    moderate        REF:   p. 144

 

28. College students who are independent of their parents may qualify for very low-cost lifeline banking accounts.

 

ANS:  T                    PTS:   1                    DIF:    moderate        REF:   p. 145

 

29. NOW accounts and share draft accounts with tiered interest will pay higher interest rates on larger balances.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 144-145

 

30. Acceptance for a lifeline banking account is dependent on one’s income and net worth.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 145

 

31. A stop-payment order works only if the check has not yet cleared.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 146

 

32. A written stop-payment order is valid for up to three years.

 

ANS:  F

such orders expire after six months unless renewed.

 

PTS:   1                    DIF:    moderate        REF:   p. 146

 

33. Traveler’s check companies guarantee replacement of lost checks if their serial numbers are identified.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 146

 

34. Fees of no more $10 are generally charged for money orders, certified checks and cashier’s checks.

 

ANS:  F

fees are based on the amount on the instrument and can be much higher.

 

PTS:   1                    DIF:    moderate        REF:   p. 147

 

35. If your checking account balance drops to less than perhaps $50 at any point during a month you would likely be better off with a minimum deposit account in order to avoid fees.

 

ANS:  F

an average-balance account would be better in this situation as your average will be higher than your lowest balance.

 

PTS:   1                    DIF:    moderate        REF:   p. 147

 

36. Banks offering a “free” checking account means that there are no fees for writing bad checks or using another bank’s ATM.

 

ANS:  F

“free” only relates to the assessment of monthly service charges.

 

PTS:   1                    DIF:    moderate        REF:   p. 145

 

37. Funds on deposit in a savings account are considered time deposits rather than demand deposits.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 147-148

 

38. Funds on deposit in a savings account are considered demand deposits.

 

ANS:  F

they are considered time deposits.

 

PTS:   1                    DIF:    moderate        REF:   p. 147-148

 

39. Time deposits are savings that are expected to remain on deposit in a financial institution for an extended period.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 147-148

 

40. Demand deposits are savings that are expected to remain on deposit in a financial institution for an extended period.

 

ANS:  F

time deposits are expected to remain on deposit for an extended period of time.

 

PTS:   1                    DIF:    easy               REF:   p. 148

 

41. Institutions usually have a rule requiring that savings account holders give 30 to 60 days notice for withdrawals, although this restriction is seldom enforced.

 

ANS:  T                    PTS:   1                    DIF:    moderate        REF:   p. 148

 

42. Time deposits specify a period that the savings must be left on deposit, such as six months or three years.

 

ANS:  F

only fixed-time deposits such as CDs have this requirement.

 

PTS:   1                    DIF:    moderate        REF:   p. 148

 

43. Fixed-time deposits specify a period of time that the savings must be left on deposit.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 148

 

44. Institutions have a rule requiring that savings account holders give 30 to 60 days’ notice for withdrawals.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 148

 

45. A long-term, fixed-rate certificate of deposit would be most appropriate when interest rates are moving up.

 

ANS:  F

fixed-rates in a market where rates are rising result in locking-in the lower initial rate.

 

PTS:   1                    DIF:    moderate        REF:   p. 149

 

46. In general, the shorter the maturity time on a certificate of deposit, the higher the rate of interest that will be paid.

 

ANS:  F

the opposite is true as long-term CDs have higher rates.

 

PTS:   1                    DIF:    moderate        REF:   p. 148-149

 

47. If one believes interests rates will move lower in the months ahead, he or she should invest in long-term, fixed-rate savings investments.

 

ANS:  T                    PTS:   1                    DIF:    moderate        REF:   p. 149

 

48. It is highly recommended that CD investments be made at local bank-like institutions, even though some yield may be sacrificed.

 

ANS:  F

there is no need to have a local institution for CDs as you will not have access to the funds.

 

PTS:   1                    DIF:    moderate        REF:   p. 148-149

 

49. The interest rate in force when a CD is purchased typically remains fixed for the entire term of the deposit.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 148

 

50. Interest rates on longer-term CDs are usually higher than the comparable rates on shorter-term instruments.

 

ANS:  T                    PTS:   1                    DIF:    moderate        REF:   p. 148

 

51. Bump-up CDs allow savers to bump up the interest rate once to a higher market rate.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 149

 

52. Money withdrawn from a CD before the end of the specified time period is subject to interest penalties.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 149

 

53. While the majority of certificates of deposit pay a fixed rate of interest, variable-rate certificates of deposit are available.

 

ANS:  T                    PTS:   1                    DIF:    moderate        REF:   p. 149

 

54. It is possible to lose money on a certificate of deposit if the early withdrawal penalty is greater than the interest earned.

 

ANS:  T                    PTS:   1                    DIF:    moderate        REF:   p. 148-149

 

55. Laddering CDs is a technique that smoothes out the fluctuations in interest rates.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 149

 

56. The safest type of endorsement on a check is a blank endorsement.

 

ANS:  F

the safest type of endorsement is a restrictive endorsement¾blank endorsements are the least safe.

 

PTS:   1                    DIF:    easy               REF:   p. 148

 

57. Checks mailed to the bank for deposit should always be endorsed with a restrictive endorsement.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 148

 

58. A check with a blank endorsement contains only the payee’s signature on the back.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 148

 

59. Writing a “bad check” can be very expensive because of fees assessed by both the bank and the payee.

 

ANS:  T                    PTS:   1                    DIF:    moderate        REF:   p. 147 | p. 152

 

60. If you have an automatic overdraft loan agreement with your bank, money will be borrowed from your MasterCard or Visa as a cash advance when you write a bad check.

 

ANS:  T                    PTS:   1                    DIF:    moderate        REF:   p. 153

 

61. An automatic funds transfer agreement is usually the most expensive way to avoid bad check fees.

 

ANS:  F

courtesy overdraft/bounce protection can be the most expensive.

 

PTS:   1                    DIF:    moderate        REF:   p. 153

 

62. Courtesy overdraft/bounce protection can be very helpful if the institution will honor your debit card even if you have insufficient funds.

 

ANS:  F

if the institution honors your card you may have to pay a fee for every single overdraft as you are unaware of the lack of sufficient funds.

 

PTS:   1                    DIF:    moderate        REF:   p. 153

 

63. Periodically, you should conduct an account reconciliation in which you compare your records with your bank’s records.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 150

 

64. A person whose income is dependent on commissions generally needs more readily available emergency fund than a salaried employee.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 150

 

65. The more frequent the compounding, the greater the effective return for the saver.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 148

 

66. Contributions to a Roth IRA and the earnings within it accumulate tax-free, and withdrawals are entirely free of tax after age 59.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 151

 

67. Before age 59, the earnings in a Roth IRA, but not the contributions, can be used for college expenses (or any purpose) without incurring a penalty.

 

ANS:  F

the contributions can be used but not the earnings to avoid a penalty.

 

PTS:   1                    DIF:    moderate        REF:   p. 151

 

68. Deposits into a Section 529 college savings plan are deductible, and withdrawals for qualified educational expenses are tax-free.

 

ANS:  F

deposits into a Section 529 plan are NOT deductible but the withdrawals for qualified educational expenses are tax-free.

 

PTS:   1                    DIF:    moderate        REF:   p. 151

 

69. Non-deductible contributions up to a maximum of $2,000 per year may be made to a Coverdell education savings account.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 151

 

70. For children younger than 18, unearned income in a custodial account in excess of $1,900 is taxed at the parent’s rate.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 151

 

71. For children younger than 18, unearned income in a custodial account in excess of $950 is taxed at the parent’s rate.

 

ANS:  F

unearned income in a custodial account in excess of $950 is taxed at the child’s rate.

 

PTS:   1                    DIF:    moderate        REF:   p. 151

 

72. For children younger than age 18, the first $1,700 of unearned income (the income earned from an investment) earned on custodial account assets is tax-free to the child.

 

ANS:  F

the first $950 of unearned income earned on custodial account assets is tax-free to the child.

 

PTS:   1                    DIF:    moderate        REF:   p. 151

 

73. Zero bonds are municipal, corporate, and government bonds that pay no annual interest.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 151

 

74. One should accumulate enough savings to cover living expenses for six to nine months.

 

ANS:  F

experts recommend an emergency fund of from three to six months of expenses.

 

PTS:   1                    DIF:    moderate        REF:   p. 150

 

75. Certificates of deposit are available through stockbrokers as well as through bank-like institutions.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 149

 

76. A Series EE savings bond is a type of discount bond.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 151

 

77. Federal income tax on interest earned on a Series EE U.S. government savings bond may be deferred until the bond is redeemed.

 

ANS:  T                    PTS:   1                    DIF:    moderate        REF:   p. 151

 

78. Interest accrued on a Series EE savings bond is tax-free at redemption if the proceeds are used for the purchase of your first home.

 

ANS:  F

the tax-free feature only applies to withdrawals to pay for a college education.

 

PTS:   1                    DIF:    moderate        REF:   p. 151

 

79. Americans have the highest savings rates among the major countries of the world.

 

ANS:  F

they have among the lowest savings rates.

 

PTS:   1                    DIF:    easy               REF:   p. 149

 

80. A grace period is the time period in days during which deposits or withdrawals can be made and still earn the same interest as other savings from a given day of the interest period.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 152

 

81. The Truth in Savings Act requires depository institutions to disclose a standardized rate of interest so that depositors can easily compare various savings options.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 151

 

82. The term money market account describes a variety of high-interest earning accounts that normally have unlimited check-writing privileges.

 

ANS:  F

check-writing privileges are generally limited per month.

 

PTS:   1                    DIF:    moderate        REF:   p. 153

 

83. The initial minimum deposit on a super NOW account typically ranges from $1,000 to $2,500.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 153

 

84. If the balance on either a super NOW account or a money market deposit account falls below a specified level, the account generally earns interest at the lower rate paid on a regular NOW account.

 

ANS:  T                    PTS:   1                    DIF:    moderate        REF:   p. 153

 

85. Completing a signature card is part of the process when opening a checking account.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 155

 

86. A joint account that gives each owner access to the account (without the other’s signature) is called a joint tenancy account with right of survivorship.

 

ANS:  T                    PTS:   1                    DIF:    moderate        REF:   p. 155

 

87. A payable-on-death designation can be used to set up an individual account that automatically goes to another person when you die.

 

ANS:  T                    PTS:   1                    DIF:    moderate        REF:   p. 155

 

88. In community property states, the rights of the husbands and wives are unequally protected.

 

ANS:  F

the rights of spouses are equal in these states.

 

PTS:   1                    DIF:    easy               REF:   p. 155

 

89. A tenancy by the entirety account may be opened only by spouses.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 155

 

90. Money market deposit accounts are normally federally insured whereas money market mutual funds are not federally insured.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 153-154

 

91. Money market mutual funds that buy only U.S. government securities are virtually risk-free.

 

ANS:  T                    PTS:   1                    DIF:    moderate        REF:   p. 154

 

92. An asset management account is a multiple-purpose, coordinated package that provides a wide variety of financial services.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 154-155

 

93. Everyone should use an asset management account to simplify their monetary asset management.

 

ANS:  F

these accounts are most appropriate for those who typically have $10,000 or more in monetary assets

 

PTS:   1                    DIF:    moderate        REF:   p. 154-155

 

94. Everything else being the same, an investor would prefer an asset management account that “sweeps” weekly rather than daily.

 

ANS:  F

more frequent sweeps make the most of the benefits of these accounts.

 

PTS:   1                    DIF:    moderate        REF:   p. 154- 155

 

95. Electronic funds transfers (EFTs) move money electronically between accounts rather than by check or cash.

 

ANS:  T                    PTS:   1                    DIF:    moderate        REF:   p. 156

 

96. When a customer uses a debit card to pay for a purchase, funds will be charged to his or her credit card.

 

ANS:  F

debit card usage is covered immediately by a transfer out of the user’s checking account.

 

PTS:   1                    DIF:    easy               REF:   p. 144

 

97. ATMs can be used to withdraw funds from a money market mutual fund.

 

ANS:  F

ATMs are only available in conjunction with accounts at depository institutions.

 

PTS:   1                    DIF:    moderate        REF:   p. 154

 

98. Some stored value cards can be “reloaded” with additional funds.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 156

 

99. Electronic benefits transfer (EBT) cards are used by the government to pay military personnel and provide Social Security and other government benefits.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 156

 

100. When you sign up for electronic banking services, the depository institution must inform you of your rights and responsibilities in a written disclosure statement.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 157

 

101. Written receipts are not required when using an ATM or a POS terminal.

 

ANS:  F

receipts are required although many people ignore or toss them.

 

PTS:   1                    DIF:    easy               REF:   p. 157

 

102. Your losses from a stolen ATM card are unlimited if you fail to report unauthorized use within 30 days after your statement is mailed to you.

 

ANS:  F

you have 60 days to notify your bank however your losses can be as high as $500 if you wait more than two days.

 

PTS:   1                    DIF:    moderate        REF:   p. 158

 

103. Most homeowner’s and renter’s insurance policies cover your liability for theft of debit cards but not credit cards.

 

ANS:  F

theft from both types of cards is typically covered.

 

PTS:   1                    DIF:    moderate        REF:   p. 158

 

104. To be legally responsible for only the first $50 of unauthorized use, one must report an ATM card missing within two days after the loss or theft of the card.

 

ANS:  T                    PTS:   1                    DIF:    moderate        REF:   p. 158

 

105. Most homeowner’s and renter’s insurance policies cover the liability for theft of both debit and credit cards.

 

ANS:  T                    PTS:   1                    DIF:    moderate        REF:   p. 158

 

106. ATM cardholders are liable for only the first $50 of unauthorized use if they notify the issuing company within five business days after the loss or theft of their card or PIN.

 

ANS:  F

they must make the notification within two days to be afforded this protection.

 

PTS:   1                    DIF:    moderate        REF:   p. 158

 

107. Financial experts recommend that each person in a relationship keep some money of his or her own.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 159

 

MULTIPLE CHOICE

 

108. Management of ____ is not included in monetary asset management.

a.	tangible assets
b.	savings accounts
c.	money market accounts
d.	checking accounts

 

 

ANS:  A                    PTS:   1                    DIF:    easy               REF:   p. 141

 

109. Which of the following are examples of monetary assets?

a.	Cash on hand, corporate stock, and insurance
b.	Money market accounts, cash on hand, and certificates of deposit
c.	Savings accounts, interest-earning checking accounts, and corporate stock
d.	Real estate, money market accounts, interest-earning checking accounts

 

 

ANS:  B                    PTS:   1                    DIF:    moderate        REF:   p. 141

 

110. The speed and ease by which an asset can be converted into cash is referred to as its

a.	risk.
b.	liquidity.
c.	diversity.
d.	safety.

 

 

ANS:  B                    PTS:   1                    DIF:    easy               REF:   p. 141

 

111. Which of the following does not apply to monetary assets?

a.	Very safe
b.	High liquidity
c.	High return
d.	All of these

 

 

ANS:  C                    PTS:   1                    DIF:    easy               REF:   p. 141

 

112. Common financial services offered by depository institutions include

a.	checking, lending, and savings.
b.	checking, real estate sales, and savings.
c.	credit cards, stock brokerage, and tax preparation.
d.	legal advice, savings, and life insurance.

 

 

ANS:  A

only banks provide all three of these.

 

PTS:   1                    DIF:    difficult          REF:   p. 142-143

 

113. The Federal Deposit Insurance Corporation (FDIC) insures accounts in

a.	commercial banks.
b.	credit unions.
c.	brokerage companies.
d.	commercial banks and credit unions.

 

 

ANS:  A                    PTS:   1                    DIF:    moderate        REF:   p. 143

 

114. Which of the following statements is true regarding mutual savings banks?

a.	Mutual savings banks provide financial services nationwide.
b.	Accounts in mutual savings banks are not federally insured.
c.	Mutual savings banks are quite similar to savings banks.
d.	Holding savings is the only financial service provided by mutual savings banks.

 

 

ANS:  C                    PTS:   1                    DIF:    moderate        REF:   p. 142

 

115. Which of the following is not true about commercial banks?

a.	Commercial banks are corporations chartered under federal and state regulations.
b.	Accounts in federally chartered commercial banks are insured against loss by the Bank Insurance Fund of the Federal Deposit Insurance Corporation.
c.	Commercial banks offer numerous consumer services.
d.	Commercial banks generally pay depositors an interest rate about 0.10 to 0.20 percentage points higher than the rate found at savings banks.

 

 

ANS:  D                    PTS:   1                    DIF:    difficult          REF:   p. 143

 

116. Depositors of savings are the owners of

a.	credit unions.
b.	mutual savings banks.
c.	savings banks.
d.	credit unions and mutual savings banks.

 

 

ANS:  D                    PTS:   1                    DIF:    moderate        REF:   p. 143

 

117. Not-for-profit, common-bond financial institutions that are owned by their members are called

a.	credit unions.
b.	mutual savings banks.
c.	credit bureaus.
d.	savings banks.

 

 

ANS:  A                    PTS:   1                    DIF:    easy               REF:   p. 143

 

118. ____ typically pay the highest rates of interest on savings.

a.	Commercial banks
b.	Credit unions
c.	Savings banks
d.	Mutual savings banks

 

 

ANS:  B                    PTS:   1                    DIF:    moderate        REF:   p. 143

 

119. Tom and Mindy want to keep $420,000 in cash equivalents that are federally insured. They could accomplish this by

a.	investing $170,000 in a money market mutual fund and $250,000 in a federally insured credit union.
b.	dividing it equally into three different joint accounts in the same federally insured bank.
c.	dividing it equally into two different joint accounts in two different federally insured savings banks.
d.	putting $75,000 in two joint accounts in different branches of the same bank.

 

 

ANS:  C

since the funds are in two different institutions they will be protected up to $250,000 in each.

 

PTS:   1                    DIF:    difficult          REF:   p. 143

 

120. The Federal Deposit Insurance Corporation (FDIC) currently insures against loss of up to ____ per person in an individual account at any one institution.

a.	$50,000
b.	$100,000
c.	$250,000
d.	$500,000

 

 

ANS:  C                    PTS:   1                    DIF:    moderate        REF:   p. 143

 

121. State-chartered credit unions are often insured by

a.	NCUSIF.
b.	FDIC.
c.	SAIF.
d.	MSB.

 

 

ANS:  A                    PTS:   1                    DIF:    easy               REF:   p. 143

 

122. A stock brokerage firm is a licensed financial institution that

a.	buys and sells stocks and bonds.
b.	provides investment alternatives.
c.	offers money market mutual fund accounts.
d.	all of these.

 

 

ANS:  D                    PTS:   1                    DIF:    moderate        REF:   p. 144

 

123. Stock brokerage firms typically offer

a.	money market mutual fund accounts.
b.	checking accounts.
c.	certificates of deposit.
d.	savings accounts.

 

 

ANS:  A                    PTS:   1                    DIF:    moderate        REF:   p. 144

 

124. A lifeline checking account is accurately described as an account that

a.	always pays interest.
b.	assesses monthly fees depending on the maximum balance in the account.
c.	assesses no charges for ATM transactions.
d.	can be accessed using a debit card.

 

 

ANS:  D                    PTS:   1                    DIF:    moderate        REF:   p. 145

 

125. Which of the following sets NOW accounts apart from other checking accounts?

a.	They are safer.
b.	They are time deposits.
c.	They can be accessed by a debit card.
d.	They pay interest.

 

 

ANS:  D                    PTS:   1                    DIF:    easy               REF:   p. 142 | p. 143

 

126. How can a person transfer money out of his or her checking account?

a.	Write a check.
b.	Use an ATM.
c.	Make electronic funds transfers.
d.	All of these.

 

 

ANS:  D                    PTS:   1                    DIF:    easy               REF:   p. 144 | p. 156

 

127. When an account pays one rate of interest on a minimum amount on deposit and a higher rate of interest on additional deposits, this is called ____ interest.

a.	compound
b.	variable
c.	tiered
d.	none of these

 

 

ANS:  C                    PTS:   1                    DIF:    moderate        REF:   p. 145

 

128. Checks you write and present for payment can clear your bank in as little as

a.	Minutes.
b.	Hours.
c.	One day.
d.	Three days.

 

 

ANS:  A

with electronic scanning a check can clear immediately.

 

PTS:   1                    DIF:    difficult          REF:   p. 146

 

129. Molly went to her bank, gave the teller $200 plus a small fee, and received ten $20 checks. What kind of checks were these?

a.	Certified checks
b.	Money orders
c.	Cashier’s checks
d.	Traveler’s checks

 

 

ANS:  D                    PTS:   1                    DIF:    easy               REF:   p. 146

 

130. Which of the following types of payment instruments could you get at your local post office?

a.	Certified check
b.	Money order
c.	Cashier’s check
d.	Traveler’s check

 

 

ANS:  B                    PTS:   1                    DIF:    easy               REF:   p. 146

 

131. A check drawn on a financial institution, backed by the financial institution’s finances, and made out to a specific payee is called a

a.	certified check.
b.	money order.
c.	cashier’s check.
d.	traveler’s check.

 

 

ANS:  C                    PTS:   1                    DIF:    moderate        REF:   p. 146

 

132. Which of the following could incur fees and penalties on a checking account?

a.	The account holder uses an ATM not owned by the financial institution.
b.	A customer asks the financial institution to not honor a particular check.
c.	The account balance falls below a set minimum amount.
d.	All of these.

 

 

ANS:  D                    PTS:   1                    DIF:    moderate        REF:   p. 145

 

133. Someone who consistently falls below the minimum balance in his or her checking account for only a few days during each month needs to open a checking account that computes the balance by the ____ method.

a.	minimum-balance
b.	quarterly compounding
c.	APY
d.	average daily balance

 

 

ANS:  D                    PTS:   1                    DIF:    moderate        REF:   p. 145

 

134. Which of the following is not a benefit of a savings account?

a.	Account holders must give 30 to 60 days’ notice for withdrawals.
b.	Account holders are provided with printed receipts to document their account transactions.
c.	Account holders have the ability to make frequent deposits or withdrawals of funds.
d.	No fees are assessed as long as a low minimum balance is maintained.

 

 

ANS:  A                    PTS:   1                    DIF:    easy               REF:   p. 148

 

135. Characteristics of a savings account include that

a.	no fees are assessed as long as a low minimum balance ($50 to $250) is maintained.
b.	account transactions are not accessible through ATMs.
c.	no printed receipts are provided to document account transactions.
d.	it permits the frequent deposit or withdrawal of funds.

 

 

ANS:  D                    PTS:   1                    DIF:    moderate        REF:   p. 148

 

136. Certificates of deposit (CDs) tend to pay higher rates of interest than money market accounts because

a.	CDs are not government insured and therefore are riskier investments than money market accounts.
b.	the required minimum investment for CDs is higher than for money market accounts.
c.	there are higher annual fees charged for CDs than for money market accounts.
d.	the investor agrees to leave his or her money in the CD for a specified period of time while he or she has free access to the funds in a money market account.

 

 

ANS:  D

the guarantee that the money will remain in the account makes CDs more attractive to the institution accepting the funds.

 

PTS:   1                    DIF:    difficult          REF:   p. 148-149

 

137. A ____ allows savers to add up to 100 percent of the initial deposit whenever desired.

a.	certificate of deposit
b.	variable-rate certificate of deposit
c.	bump-up certificate of deposit
d.	brokered certificate of deposit

 

 

ANS:  C                    PTS:   1                    DIF:    moderate        REF:   p. 149

 

138. If Gus Solis believes interest rates are going to fall in the near future and remain low for several years, Gus should now

a.	invest in a variable-rate certificate of deposit.
b.	invest in a long-term, fixed-rate certificate of deposit.
c.	invest in a short-term, fixed-rate certificate of deposit.
d.	bury his money in fruit jars in the back yard.

 

 

ANS:  B                    PTS:   1                    DIF:    moderate        REF:   p. 148-149

 

139. In general, you will receive higher rates of interest on your certificate of deposit the ____ the maturity and the ____ the dollar amount invested.

a.	shorter; smaller
b.	longer; smaller
c.	longer; larger
d.	shorter; larger

 

 

ANS:  C                    PTS:   1                    DIF:    moderate        REF:   p. 148-149

 

140. Which of the following types of investments can potentially provide tax-exempt interest if the principal and interest are used to pay a child’s college education?

a.	Certificates of deposit
b.	A government-issued super NOW account
c.	Series EE U.S. government bonds
d.	Money market mutual fund

 

 

ANS:  C                    PTS:   1                    DIF:    easy               REF:   p. 151

 

141. Which of the following statements regarding Series EE U.S. savings bonds is not true?

a.	A $100 bond can be purchased for $50.
b.	The interest is usually compounded semiannually.
c.	Interest is tax-free at redemption if the proceeds are used to fund a child’s college education.
d.	The interest on the bonds is paid out semiannually.

 

 

ANS:  D                    PTS:   1                    DIF:    difficult          REF:   p. 151

 

142. Diana and Kim are roommates in college and Diana owes Kim for last month’s rent. When Diana receives a check from her mother for the rent, what type of endorsement should Diana use to sign this check over to Kim?

a.	Blank endorsement
b.	Restrictive endorsement
c.	Special endorsement
d.	Trailing endorsement

 

 

ANS:  C                    PTS:   1                    DIF:    moderate        REF:   p. 148

 

143. Which of the following is the least expensive way of protecting yourself from fees should you overdraft your checking account.

a.	An automatic funds transfer agreement
b.	An automatic overdraft loan agreement
c.	Opt-in overdraft/bounce protection
d.	Paying the overdraft/bounced check fee

 

 

ANS:  A                    PTS:   1                    DIF:    moderate        REF:   p. 153

 

144. Which of the following could be the most expensive way of protecting yourself from fees should you overdraft your checking account?

a.	An automatic funds transfer agreement
b.	An automatic overdraft loan agreement
c.	Opt-in overdraft/bounce protection
d.	Paying the overdraft/bounced check fee

 

 

ANS:  C

because your bank will continue to honor your debit card you can rack up multiple fees without realizing that you are in an overdraft situation.

 

PTS:   1                    DIF:    difficult          REF:   p. 153

 

145. Which type of bank agreement will result in the lowest fees?

a.	an automatic funds transfer agreement.
b.	an automatic overdraft loan agreement.
c.	courtesy overdraft/bounce protection agreement.
d.	pay the bounced check fee itself.

 

 

ANS:  A                    PTS:   1                    DIF:    moderate        REF:   p. 153

 

146. Jack and Jill have trouble keeping their checking account balanced. Because they never know how much is really in their account, they have an automatic funds transfer agreement with their bank. When Jack or Jill writes a bad check, what will happen?

a.	The needed funds will automatically be borrowed from their Visa account.
b.	The needed funds will automatically be transferred from their savings account.
c.	The bank will honor the check and then call Jack and Jill and ask that they deposit the needed funds into checking as soon as possible.
d.	The bank will stamp the check “insufficient funds” and return it to the payee.

 

 

ANS:  B                    PTS:   1                    DIF:    moderate        REF:   p. 153

 

147. Which of the following is a reason why you should reconcile your bank accounts regularly?

a.	You or your bank may have made a computational error.
b.	Checks you have written may not have cleared your account.
c.	Fees may have been assessed lowering your balance below what you think you have on deposit.
d.	All of these

 

 

ANS:  D                    PTS:   1                    DIF:    easy               REF:   p. 150

 

148. Which of the following is the best advice for people who want to start saving?

a.	Fools and their money are soon parted.
b.	Pay yourself first.
c.	Marry in haste, respect at leisure.
d.	There’s no fool like an old fool.

 

 

ANS:  B                    PTS:   1                    DIF:    easy               REF:   p. 149

 

149. Which of the following is not a benefit of a savings account?

a.	A way to save for your child’s education
b.	Builds funds for large, irregular expenses
c.	Protection against inflation
d.	A way to achieve short-term savings goals

 

 

ANS:  C                    PTS:   1                    DIF:    moderate        REF:   p. 148

 

150. Ronald’s gross income is $60,000, and his living expenses consume 75 percent of his gross income. According to financial experts, Ronald should set aside ____ to cover emergencies.

a.	$22,500 to $45,000
b.	$5,000 to $10,000
c.	$15,000 to $30,000
d.	$11,250 to $22,500

 

 

ANS:  D

($60,000 x 0.75 / 12) x 3 and ($60,000 x 0.75 / 12) x 6

 

PTS:   1                    DIF:    difficult          REF:   p. 150

 

151. According to financial advisers, a family with monthly living expenses of $2,500 should maintain readily accessible savings of at least

a.	$2,500.
b.	$5,000.
c.	$7,500.
d.	$10,000.

 

 

ANS:  C                    PTS:   1                    DIF:    moderate        REF:   p. 150

 

152. Which of these is a reason many don’t save?

a.	Their belief that spending is better when inflation is low
b.	Not having a credit card precludes them from purchasing essentials
c.	The high annual percentage yields (APYs) for savings accounts
d.	Their belief that they have no money left over at the end of the month

 

 

ANS:  D                    PTS:   1                    DIF:    moderate        REF:   p. 149

 

153. Interest paid on deposits in financial institutions is based on how much money is on deposit and

a.	how the balance is determined.
b.	the interest rate applied.
c.	the frequency of compounding.
d.	all of these.

 

 

ANS:  D                    PTS:   1                    DIF:    moderate        REF:   p. 151

 

154. Savers should select an institution that calculates interest

a.	daily.
b.	weekly.
c.	monthly.
d.	quarterly.

 

 

ANS:  A                    PTS:   1                    DIF:    easy               REF:   p. 151

 

155. Wise money managers should select the savings option that

a.	pays the highest annual percentage yield (APY).
b.	avoids excessive fees.
c.	avoids excessive penalties.
d.	all of these.

 

 

ANS:  D                    PTS:   1                    DIF:    moderate        REF:   p. 152

 

156. The Truth in Savings Act requires depository institutions to

a.	offer life-line banking.
b.	use the annual percentage yield in advertising.
c.	provide federal deposit insurance on savings accounts.
d.	pay at least 3.5 percent interest on savings.

 

 

ANS:  B                    PTS:   1                    DIF:    moderate        REF:   p. 151

 

157. Which of the following mechanisms for saving for a child’s college education shelters the income earned in the account from taxes?

a.	Section 529 college savings plan
b.	Coverdell education savings account
c.	Roth IRA
d.	All of these

 

 

ANS:  D                    PTS:   1                    DIF:    moderate        REF:   p. 151

 

158. Discount bonds are sold to investors at ____ discounts from their face value and may be redeemed at ____ value on maturity.

a.	minor; partial
b.	significant; face
c.	significant; partial
d.	minor; face

 

 

ANS:  B                    PTS:   1                    DIF:    moderate        REF:   p. 151

 

159. Which of the following forms is used to notify you of the taxable interest you have earned in a given year from a checking or savings account?

a.	1099 Form
b.	W-2 Form
c.	1040 Form
d.	W-4 Form

 

 

ANS:  A                    PTS:   1                    DIF:    moderate        REF:   p. 153

 

160. Bob and Tina Cisneros have $3,000 to put in an emergency fund. Which of the following would be the most appropriate choice for the emergency fund?

a.	Money market deposit account
b.	Two-year certificate of deposit
c.	Series EE U.S. savings bonds
d.	NOW account

 

 

ANS:  A                    PTS:   1                    DIF:    difficult          REF:   p. 152-153

 

161. Which of the following accounts could accurately be called a money market account?

a.	Share draft account
b.	Asset management account
c.	NOW account
d.	Series EE savings bond

 

 

ANS:  B                    PTS:   1                    DIF:    easy               REF:   p. 152-153

 

162. List the money market accounts according to the interest rate generally paid on each account (from highest to lowest).

a.	Super NOW account, money market deposit account, and money market mutual fund
b.	Money market deposit account, money market mutual fund, and super NOW account
c.	Money market mutual fund, money market deposit account, and super NOW account
d.	Money market deposit account, super NOW account, and money market mutual fund

 

 

ANS:  C                    PTS:   1                    DIF:    difficult          REF:   p. 152-153

 

163. An individual checking or savings account can be set up to go automatically to another person when the depositor dies if it is set up as a(n)

a.	payable at death account.
b.	obituarial account.
c.	estate account.
d.	joint tenancy account.

 

 

ANS:  A                    PTS:   1                    DIF:    moderate        REF:   p. 143

 

164. The assets in a ____ account are distributed to the heirs of the deceased according to the terms of the will.

a.	joint tenancy with right of survivorship
b.	tenancy in common
c.	tenancy by the entirety
d.	tenancy in common and tenancy by the entirety

 

 

ANS:  B                    PTS:   1                    DIF:    difficult          REF:   p. 155

 

165. Husbands and wives who own a checking or savings account together would most likely want to set up the account with

a.	tenancy in common.
b.	a payable on death designation.
c.	joint tenancy.
d.	periodic tenancy.

 

 

ANS:  C

in this way each can have complete access to the funds at any time.

 

PTS:   1                    DIF:    difficult          REF:   p. 155

 

166. In community property states, most of the money and property acquired during a marriage are legally considered the property of

a.	both spouses.
b.	the husband.
c.	the wife.
d.	the individual who bought it.

 

 

ANS:  A                    PTS:   1                    DIF:    easy               REF:   p. 155

 

167. Amy and Lance are newlyweds. This is Lance’s second marriage. Because of problems that occurred before his divorce (his ex-wife took all the money out of their joint accounts), he is more cautious than most about setting up joint accounts. Which type of account would you recommend for Amy and Lance?

a.	Tenancy by the entirety
b.	Tenancy in common
c.	Trustee account
d.	Joint tenancy account with right of survivorship

 

 

ANS:  A

both spouses would need to give permission for transfers out of this type of account.

 

PTS:   1                    DIF:    difficult          REF:   p. 155

 

168. Andy and Marjorie have very little will power when it comes to spending. They want to put their savings in an instrument that cannot be accessed by their ATM card. Which instrument would meet this criterion?

a.	Savings account
b.	Super NOW account
c.	Money market mutual fund
d.	NOW account

 

 

ANS:  C                    PTS:   1                    DIF:    moderate        REF:   p. 154

 

169. Absent-minded Alfred lost his ATM card on May 1. He reported it missing the next day; however, $600 had been withdrawn from his checking account. According to the Electronic Funds Transfer Act, how much of this $600 loss is Alfred responsible for?

a.	$0
b.	$50
c.	$500
d.	$600

 

 

ANS:  B                    PTS:   1                    DIF:    difficult          REF:   p. 158

 

170. A personal identification number is not needed for which of the following forms of electronic funds transfers?

a.	ATM transactions
b.	Direct deposits
c.	Debit cards
d.	Point-of-sale transactions

 

 

ANS:  B                    PTS:   1                    DIF:    moderate        REF:   p. 156

 

171. A customer who wanted to directly transfer funds from his or her bank account to a retailer’s bank account would use a(n)

a.	automated teller machine.
b.	electronic funds transfer.
c.	check.
d.	credit card.

 

 

ANS:  B                    PTS:   1                    DIF:    easy               REF:   p. 156

 

172. Richard generally keeps approximately $15,000 in checking and savings at his local financial institution. He makes several deposits and withdrawals to his accounts each month. Richard is interested in earning the highest interest possible, but he doesn’t want to worry about transferring funds between his NOW account and his money market deposit account. Which type of account(s) would you recommend as a possible alternative for Richard?

a.	Asset management account
b.	Super NOW account
c.	NOW account and a money market mutual fund
d.	NOW account and a savings account

 

 

ANS:  A                    PTS:   1                    DIF:    moderate        REF:   p. 152-155

 

173. Which of the following accounts typically requires the largest minimum deposit to open and has the highest fees?

a.	Super NOW account
b.	Money market mutual fund
c.	Asset management account
d.	Money market deposit account

 

 

ANS:  C                    PTS:   1                    DIF:    moderate        REF:   p. 152-155

 

174. Which of the following money market accounts includes a credit card and a debit card along with other accounts in one coordinated package?

a.	Money market deposit account
b.	Asset management account
c.	Money market mutual fund
d.	Super NOW account

 

 

ANS:  B                    PTS:   1                    DIF:    easy               REF:   p. 152-155

 

175. Electronic funds transfers (EFTs)

a.	can transfer funds electronically.
b.	can be used in place of checks.
c.	are paperless.
d.	all of these.

 

 

ANS:  D                    PTS:   1                    DIF:    easy               REF:   p. 156

 

176. Having your pay sent directly to your bank rather than have a check given to you is a type of

a.	Shared accounting.
b.	Direct deposit.
c.	Check cancellation.
d.	NOW account.

 

 

ANS:  B                    PTS:   1                    DIF:    easy               REF:   p. 157

 

177. Which of the following is (are) required to withdraw money from an automated teller machine (ATM)?

a.	Debit card
b.	Credit card
c.	Personal identification number
d.	ATM card and personal identification number

 

 

ANS:  D                    PTS:   1                    DIF:    moderate        REF:   p. 156

 

178. A personal identification number (PIN) is required when using a(n)

a.	automated teller machine (ATM).
b.	point-of-sale (POS) terminal.
c.	stored-value card.
d.	automated teller machine and point-of-sale terminal.

 

 

ANS:  D                    PTS:   1                    DIF:    moderate        REF:   p. 156

 

179. A POS terminal is an electronic computer terminal located at a store or other merchant location that allows the customer to

a.	use a personal check.
b.	make a cash withdrawal.
c.	get a cash advance.
d.	make purchases.

 

 

ANS:  D                    PTS:   1                    DIF:    easy               REF:   p. 156

 

180. Which type of cash management instrument could also be used by a college student to access his or her meal plan?

a.	Credit card
b.	Debit card
c.	Stored-value card
d.	Electronic money

 

 

ANS:  C                    PTS:   1                    DIF:    moderate        REF:   p. 156

 

181. Darla had $750 in her checking account when her ATM card and PIN were stolen. Assuming the thief withdrew $525 from the account, how much could she save by reporting the stolen ATM card immediately rather than waiting three months before reporting the theft?

a.	$50
b.	$525
c.	$475
d.	$500

 

 

ANS:  C                    PTS:   1                    DIF:    difficult          REF:   p. 159

 

182. Which of the following is not a technique for reducing the risk whenever you conduct banking transactions on-line?

a.	Avoid using someone else’s computer to manage your account.
b.	Regularly change your password and keep it to yourself.
c.	When finished, always hit the log off button at the top of the page instead of just closing the browser window.
d.	Leave the computer on when finished.

 

 

ANS:  D                    PTS:   1                    DIF:    moderate        REF:   p. 157-158

 

183. Which of the following ideas will not help you discuss money with more confidence and candor?

a.	Get to know yourself.
b.	Learn to manage financial disagreements.
c.	Be honest and talk regularly.
d.	Make it clear that your needs and wants are more important than your spouse’s.

 

 

ANS:  D                    PTS:   1                    DIF:    moderate        REF:   p. 161-162

 

184. Special concerns for blended families include

a.	determining who assumes financial responsibility for biological offspring and stepchildren.
b.	handling resentment over alimony and child-support payments.
c.	managing unequal assets, incomes, responsibilities, and debts.
d.	all of these.

 

 

ANS:  D                    PTS:   1                    DIF:    easy               REF:   p. 161

 

185. Both commercial bank and savings bank accounts are insured by the FDIC through a fund called the

a.	bank insurance fund.
b.	deposit insurance fund.
c.	savings bank insurance fund.
d.	fiduciary trust fund.

 

 

ANS:  B                    PTS:   1                    DIF:    moderate        REF:   p. 143

 

186. The regulator of commercial banks and saving banks is the

a.	Federal Deposit Insurance Corporation.
b.	Securities and Exchange Commission.
c.	Home Loan Bank Board.
d.	Comptroller of the Currency.

 

 

ANS:  D                    PTS:   1                    DIF:    difficult          REF:   p. 143

 

187. Because certificates of deposit require that the deposited funds remain on deposit for a specified period of time they are subject to

a.	interest rate risk.
b.	fixed withdrawal risk.
c.	market risk.
d.	systemic risk.

 

 

ANS:  A                    PTS:   1                    DIF:    moderate        REF:   p. 149