Chapter 5 financial services: Savings Plans and Payment Accounts

True/False Questions

1) Higher returns on savings will usually result in less liquidity

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

3. Consumers will usually obtain the best overall value of their dollar by having all financial services with the same institution

4. An asset management account combines several financial services for a single fee.

5. ATM fees are about the same in different geographic areas.

6. Direct deposit usually requires a waiting period for a availability of funds.

7. A lost debit card results in potential losses similar to a lost credit card.

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

9. Using a "debit" card is basically the same as writing a check.

 10. The use of electronic banking adds to the "float" time for financial services customers

11. Demand deposits is another term for checking accounts.

12. Traditionally, a mutual savings bank offered the widest variety of financial service

13. Savings and loan associations offer mortgages.

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

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

 16. Consumer finance companies specialize in home mortgages.

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

 18. A certificate of deposit is usually considered to be very liquid.

 19. The liquidity of a savings account refers to the rate of earning a person will receive.

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

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

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

 23. When preparing a bank reconciliation, interest earned on your checking account is added to the bank statement balance.

Multiple Choice Questions

24. The convenience of using a financial institution with 24-hour banking frequently requires a trade-off with
    1. safety.
    2. personal service.
    3. growth of savings.
    4. liquidity.
    5. a lower rate of return.

25. A trust has the purpose of
    1. solving a person's financial problems.
    2. obtaining low-interest loans.
    3. handling daily money management activities.
    4. managing the assets of a person.
    5. improving a person's budgeting skills

26. The storage of funds for future use is the purpose of                          services.
    1. trust
    2. borrowing
    3. credit card
    4. savings
    5. cash checking

27. An all-purpose account that provides several services is a(n)
    1. NOW account.
    2. asset management account.
    3. EFT account.
    4. mutual fund.
    5. money market account.

28. Joan Zemke expects interest rates to decline over the next few months. To maximize her earnings she should use a(n)
    1. regular savings account.
    2. interest-bearing checking account.
    3. five-year certificate of deposit.
    4. six-month certificate of deposit.
    5. money market fund

29. The purpose of a debit card is to
    1. obtain a discount on consumer purchases.
    2. make credit card purchases.
    3. quickly obtain a cash loan.
    4. make investments with an investment company.
    5. transfer money electronicall

30. When interest rates are rising, a person would be best served by
    1. short-term savings instruments.
    2. long-term savings instruments.
    3. short-term loans.
    4. variable-rate loans

31. Checking accounts are frequently referred to as                          deposits.
    1. common
    2. time
    3. current
    4. loan
    5. demand

32. Time deposits consist of
    1. checking accounts.
    2. loans and charge accounts.
    3. savings accounts.
    4. government securities.
    5. profits earned by a financial institution.

33. Direct deposit and automatic monthly payments are features of
    1. savings accounts.
    2. checking accounts.
    3. electronic banking.
    4. investments.
    5. reserve funds.

34. Traditionally, the greatest variety of financial services have been offered by a(n)
    1. credit union.
    2. investment company.
    3. mutual savings bank.
    4. savings and loan association.
    5. commercial bank.

35. To avoid high fees for loans, a person should not borrow from a
    1. credit union.
    2. savings and loan association.
    3. pawnshop.
    4. commercial bank.
    5. mutual savings bank

36. The profits from a mutual savings bank go to the
    1. creditors.
    2. loan applicants.
    3. stockholders.
    4. depositors.
    5. community in which it operates.

37. In recent years, membership in credit unions has
    1. become more difficult due to higher taxes.
    2. continued to increase.
    3. been limited to government employees.
    4. declined due to poor credit union management.
    5. stayed at about the same level.

38. An advantage credit unions may have over other financial institutions is
    1. interest-bearing checking accounts.
    2. low-cost personal loans.
    3. flexible-rate loans.
    4. credit cards.
    5. variable-rate savings plans.

39. The major service offered by investment companies is
    1. interest-bearing checking accounts.
    2. variable-rate loans.
    3. credit card accounts.
    4. savings bonds.
    5. mutual funds.

40.                          specialize in helping people save money in a manner than provides high liquidity.
    1. Investment companies
    2. Life insurance companies
    3. Commercial banks
    4. Consumer finance companies
    5. Credit unions

41. A financial institution organized for the main purpose of providing loans to purchase homes is a
    1. credit union.
    2. mutual savings bank.
    3. consumer finance company.
    4. mortgage company.
    5. commercial bank.

42. The business hours and location of a financial institution refer to the                         

factor of selecting a financial institution.

1. 1. safety
   2. cost
   3. compounding
   4. liquidity
   5. convenience

43. A savings account at a credit union is called a                          account.
    1. share
    2. NOW
    3. club
    4. certificate
    5. money market

44. A certificate of deposit usually has
    1. high interest-rate risk.
    2. low safety for savers.
    3. limited liquidity.
    4. a variable rate of return.
    5. no minimum deposit amount

45. A saver will usually earn the highest rate with which of the following types of savings plans?
    1. certificate of deposit
    2. debit account
    3. passbook account
    4. share account
    5. NOW accoun

46. Which of the following savings plans is not covered by federal deposit insurance?
    1. a passbook account
    2. a regular checking account
    3. a money market account
    4. a money market fund
    5. a certificate of deposit

47. An advantage of U.S. savings bonds is
    1. interest earned is exempt from federal income taxes.
    2. interest earned is deferred for federal tax purposes.
    3. a constant rate of earnings.
    4. they can be converted to other types of investments.

48. The rate of return on a savings account is also referred to as
    1. liquidity.
    2. compounding.
    3. yield.
    4. insolvency.
    5. asset management.

49. A $200 savings account that earns $13 interest in a year has a yield of                         

percent.

1. 1. 6
   2. 13
   3. 7

D) 11. 25

E) 6. 5

50. Savings compounded                          would have the highest effective yield.
    1. daily
    2. annually
    3. semi-annually
    4. monthly
    5. weekly

51. The Truth-in-Savings law requires that financial institutions
    1. provide insurance for savings accounts.
    2. send customers monthly bank statements.
    3. report annual percentage yield on savings.
    4. offer adjustable rate savings accounts.
    5. become members of the Federal Reserve System.

52. Comparison of earnings for different savings plans can best be accomplished using the
    1. discounted present value.
    2. compounded rate of return.
    3. net present value.
    4. annual percentage yield.
    5. after-tax rate of return.

53. The Federal Deposit Insurance Corporation provides deposit insurance for
    1. credit unions and mutual savings banks.
    2. commercial banks and savings and loan associations.
    3. investment companies and finance companies.
    4. insurance companies and credit unions

54. A service designed for people who write only a few checks each month is a(n)

                         account.

1. 1. EFT
   2. regular checking
   3. share draft
   4. special or activity:

55. Kevin Friedman only needs to write a couple of checks each month. Which type of checking account would best serve his needs?
    1. an interest-earning checking account
    2. an activity account
    3. an EFT account
    4. a share draft account
    5. a NOW account

56. The funds deposited in a checking account can be restricted for use by
    1. a holding period.
    2. outstanding checks.
    3. interest earned.
    4. service charges.
    5. electronic banking.

57. The purpose of a "special" endorsement is to
    1. cash a check.
    2. deposit a check.
    3. transfer a check to another person.
    4. withdraw cash from your account.
    5. reduce the charge for service fees.

58. A                          endorsement would be used if a person is presenting a check in order to obtain cash.
    1. restrictive
    2. common
    3. special
    4. blank
    5. documented

59. The first information to be recorded when writing a check is the
    1. date.
    2. check stub or check register.
    3. payee.
    4. amount.
    5. signature.

60. When preparing a bank reconciliation, outstanding checks should be
    1. added to the bank statement balance.
    2. subtracted from the bank statement balance.
    3. added to the checkbook balance.
    4. subtracted from the checkbook balance.

61. In the bank reconciliation process, service fees should be
    1. added to the bank statement balance.
    2. subtracted from the bank statement balance.
    3. added to the checkbook balance.
    4. subtracted from the checkbook balance.

62. Based on the following information, what amount would be SUBTRACTED from the BANK BALANCE side of a checking account reconciliation? Service charge $12, Outstanding checks $145, Interest $3.50, Deposit in transit $80

A) $145

B) $12

C) $157

D) $148. 50

E) $8

63. A personal check with guaranteed payment is called a
    1. traveler's check.
    2. bank draft.
    3. certified check.
    4. money order.
    5. cashier's check.