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4. Managing Your Cash and Savings
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1. Cash is the only kind of liquid asset.
a. True
b. False
2. Cash management helps in personal financial planning.
a. True
b. False
3. Extremely low interest rates favor investors and boost the incentive to save.
a. True
b. False
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4. Low interest rates create economic distortions, especially when real, inflation-adjusted interest rates are positive.
a. True
b. False
5. The Federal Deposit Insurance Corporation (FDIC) covers consumer accounts at credit unions.
a. True
b. False
6. One can hold a credit card issued by a stock brokerage firm.
a. True
b. False
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7. You can hold an account with a mutual fund that allows you to write a limited number of checks.
a. True
b. False
8. Nondepository institutions are referred to as banks.
a. True
b. False
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9. Visa and MasterCard issue debit cards linked to your checking account.
a. True
b. False
10. Debit cards are a form of electronic funds transfer system (EFTS).
a. True
b. False
11. Negotiable order of withdrawal (NOW) accounts manage and administer the investments in a trust account or from an
estate.
a. True
b. False
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12. Keeping valuables in a safe-deposit box may reduce your homeowner’s insurance premium by eliminating the “riders”
that are often needed to cover such items.
a. True
b. False
13. The minimum amount that you must keep in an account every day is an important criterion when comparing the
features and requirements of different checking accounts offered by a bank.
a. True
b. False
14. A certified check is a personal check that a bank certifies to guarantee that the funds are available.
a. True
b. False
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15. Interest earned for a period should be added to the ending balance shown in your checkbook while reconciling your
account.
a. True
b. False
16. Your savings will grow faster with monthly interest compounding than with quarterly interest compounding for a
given nominal interest rate.
a. True
b. False
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17. Compound interest means that a savings account earns interest on the interest previously earned.
a. True
b. False
18. Low interest rates that have persisted since the financial crisis of 2008–2009 have been beneficial to:
a. students.
b. retirees.
c. big banks.
d. savers.
e. share investors.
19. Which of the following statements regarding low interest rates is true?
a. They encourage investors to search for investments like Treasury bills.
b. They encourage the substitution of equity by debt.
c. They encourage investors to search for stocks paying high dividends.
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d. They encourage individuals to save more.
e. They encourage paying down the national debt.
20. Low interest rates result in:
a. facilitating a greater supply of money for borrowers.
b. reducing the cost of financing the federal budget deficit.
c. encouraging a higher savings rate.
d. bringing more investment avenues.
e. improving the standard of living.
21. Cash and near-cash resources are known as:
a. liquid assets.
b. long-lived assets.
c. noncurrent assets.
d. fixed assets.
e. noncash assets.
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22. When a savings bank is a mutual association, it is owned by the:
a. borrowers.
b. creditors.
c. depositors.
d. management.
e. local government.
23. Credit unions are:
a. member-owned financial cooperatives.
b. mortgage lenders.
c. available to the general public.
d. special commercial lenders.
e. large institutions when compared with commercial banks.
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24. Compared to other depository financial institutions, credit unions:
a. are more beneficial to all kinds of consumers.
b. pay lower interest on savings to their members.
c. have a greater number of account holders.
d. have a greater number of branches.
e. charge lower rates on loans to their members.
25. Convenience is a reason for the growth in popularity of:
a. Internet banks.
b. savings and loan associations.
c. mutual savings banks.
d. credit unions.
e. insurance companies.
26. Funds in commercial banks are protected by the:
a. National Credit Union Administration (NCUA).
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b. Federal Depositors Assurance Corporation (FDAC).
c. Federal Deposit Insurance Corporation (FDIC).
d. National Credit Union Share Insurance Fund (NCUSIF).
e. Savings Association Insurance Fund (SAIF).
27. Laura has a $100,000 balance in her checking account at Best Bank, and she has purchased a certificate of deposit
(CD) worth $50,000 issued by Best Bank. Laura is also thinking of investing $200,000 either in Best Bank or in Trust
Bank. Which of the following is a suitable strategy for Laura if she wants her deposits to be completely insured?
a. Laura should invest $200,000 in a money market deposit account (MMDA) of Best Bank.
b. Laura should invest $100,000 in a money market deposit account (MMDA) of Best Bank and invest $100,000 in
an asset management account of Best Bank.
c. Laura should invest $100,000 in a money market deposit account (MMDA) of Best Bank and invest $100,000 in
an asset management account of Trust Bank.
d. Laura should invest $150,000 in a money market deposit account (MMDA) of Best Bank and invest $100,000 in
an asset management account of Trust Bank.
e. Laura should invest $150,000 in a money market deposit account (MMDA) of Best Bank and invest $200,000 in a
money market deposit account (MMDA) of Trust Bank.
28. Money market deposit accounts:
a. allow free unlimited check writing every month.
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b. are federally insured.
c. have floating maturity dates.
d. are offered only by credit unions.
e. pay the lowest interest rates of any bank accounts with check-writing facility.
29. Money market mutual funds:
a. allow check writing above a stipulated minimum amount.
b. are federally insured.
c. have floating maturity dates.
d. are offered by savings and loan associations (S&Ls) and credit unions.
e. pay interest 1 to 3% lower than those paid by a regular savings account.
30. A(n) _____ is traditionally a non-interest-paying demand deposit account.
a. money market mutual fund
b. money market deposit account
c. negotiable order of withdrawal (NOW)account
d. asset management account
e. regular checking account
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31. Which of the following is an interest-bearing checking account?
a. Certificate of deposit
b. Treasury bill
c. Negotiable order of withdrawal (NOW) account
d. Series EE U.S. savings bond
e. Regular checking account
32. A customer withdraws funds by writing checks from his or her negotiable order of withdrawal (NOW) account and:
a. certificate of deposit.
b. savings account.
c. term insurance deposit.
d. time deposit.
e. share draft account.
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33. An investor receives the highest interest rate on his or her:
a. asset management account.
b. regular checking account.
c. negotiable order of withdrawal (NOW) account.
d. money market deposit account (MMDA).
e. share draft account.
34. Which of the following are protected by the Federal Deposit Insurance Corporation (FDIC)?
a. Money market deposit accounts
b. Money market mutual funds
c. Asset management accounts
d. Stocks and bonds
e. Life insurance policies
35. Christina’s bank allows her employer to directly deposit her paycheck into her personal bank account. This service
provided by Christina’s bank is called a(n):
a. ATM service.
b. Federal Deposit Insurance Corporation (FDIC) service.
c. money market service.
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d. electronic funds transfer system (EFTS) service.
e. overdraft service.
36. Which of the following is an aspect of asset management accounts?
a. Limited free checking of available balance
b. Sweeping of excess balances into money market deposit account (MMDA)
c. Fixed annual fees and account charges on deposit account
d. Borrowing and investing facility unavailable to accountholders
e. Deposits protected by the Securities Investor Protection Corporation (SIPC)
37. Joe Gustafson is a very busy person who prefers to use one account to handle all his financial services needs like
checking, investing, and borrowing. Which of the following types of accounts is most suitable for Joe?
a. A checking account
b. A money market deposit account
c. A brokerage account
d. An asset management account
e. A savings account
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38. Macie has $25 in her checking account when her EFTS card and PIN are stolen. If Macie notifies her bank tomorrow,
the day after the theft of her card, her loss is limited to:
a. $0.
b. $25.
c. $50.
d. $400.
e. $500.
39. Brent had $450 in his checking account when his EFTS card and PIN were stolen almost a week ago. Because he has
been ill, he didn’t report the theft until today, five days after the theft occurred. The delay in notifying the bank means that
he could lose:
a. $0.
b. $25.
c. $50.
d. $500
e. all the money in his account.
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40. You had $800 in your checking account when your EFTS card and PIN were stolen. You didn’t report the theft for
two months after your periodic statement was mailed. How much could you lose?
a. $0
b. $50
c. $400
d. $800
e. $800 plus a fee
41. Alice lost her EFTS card and reported it missing the next day. She found that $800 had been withdrawn from her
savings account. Alice’s loss is equal to:
a. $0.
b. $25.
c. $50.
d. $800.
e. $800 plus a fee.
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42. The least expensive method for banks to interact with their customers is through:
a. a vendor.
b. phone calls.
c. the Internet.
d. an ATM machine.
e. a full-service teller.
43. Which of the following is a rented drawer in a bank’s vault?
a. Safe-deposit box
b. ATM
c. Debit card
d. NOW account
e. Trust service
44. Which of the following statements regarding safe-deposit boxes offered by banks is true?
a. They can be opened only by the banker.
b. They may increase a homeowner’s insurance premiums.
c. They are owned by the customers of the bank.
d. They can be used to manage mutual funds.
e. They can be used as a storage place for important documents.
