Name:
Class:
Date:
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Page 1
1. A bank is a not-for-profit organization.
a.
True
b.
False
ANSWER:
False
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.1.1 – LO: 1.1.1
2. All federally chartered banks must be corporations.
a.
True
b.
False
ANSWER:
True
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.1.1 – LO: 1.1.1
3. Commercial banks offer their services only to businesses.
a.
True
b.
False
ANSWER:
False
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.1.1 – LO: 1.1.1
4. Record keeping is an important part of securing your money in a bank.
a.
True
b.
False
ANSWER:
True
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.2.1 – LO: 1.2.1
5. Issuing credit cards is a form of bank lending.
a.
True
b.
False
ANSWER:
True
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.2.2 – LO: 1.2.2
6. It is illegal for banks to charge higher interest rates for loans than they pay depositors.
a.
True
b.
False
ANSWER:
False
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.3.1 – LO: 1.3.1
7. Generally speaking, banks offer customers fewer services today than they did 20 years ago.
a.
True
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Class:
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Copyright Cengage Learning. Powered by Cognero.
Page 2
b.
False
ANSWER:
False
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.1.2 – LO: 1.1.2
8. Interest on home-equity loans often is tax-deductible for consumers.
a.
True
b.
False
ANSWER:
True
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.3.2 – LO: 1.3.2
9. A credit union is a not-for-profit organization.
a.
True
b.
False
ANSWER:
True
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.4.1 – LO: 1.4.1
10. A loan company is not a financial intermediary because it does not receive deposits.
a.
True
b.
False
ANSWER:
False
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.4.2 – LO: 1.4.2
11. Return on equity is the ratio of net income to total assets.
a.
True
b.
False
ANSWER:
False
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.3.1 – LO: 1.3.1
12. Which of the following statements about banks is NOT true?
a.
Banks distribute the medium of exchange.
b.
All banks are organized as corporations.
c.
Banks may be chartered by either federal or state governments.
d.
Banks are essential to maintaining the economy.
ANSWER:
b
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.1.1 – LO: 1.1.1
13. Banks that manage, regulate, and protect both the money supply and other banks are
a.
retail banks.
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Class:
Date:
Copyright Cengage Learning. Powered by Cognero.
Page 3
b.
central banks.
c.
commercial banks.
d.
credit unions.
ANSWER:
b
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.1.1 – LO: 1.1.1
14. One result of competition among banks is that
a.
more services are available to consumers.
b.
more banks exist now than a decade ago.
c.
the trend toward mergers in the banking industry has slowed.
d.
all of the above.
ANSWER:
a
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.1.2 – LO: 1.1.2
15. Banks move money between
a.
other banks.
b.
banks and individual customers.
c.
governments.
d.
all of the above.
ANSWER:
d
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.2.1 – LO: 1.2.1
16. In the United States, banks and ____________________ work together to form the banking system and to ensure the
money supply is adequate, appropriate, and trustworthy.
a.
consumers
b.
industry
c.
savings and loans
d.
the government
ANSWER:
d
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.2.2 – LO: 1.2.2
17. The difference between what a bank pays in interest and what it receives in interest is called
a.
profit.
b.
spread.
c.
gross interest income.
d.
loss.
ANSWER:
b
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.3.1 – LO: 1.3.1
Name:
Class:
Date:
Copyright Cengage Learning. Powered by Cognero.
Page 4
18. Which of the following is NOT a source of income for a bank?
a.
the interest earned by depositors
b.
investments
c.
loan income
d.
fees for services
ANSWER:
a
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.3.1 – LO: 1.3.1
19. Which of the following is considered a liability for a bank?
a.
loans
b.
investments
c.
deposits
d.
none of the above; banks are prohibited by law from carrying liabilities
ANSWER:
c
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.3.1 – LO: 1.3.1
20. Which of the following is a nondepository intermediary?
a.
commercial bank
b.
insurance company
c.
savings and loan association
d.
credit union
ANSWER:
b
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.4.2 – LO: 1.4.2
21. One big difference between a commercial bank and a mutual savings bank is that
a.
a commercial bank is a nondepository intermediary.
b.
a mutual savings bank is a not-for-profit organization.
c.
a commercial bank is owned by depositors, not stockholders.
d.
a mutual savings bank is owned by depositors, not stockholders.
ANSWER:
d
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.4.1 – LO: 1.4.1
22. Total assets minus total liabilities equals
a.
return on equity.
b.
return on assets.
c.
equity.
d.
loss.
ANSWER:
c
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Class:
Date:
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POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.3.1 – LO: 1.3.1
23. A bank is a financial ____________________ for the safeguarding, transferring, exchanging, or lending of money.
ANSWER:
intermediary
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.1.1 – LO: 1.1.1
24. A(n) ____________________ bank serves as the government’s banker.
ANSWER:
central
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.1.1 – LO: 1.1.1
25. A(n) ____________________ occurs when one or more banks join or acquire another bank or banks.
ANSWER:
merger
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.1.2 – LO: 1.1.2
26. A bank evaluates the ____________________ of all customers who apply for loans.
ANSWER:
creditworthiness
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.2.2 – LO: 1.2.2
27. People who put money into banks are called ____________________.
ANSWER:
depositors
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.3.1 – LO: 1.3.1
28. Revenue minus ____________________ equals profit.
ANSWER:
cost
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.3.1 – LO: 1.3.1
29. A(n) ____________________ asset is anything that can readily be exchanged.
ANSWER:
liquid
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.3.1 – LO: 1.3.1
30. A(n) ____________________ is a cash obligation.
ANSWER:
liability
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.3.1 – LO: 1.3.1
31. A(n) ____________________ intermediary is a financial institution that obtains funds from the public and uses them
to finance its business.
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Class:
Date:
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Page 6
ANSWER:
depository
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.4.1 – LO: 1.4.1
32. A commercial bank that specializes only in business banking is sometimes called a(n) ____________________ bank.
ANSWER:
wholesale
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.4.1 – LO: 1.4.1
33. Profit, or net ____________________, is what is left of revenue after expenses are deducted.
ANSWER:
income
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.3.1 – LO: 1.3.1
34. Last year, First National Bank of Springfield paid $5.1 million in interest to depositors; it collected $7.8 million in
interest from loans. Calculate the spread.
ANSWER:
$2.7 million
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.3.1 – LO: 1.3.1
35. This month costs for SafeCo Bank were $750,000; the bank collected $970,000 in revenue. Find the bank’s profit for
the month.
ANSWER:
$220,000
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.3.1 – LO: 1.3.1
36. Last year, profits for Fidelity Bank totaled $1.1 million; spread was $5.6 million. Find the bank’s costs for the year.
ANSWER:
$4.5 million
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.3.1 – LO: 1.3.1
37. Regina’s bank charges $1 for each ATM transaction, 50 cents for each online bill payment, and a $10 monthly
maintenance fee for her checking account. Last month, Regina used an ATM five times and paid seven bills online. What
did she incur in banking fees for the month?
ANSWER:
$18.50
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.3.1 – LO: 1.3.1
38. Assume that a bank receives a $5,000 deposit from a customer and lends it to another customer to start a small
business. The bank pays a straight 5% per year interest to the customer and charges 10% per year for the loan. Calculate
the spread for one year.
ANSWER:
$250
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.3.1 – LO: 1.3.1
Name:
Class:
Date:
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Page 7
39. Assume that a bank receives a $10,000 deposit from a customer and lends it to another customer to buy a used car.
The bank pays a straight 6% per year interest to the customer. The spread for one year is $300. What is the interest rate
the bank is charging for the loan?
ANSWER:
9%
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.3.1 – LO: 1.3.1
40. Goliath Bank has net income of $20,000 and total equity of $80,000. Find the return on equity.
ANSWER:
25%
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.3.1 – LO: 1.3.1
41. What does the term medium of exchange mean?
ANSWER:
A medium of exchange is an agreed-upon system for measuring the value of goods and
services.
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.1.1 – LO: 1.1.1
42. Briefly explain why retail banks developed in the United States.
ANSWER:
Retail banks developed to help people not served by commercial banks save money, acquire
loans, and invest.
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.1.1 – LO: 1.1.1
43. What activities are involved in a bank’s enforcement function?
ANSWER:
Enforcement activities include physical security, tracking down fraud, making collections,
and pursuing legal actions against those who inflict losses on the bank.
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.2.1 – LO: 1.2.1
44. The ability to transfer sums of money between financial institutions safely and effectively depends on what two
factors?
ANSWER:
The ability to transfer sums of money between financial institutions safely and effectively
depends on the stability of the institutions, the stability of the countries where the banks
reside, and the security of the money supply itself.
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.2.2 – LO: 1.2.2
45. Why are bank deposits not considered a form of bank income?
ANSWER:
Bank deposits are not considered a form of bank income because the money does not really
belong to the bank.
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.3.1 – LO: 1.3.1
46. What is a currency exchange?
ANSWER:
A currency exchange is a private company that cashes checks, sells money orders, and
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Class:
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performs other exchange services for a fee.
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.4.2 – LO: 1.4.2
47. Describe the effects of mergers on the banking industry.
ANSWER:
Mergers have increased the size and resource power of banks but have decreased the number
of banks. Some consumers face higher fees and find less community involvement and
lending in local areas, which disturbs people who like to feel that their money is staying close
to home. This has created some business opportunities for small banks, however. In the last
decade, small banks in the U.S. have doubled the amount loaned to businesses.
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.1.2 – LO: 1.1.2
48. Explain how a bank’s sound business practices safeguard depositors’ money.
ANSWER:
Bank employees who use good judgment and manage day-to-day bank operations effectively
tend to make good decisions about when and to whom to extend credit and how to make
sound financial decisions. Accuracy is also important—this ensures that depositors’ money is
being handled correctly. A bank that is reckless with its deposits stands to lose its customers
money.
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.2.2 – LO: 1.2.2
49. Are a bank’s liabilities more liquid or less liquid than its assets? Explain.
ANSWER:
A bank’s liabilities are more liquid than its assets. The bank must give depositors their money
(considered a liability to a bank) if they request it, so the bank must keep a good amount of
cash on hand. The bank’s assets (loans and investments) may be less liquid because they are
tied up in longer-term loans, so the bank cannot access them as quickly.
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.3.1 – LO: 1.3.1
50. What are three primary differences between a credit union and a commercial bank?
ANSWER:
Credit unions are owned by depositors; commercial banks are owned by stockholders. Unlike
a commercial bank, users of credit unions must be members of the credit union. Credit unions
are not-for-profit organizations; commercial banks strive to make a profit.
POINTS:
1
LEARNING OBJECTIVES:
BNKG.CFFT.3.LO: 1.4.2 – LO: 1.4.2