Banking And Money Management
When a person puts their money in a bank they may find themselves using more than they can and some banking institutions offer their clients free money management advice. The quiz below tests your understanding on banking and money management. Give it a try and get ready to broaden your knowledge.
- 1.
The best choice for someone who makes occasional spur-of-the-moment purchases is
- A.
A money market mutual fund
- B.
A passbook savings account
- C.
A certificate of deposit
- D.
A US Series HH bond
Correct Answer
A. A money market mutual fundExplanation
A money market mutual fund is the best choice for someone who makes occasional spur-of-the-moment purchases because it offers both flexibility and liquidity. Unlike other options listed, such as a passbook savings account or a certificate of deposit, a money market mutual fund allows easy access to funds without penalties or restrictions. It provides a higher interest rate compared to a savings account and offers the potential for growth through investment in short-term, low-risk securities. Therefore, it is a suitable option for individuals who want to have quick access to their money while still earning a competitive return.Rate this question:
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- 2.
Which of the following is not a primary reason why many people hold cash?
- A.
To undertake transactions
- B.
To avoid credit
- C.
To have an emergency reserve
- D.
To have a store of value
Correct Answer
B. To avoid creditExplanation
Many people hold cash to avoid credit because using cash allows them to make purchases without going into debt. By using cash, individuals can avoid the potential interest charges and fees associated with using credit cards or taking out loans. Holding cash provides a sense of financial security and control, as it allows individuals to only spend what they have and avoid accumulating debt. Additionally, cash is widely accepted and can be used for various transactions, making it a convenient form of payment.Rate this question:
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- 3.
Many financial planners recommend that you hold emergency reserve assets equal to ________ months of after-tax income.
- A.
3-6
- B.
5-7
- C.
7-12
- D.
12-15
Correct Answer
A. 3-6Explanation
Financial planners recommend that individuals hold emergency reserve assets equal to 3-6 months of after-tax income. This is because having an emergency fund of this size provides a buffer in case of unexpected expenses or loss of income. It allows individuals to cover their basic living expenses without relying on credit or taking on debt. This range is considered a good balance between having enough savings to handle emergencies and not tying up too much money that could be invested or used for other financial goals.Rate this question:
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- 4.
Which of the following assets is most liquid?
- A.
A checking account
- B.
A savings account
- C.
A certificate of deposit
- D.
The above three are equally liquid.
Correct Answer
A. A checking accountExplanation
A checking account is the most liquid asset among the options given. This is because funds in a checking account can be easily accessed and used for transactions through various means such as writing checks, using a debit card, or making online transfers. On the other hand, a savings account usually has some restrictions on withdrawals and may require a transfer to a checking account before accessing the funds. A certificate of deposit (CD) has a fixed term and penalties for early withdrawal, making it less liquid compared to the other options. Therefore, a checking account provides the highest level of liquidity.Rate this question:
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- 5.
Federal deposit insurance
- A.
Protects each deposit account up to $100,000.
- B.
Protects each depositor up to $100,000.
- C.
Protects both the deposit and depositor up to $1,000,000.
- D.
Is available only by depositor choice and then a small fee must be paid
Correct Answer
B. Protects each depositor up to $100,000.Explanation
Federal deposit insurance protects each depositor up to $100,000. This means that if a bank fails, the government will guarantee the safety of the depositor's funds up to the specified amount. It is important for individuals to understand this protection so they can have confidence in the safety of their deposits in the event of a bank failure.Rate this question:
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- 6.
From a safety perspective, which alternative below offers the best advice
- A.
Make sure an account is federally insured.
- B.
Make sure an account is state insured.
- C.
Avoid any institution that is not a commercial bank
- D.
Avoid using out-of-state institutions.
Correct Answer
A. Make sure an account is federally insured.Explanation
The best advice from a safety perspective is to make sure an account is federally insured. This is because federal insurance provides a higher level of protection compared to state insurance. Federal insurance is typically provided by the Federal Deposit Insurance Corporation (FDIC) and covers deposits up to $250,000 per depositor, per insured bank. State insurance, on the other hand, may have lower coverage limits and may not be as widely recognized or regulated. Therefore, ensuring that an account is federally insured offers the best protection for one's deposits.Rate this question:
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- 7.
Which of the following is not a characteristic of most passbook savings accounts?
- A.
An unlimited number of deposits or withdrawals each month
- B.
No minimum balance requirement
- C.
Interest rates are higher than money market rates.
- D.
Interest rates are higher than money market rates.
Correct Answer
C. Interest rates are higher than money market rates.Explanation
Passbook savings accounts typically do not offer higher interest rates than money market rates. This is because passbook savings accounts are known for their simplicity and accessibility, allowing customers to easily make deposits and withdrawals without any restrictions. However, they usually do not offer high interest rates compared to other types of accounts, such as money market accounts, which are designed to earn higher interest rates while still maintaining liquidity. Therefore, the statement "Interest rates are higher than money market rates" is not a characteristic of most passbook savings accounts.Rate this question:
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- 8.
Money market mutual funds are best described as institutions that
- A.
Invest only in MMDAs.
- B.
Pool resources of many investors to purchase liquid and high-yielding securities.
- C.
Issued by the Treasury, commercial banks, and other corporations.
- D.
Are established by banks and other financial institutions to help depositors manage their liquid assets. Answer: are established by banks and other financial institutions to help depositors manage their liquid assets. Answer: are established by banks and other financial institutions to help depositors manage their liquid assets. Answer: are established by banks and other financial institutions to help depositors manage their liquid assets
Correct Answer
B. Pool resources of many investors to purchase liquid and high-yielding securities.Explanation
Money market mutual funds are institutions that pool resources from many investors to purchase liquid and high-yielding securities. They are not limited to investing only in MMDAs (Money Market Deposit Accounts) and can invest in a variety of securities issued by the Treasury, commercial banks, and other corporations. These funds are established by banks and other financial institutions to help depositors manage their liquid assets by providing a diversified investment portfolio with potentially higher returns than traditional savings accounts.Rate this question:
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- 9.
Which of the following is not a characteristic of certificate of deposit (CDs)?
- A.
You pay a penalty for early redemption.
- B.
You "lock in" (are guaranteed) the stated interest if you hold the CD until maturity.
- C.
They are preferred over money market deposits if you expect interest rates to fall
- D.
They have a minimum maturity of three years.
Correct Answer
D. They have a minimum maturity of three years.Explanation
Certificate of deposits (CDs) have a fixed maturity period, but they do not necessarily have a minimum maturity of three years. The maturity period of a CD can vary from a few months to several years. Therefore, the statement that "They have a minimum maturity of three years" is not a characteristic of CDs.Rate this question:
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- 10.
Depositors often cite ________ as the most important consideration in selecting a particular bank.
- A.
Safety
- B.
Low charges
- C.
Size
- D.
Geographical convenience
Correct Answer
D. GeograpHical convenienceExplanation
Depositors often cite geographical convenience as the most important consideration in selecting a particular bank. This means that customers prioritize the bank's proximity to their location, making it easier for them to access banking services. Having a bank nearby saves time and effort, allowing customers to conveniently visit the branch for various transactions or inquiries. It also provides a sense of security knowing that their bank is easily accessible in case of emergencies or urgent financial needs.Rate this question:
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- 11.
Monica Basidtes received a check and endorsed it by simply signing her name on the reverse e of the check. This is called
- A.
A special endorsement
- B.
A deposit endorsement.
- C.
A restrictive endorsement.
- D.
A blank endorsement.
Correct Answer
D. A blank endorsement.Explanation
Monica Basidtes endorsed the check by simply signing her name on the back, without specifying any additional instructions or restrictions. This type of endorsement is known as a blank endorsement, which allows anyone who possesses the check to cash or deposit it.Rate this question:
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- 12.
John issued a check to Mary who signed it as a blank endorsement. Mary lost the check. If someone finds it, he/she could
- A.
Sign his/her name under Monica's and cash the check.
- B.
Write "for deposit only" under Monica's signature and deposit it to his/her account.
- C.
Do nothing; the check must be made payable to him/her before it can be cashed.
- D.
Do nothing; since he or she is neither a payer or payee.
Correct Answer
A. Sign his/her name under Monica's and cash the check.Explanation
If someone finds the lost check with a blank endorsement, they can sign their name under Monica's signature and cash the check. A blank endorsement means that the check is payable to whoever possesses it, so by signing their name under Monica's, the finder effectively becomes the payee and can cash the check.Rate this question:
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- 13.
Which of the following statements is true concerning overdrafts?
- A.
An effective way to prevent them is to "overload" the account.
- B.
They can be avoided by arranging an automatic transfer from a savings account.
- C.
They are inexpensive nuisances because banks usually do not charge for overdrafts.
- D.
They differ from "bounced checks" in that "bouncing" a check is a mistake while an overdraft is deliberate.
Correct Answer
B. They can be avoided by arranging an automatic transfer from a savings account.Explanation
Arranging an automatic transfer from a savings account is an effective way to prevent overdrafts. This means that when the checking account balance reaches zero, funds will automatically be transferred from the savings account to cover any overdrafts. By doing so, the account holder can avoid the inconvenience and potential fees associated with overdrafts.Rate this question:
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- 14.
The least effective method of protecting against overdrafts generally is to
- A.
Maintain a larger-than-normal account balance. to cover the overdraft.
- B.
Arrange for automatic transfers from a savings account.
- C.
Rrange for a credit-card loan effective method of protecting against overdrafts generally is to
- D.
Ignore them since banks do not charge for overdrafts.
Correct Answer
D. Ignore them since banks do not charge for overdrafts.Explanation
Ignoring overdrafts is the least effective method of protecting against them because banks do charge for overdrafts. By ignoring them, the individual is not taking any proactive steps to prevent or address the issue, which can lead to additional fees and financial consequences.Rate this question:
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- 15.
Lenny, who lives in New York City, deposited in his checking account a check from his mother, who also lives in New York City. The bank should make the funds available
- A.
Immediately
- B.
) on the next business day.
- C.
Two to three days after the deposit day
- D.
After the check clears the Federal Reserve System.
Correct Answer
C. Two to three days after the deposit dayExplanation
The correct answer is "two to three days after the deposit day" because even though Lenny and his mother both live in New York City, it still takes time for the check to clear through the banking system. The bank needs to verify the authenticity of the check and ensure that there are sufficient funds in the account from which it was written. This process typically takes a couple of days, hence the delay in making the funds available to Lenny.Rate this question:
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- 16.
If you discover that someone has stolen your checks, you should
- A.
Issue an immediate stop payment for each check.
- B.
Purchase account insurance to avoid potential losses.
- C.
Inform the bank and open a new account.
- D.
Do nothing.
Correct Answer
C. Inform the bank and open a new account.Explanation
If someone has stolen your checks, it is important to inform the bank and open a new account. By informing the bank, they can take the necessary steps to protect your account and prevent any unauthorized transactions. Opening a new account will ensure that the stolen checks are no longer linked to your financial information, reducing the risk of further fraudulent activity.Rate this question:
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Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.
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Current Version
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Mar 19, 2023Quiz Edited by
ProProfs Editorial Team -
Mar 27, 2009Quiz Created by
Greggmabey
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