Unit 4 Review

Samantha is trying to decide where she should place her extra money. She has heard of two types of financial institutions—depository and non-depository. She isn’t sure what makes them different from one another. How would you explain the main difference between these two institutions?

• Depository institutions earn money from what customers put into the institution.

• Depository institutions gain money from companies (insurance, mortgage, etc.).

• Non-depository institutions earn a profit from the interest paid on loans made to customers.

• Non-depository institutions are usually federally insured.

Depository institutions always have insurance, and most savings, checking, and certificate of deposit accounts in the United States are insured. Which organization insures these funds?

• Federal Reserve System

• FDIC

• EFT

• CDC

The Federal Deposit Insurance Corporation (FDIC) is an insurance agency supported by the nation’s government. For up to what amount does the FDIC typically insure a personal account in a commercial bank?

• $25,000

• $100,000

• $250,000

• $1,000,000

Ian walks into a depository institution and says he wants to open an account. He asks for details about the institution. The employee tells Ian that they offer many services such as  checking and savings accounts, mortgages, personal loans, and debit cards. Ian asks if this institution is a non-profit, and the employee tells him that they are a for-profit organization. Which type of institution is Ian considering for his account?

• credit union

• web-only financial institution

• brokerage firm

• commercial bank

Regina was hired at a company that has its own banking area. Her boss explains that she is welcome to become a member of this depository institution that offers similar services to a bank. Which type of institution does Regina’s company MOST LIKELY offer its employees?

• credit union

• web-only financial institution

• savings and loan institution

• commercial bank

Thomas hates physically going to a bank. He wants to be able to open an account and start a banking relationship without ever leaving his house. What is the BEST banking option for Thomas?

• credit union

• web-only financial institution

• savings and loan institution

• commercial bank

Which type of institution receives money from households like commercial banks do, but uses a large percentage of their money on home mortgages and receives money from individual deposits?

• credit union

• web-only financial institution

• savings and loan institution

• brokerage firm

Sabrina is trying to decide between opening an account at a local commercial bank or at her college credit union. What TRUE statement about these two institutions will BEST influence her decision?

• Since commercial banks are for-profit, they can often keep their costs down, which translates into higher interest rates for savings and lower rates on loans.

• Since credit unions are for-profit, they can often keep their costs down, which translates into higher interest rates for savings and lower rates on loans.

• Since commercial banks are nonprofit, they can often keep their costs down, which translates into higher interest rates for savings and lower rates on loans.

• Since credit unions are nonprofit, they can often keep their costs down, which translates into higher interest rates for savings and lower rates on loans.

You have $500,000 to deposit in a bank account. What should you do with this deposit to be certain it is insured?

• Split it in half and deposit it in two separate savings accounts at different commercial banks.

• Deposit all of the money in one savings account in a commercial bank.

• Deposit all of the money in one checking account in a commercial bank.

• Split it in half and deposit it in two separate savings accounts at different brokerage firms.

What is TRUE about non-depository financial institutions?

• They do not offer other types of accounts, such as savings and checking accounts.

• Traditionally, they focused on providing loans and other money management services.

• They are all federally insured.

• They include commercial banks and credit unions.