Banking

If a person makes a deposit of $10,000 or more into a bank account, the bank must notify the

• Federal Deposit Insurance Corporation. (FDIC)

• State Banking Commission

• US Treasury Department

• Federal Reserve Board

Answer explanation

The correct answer is 'Federal Deposit Insurance Corporation. (FDIC)'. Under the Bank Secrecy Act, banks are required to notify the FDIC if a deposit of $10,000 or more is made. This law helps to prevent and track illegal activities such as money laundering.

Which financial product has the most predictable income?

• Certificate of deposit

• Stock

• Real estate

• Option/future contract

Answer explanation

A Certificate of Deposit (CD) provides the most predictable income among the options. This is because a CD has a fixed term and a fixed interest rate. Unlike stocks, real estate, and futures, which are subject to market fluctuations, the return on a CD is guaranteed making income predictable.

When James received his paycheck, he planned to cash it at a check cashing store. You advise him to cash it at his own bank if possible. Why?

• There is likely to be a ceiling on the size of the check he can cash

• They generally require a co-signer

• They typically require a two day waiting period before giving cash

• They typically charge high fees

Answer explanation

Cashing a check at a check-cashing store typically incurs high fees compared to banking institutions. Therefore, it would be more financially prudent for James to cash his paycheck at his bank, if possible, to avoid these additional costs. This is why the correct answer is 'They typically charge high fees'.

Which documents should be stored in a safe-deposit box?

• Current paycheck stubs

• Checkbook statements

• Mortgage loan papers

• Copies of current and past budgets

Answer explanation

Mortgage loan papers should be stored in a safe-deposit box. These are crucial documents that provide proof of your home ownership and loan details. Current paycheck stubs, checkbook statements, and copies of budgets, although important, are not typically stored in a safe-deposit box.

Money orders are:

• Available for no fee at banks and retail stores

• Distributed by the Treasury Department

• A purchased certificate to pay a specified amount to a specific payee

• A certified check used to pay a specified amount to a specific payee

Answer explanation

A money order is not offered for free at banks and retail stores, neither is it distributed by the Treasury Department. It is not a certified check either. It is actually a purchased certificate that allows the buyer to pay a specified amount to a specific payee, thus explaining the correct choice.

What action should a person take who must make a tuition payment at the end of August each year?

• Plan to open a new credit card account that will be used to charge the needed amount of money

• Divide the total amount of money that will be needed into 12 equal parts and invest that amount in stocks

• Decide how much money will be needed and then place 1/12th of that amount in a separate account each month

• Obtain a short-term collateralized loan for the needed amount of money

Answer explanation

The person should plan ahead for the tuition payment. Rather than relying on credit, risky investments, or loans, a practical option is to divide the total amount needed by 12. Each month, the person should then set aside 1/12th of the amount in a separate account. This way, by the end of August, the required amount is already saved up. This approach is systematic, risk-free, and promotes disciplined saving.

When a person is reconciling a checking account and notices that the balance in the checkbook does not match the balance on the statement from the bank, which action is it appropriate for the person to take first?

• Deposit sufficient funds to adjust the balance in the checkbook to match the bank's balance

• Adjust the balance in the checkbook so it is the same as the bank's balance

• Notify the bank in writing to adjust the statement

• Determine that checks already written have cleared

Answer explanation

The best initial course of action when there are discrepancies between the checkbook and the bank statement is to adjust the balance in the checkbook to match the bank's balance. This solution is the most straightforward and effective in resolving the issue quickly, as it immediately aligns the checkbook with the bank's records.

The best suggestion you gave a friend who is writing a check for the first time is:

• Use the checkbook stub or register to keep a record of the date you write the check

• Make the check payable to cash

• Date the check because it is usually proof of payment

• Use pencil to permit changes

Answer explanation

The correct answer is to use the checkbook stub or register to keep a record of the date you write the check. This is important because it helps to maintain a clear and accurate record of all transactions. It also helps in tracking your spending and controlling your finances. Making the check payable to cash or using a pencil to permit changes are not recommended practices.

The term used to describe the ease and speed with which you can convert savings or an investment to cash is:

• Convertibility

• Principal

• Liquidity

• Rate of Return

Answer explanation

The term 'Liquidity' refers to the ease and speed with which an asset, like savings or an investment, can be converted into cash. Other options such as 'Convertibility', 'Principal', and 'Rate of Return' do not specifically refer to this concept. Therefore, the correct answer to the question is 'Liquidity'.

A bank Certificate of Deposit is a:

• Savings instrument that requires a deposit for a period of time during which there is a penalty for withdrawals

• Cash deposit in a savings account that earns interest

• Savings instrument that requires a deposit for a period of time during which the saver can withdraw money from the plan at any time without a penalty

• Certificate for deposits that are issued for half the face value

Answer explanation

A bank Certificate of Deposit is a savings instrument that requires a deposit for a specified period. During this period, if the saver withdraws the money, they are subjected to penalties. It's not a regular savings account nor a penalty-free withdrawal scheme. It's not issued for half the face value either.