Financial Literacy Practice Final - 1 of 2

What is the purpose of the FDIC?

• To insure deposits in member banks up to a set limit, protecting account holders from bank failures

• To monitor credit activity of consumers and businesses across financial institutions

• To regulate the range of investment options available through banks and brokers

• To provide loans and financial support targeted to small businesses

What does the term "pay yourself first" mean?

• Saving after meeting spending needs like rent and discretionary expenses

• Prioritizing savings by setting aside a portion of income before addressing other obligations

• Saving a percentage of income after calculating surplus funds

• Reserving savings exclusively for emergencies or large planned purchases

Which account is designed to preserve principal?

• Investment accounts in stocks, which aim for higher returns but carry risk

• Savings accounts, which maintain the original balance while earning minimal interest

• Real estate funds, which invest in properties but don’t guarantee preservation of principal

• Mutual funds, which pool money for diverse investments but fluctuate in value

What is a downside of over-saving?

• Increased debt from missed payments on loans or credit cards due to over-focusing on savings

• Inflation eroding the purchasing power of money saved, especially in low-interest accounts

• Loss of liquidity, making it hard to access funds for necessary investments

• High penalty fees imposed by banks on accounts exceeding certain thresholds

What is the role of the Federal Reserve?

• Insuring financial accounts to ensure security in case of bank failures

• Controlling inflation and stabilizing the economy with interest rate adjustments

• Providing loans to businesses as part of federal economic programs

• Managing consumer credit reports and issuing credit rating guidelines

What is a long-term investment option?

• IRA

• Certificate of Deposit (CD)

• Checking account

• Savings account

What does a compound interest calculator show?

• Account balances

• The time value of money

• Current loan interest rates

• Monthly savings needs

What is a characteristic of mutual funds?

• They are insured by the FDIC

• They pool money to invest in diverse assets

• They provide guaranteed returns

• They are only available for retirement accounts

What does risk management include?

• Investing in stocks only

• Acceptance, transfer, and reduction of risk

• Avoiding all forms of financial risk

• Prioritizing savings over investments

What is the purpose of term life insurance?

• Lifetime financial coverage

• Coverage for a fixed time period

• Building cash value over time

• Reducing tax obligations