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Test answers for Retail Banking Industry and Processes Test 2020

(80) Last updated: March 26
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80 NOT Answered Yet Test Questions:

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1. Which of the following  is a characteristic of a certificate of deposit?


• You have to earn at least $100,000 in salary to be allowed to buy a CD

• It is just a different name for a savings account

• It requires that the funds be kept in the account for a minimum fixed period of time e.g. 90 days

• Only large banks offer them

2. Would a bank be allowed to pay someone from a personal account without a mandate from the customer?


• No, not without a check drawn against the account by the account holder

• Yes, but only to government entities

• Yes, if someone presents a written note in good faith to pay them

• Yes, because banking is fairly unregulated

3. What would a person do if they wanted to have the facility to save money as well as issue checks?


• They can only have one or the other facility

• Open both a savings and a checking account with the same bank

• Open a savings account with one bank, and a checking account with another

• Not use a bank at all

4. What does the term "Availability Float" imply?


• The banking hours of your local bank

• The period of time it takes a check to be cleared

• A limit on how long a check is good for before it becomes invalid

• The time period or the amount represented by checks that have been deposited but not cleared

5. What is the ratio of bank reserves to bank deposits called?


• Deposit multiplier

• Deposit schedule

• Reserve ratio

• Reserve/Deposit ratio

6. What is meant by the term "Redemption"?


• Cashing in a bond coupon

• Receiving interest on a loan

• Opening a secondary bank account

• Paying off a mortgage loan in full

7. How is a savings account different from a certificate of deposit?


• Savings accounts are only at banks, cd's are only at credit unions

• Savings accounts can be added to or withdrawn from at any time, CDs can not be

• Savings accounts are for anyone, cd's are only for rich people

• Savings accounts are required by anyone having a checking account, CDs are not

8. What is the signing of a check on its back by the payee referred to as?


• Writing the check

• Indorsing the check

• Cashing the check

• Monopolizing the check

9. What is the process which the Federal Reserve uses to influence the availability and cost of money and credit called?


• Credit policy

• Monetary policy

• Credit rating

• Federal reserve system

10. Why is a negotiable instrument a "special contract"?


• Because nobody has to sign it

• Because it is always only for services, not goods

• Because there is no date written on it

• Because it does not include the typical requirements of a contract such as offer, acceptance and consideration

11. What does the term "Debenture" imply?


• A long term loan at prime market rate

• A loan for the purchase of securities

• A short term loan at an adjustable rate

• A long term loan to a company, usually at a fixed rate of interest and for a specific term

12. How do banks offer services to all levels and types of individuals and still earn money?


• By sending potentially risky customers to other banks

• By finding ways to exploit the rich customers to subsidize the poor ones

• By having a variety of account types and fee structures offering something to everyone

• By being exclusive and catering only to high net worth individuals

13. Which of the following is a requirement that a bank has to comply with?


• Minimum number of customers

• Minimum number of employees

• Minimum salaries

• Minimum capital

14. Which of the following  is a feature often found in an offshore bank account, not usually found in an onshore bank account?


• Debit cards

• Facility to write checks

• Unnamed accounts

• Wire transfer ability

15. What is meant by the term Retail Banking?


• Banking institutions executing transactions with companies

• Banking institutions executing transactions with foreign countries

• Banking institutions executing transactions with consumers

• Banking institutions executing transactions with other banks

16. What is another name for a bill of exchange?


• A savings account

• A checking account

• A certificate of deposit

• A check

17. Why are offshore banks often able to offer a client higher interest rates?


• Lower cost structure allows them to pay higher interest rates

• They give away all of their earnings to their clients

• They steal money from other clients to pay higher interest

• Their laws require them to pay higher rates

18. What is the government entity that insures bank balances?






19. What is meant by "restrictive endorsement"?


• Merely signing a check

• Indorsing a check with terminology limiting how the funds can be applied

• Writing a check out to a specific person

• Presenting a check to a bank

20. What are the four requirements for a promissory note to be legal?


• An unconditional order, a specific amount, being payable to a specific person, being payable on a specific date

• Being payable to a specific person, being payable on a specific date, that both parties belong to the same bank, being payable in US currency

• A specific amount, being payable to a specific person, only in U.S. funds, for a specific good or service

• An unconditional order, being payable to a group of people, being payable on any given day in a 30 day time frame and for a specific amount

21. How is a money market account different from a savings account?


• Only rich people are allowed to have money market accounts

• Money market accounts are offered only by national banks, not by local banks

• Money market accounts always require some monthly fee, savings accounts do not

• A money market account earns a higher interest rate and typically has a limit on the number of transactions each month

22. Which of the following is not covered by the FDIC?


• A checking account

• Money market funds

• A savings account


23. What does the term "Ex Gratia Payment" mean?


• An extra payment made during a month on a bank loan

• An extra interest payment made by the bank to customers

• A late payment on a loan

• Any payment made to an insured party for which an insurance company had no formal liability

24. What is the payment that people receive after a mishap which leaves them in the same financial position as they were in before they suffered the loss called?


• Default

• Collateral

• Indemnity

• Back pay

25. What type of account would someone who wants the facility to pay people through checks open?


• A savings account

• A checking account

• A money market account

• A stock account

26. What amount would someone who has $500,000 in one bank and $250,000 in another bank be insured for in total?


• $500,000: $500,000 from one bank and nothing from the other

• $500,000: $250,000 from each bank

• $250,000 in total regardless of the number of banks

• $250,000 in total as the smaller deposit is the only one covered

27. What method would a consumer most likely use to move funds between their offshore account and their domestic account?


• Mail cash

• Wire transfer

• Fly to the offshore country and withdraw it in person

• Go to the local branch of the offshore bank

28. Which of the following would not be covered by the FDIC?


• Checking accounts

• Joint savings accounts


• U.S. Government investments such as treasury bills

29. What level will the FDIC insure any one person at a bank for beginning January 1, 2010?


• $50,000

• $100,000

• $250,000

• $1,000,000

30. What is the definition of an offshore bank?


• A bank located in a different state

• A virtual bank with no physical location

• A bank which only offers checking and no other services

• A bank located outside the country of the depositor, usually in a lower tax jurisdiction

31. What was the purpose of the 2006 Deposit Insurance Fund?


• To replace the FDIC

• To merge the two earlier funds namely the Bank Insurance Fund and the Savings Associations Insurance Fund

• To reduce consumer taxes on investment gains

• To promote the idea that consumers should be saving money

32. Why can't anyone start a new bank?


• The government allows only one new bank per year

• There is a limit on the number of banks allowed to be opened

• There is a freeze on opening new banks

• It is a regulated industry and a license is required before opening a new bank

33. What is a secondary way through which banks earn money?


• By selling memberships

• Through ad revenue from their site

• By paying lower interest on deposits and charging higher interest on advances

• By charging fees on accounts

34. What does the term "Netting" mean?


• Bringing in new customers to a bank

• Paying interest on an outstanding loan

• Combining an individual's bank accounts into one

• The offsetting with a counterparty or counterparties of financial obligations or payments one owes with those one is entitled to receive

35. What is meant by the term "Amortization"?


• Taking out a loan

• The reduction of debt by regular principal payments

• Payment of interest on a loan

• Buying negotiable instruments

36. What is the current maximum limit that the FDIC will insure any one person at a bank for?


• $50,000

• $100,000

• $250,000

• $1,000,000

37. Checking all bank account papers to make sure that the bank records and your records agree is known as:


• Credit check

• Credit rating

• Underwriting

• Reconciliation

38. What is meant by the term "Thrift"?


• A clearinghouse for checks

• An organization formed for the purpose of holding deposits for individuals

• A method of systematically saving money

• Writing checks for an amount and cashing them for a different amount

39. What is one criticism of offshore banking?


• No interest is earned on the account

• Difficult to set up

• It is often associated with organized crime

• It helps the economy in foreign nations

40. What is a "bill of exchange"?


• The same as a promissory note

• A written order by the Drawer to the Drawee to pay money to the Payee

• A loan agreement for property

• A verbal payment agreement

41. How have banks changed in recent years to respond to customer needs and wants?


• They have started offering fewer services

• They have started interacting more with customers by requiring people to come into the bank

• Banks have started providing investment and insurance services also to offer customers one stop shopping

• They have started charging higher interest rates

42. What is a "promissory note"?


• The same as a check

• The same as a draft

• A written promise by the maker to pay money to the payee.

• A loan agreement for property

43. Why do banks charge higher interest rates from customers with poorer credit?


• As a moral penalty

• To create a disparity between the rich and the poor

• Due to risk based pricing policy i.e. charging a higher rate from customers more likely to default

• To dissuade poor credit customers from banking

44. Why do offshore banks not save someone from paying taxes on the money in the account?


• The offshore bank will contact the U.S. government and inform them of what the customers are doing

• The U.S. tax law requires all citizens to pay taxes on both domestic and foreign earnings

• The offshore bank will collect taxes on behalf of the U.S. government

• None of the above

45. What is the definition of a negotiable instrument?


• The payee can negotiate what amount is actually deposited into their accounts; it does not have to be the amount stated

• A special type of contract for the payment of money capable of transfer by negotiation

• A contract for land

• A music instrument purchased through a draft

46. What amount would a customer be covered for by the FDIC if he/she had $250,000 in savings at Bank XYZ, and also $50,000 in a retirement account with the same bank?


• $0

• $300,000

• $250,000

• $50,000

47. What amount would a customer be insured for if they made deposits to their accounts at three different locations of their bank?


• $250,000

• $750,000

• $0

• $50,000

48. What is an example of 'restrictive endorsement'?


• Signing a check

• Not signing a check

• Handing someone a check in their name

• Writing "for deposit only" on the back of a check

49. What is meant by the term "Clearing House"?


• The wire system used worldwide to clear wire transfers

• A central collection point where banks within a specified geographical area exchange checks with one another

• A place where the interest rate is determined

• None of the above

50. When was the FDIC established?


• 1801

• 1933

• 2008

• 1997

51. What is the purpose of the FDIC?


• It provides deposit insurance guaranteeing the safety of retail banking customers' money

• It acts as a clearing house for all checks

• It provides loans to banks

• It provides loans to consumers

52. What would happen if Mr. X made a check out to Mr. Y for $100, who indorsed the check, and then sold it for $50 to Mr. Z?  Would Mr. Z be able to cash the check?


• Yes, but only for $50, not the face value of $100

• Yes, for the amount of $100

• No, Mr. Z can not cash it since it was sold to him for less than the face value

• No, since it was not issued to him

53. Which of the following  is a reason for a person to open an offshore account?


• They are pressured into it by their family

• They are required to by law

• They want the ability to move their money out of their home country banking system, especially during times of economic turbulence

• They think the onshore banking industry is about to collapse

54. What is meant by "online banking"?


• Using the internet to log in to and interact with your bank account

• Going to the bank and talking to the teller

• Using the ATM machine

• Mailing checks to the bank for deposit

55. Which of the following  is a benefit of an offshore bank account?


• Ability to walk into a local branch of the bank

• Low taxation on the transactions related to the offshore account

• Debit cards

• Customer service

56. What does the term "Nostro Account" imply?


• It is another term for an Escrow Account

• It is a banking term to describe an account a bank holds with a bank in a foreign country, usually in the currency of that country

• It is an account with a bank from which any part of the balance may be withdrawn on demand

• It is an account with two or more authorized signatories

57. Why do banks offer debit cards and off-site ATM machines?


• To encourage people to shop and go into debt

• For the convenience of their customers in order to build brand loyalty

• Because it is required by law

• Because everyone else does it

58. What does FDIC stand for?


• Financial Deposit Insurance Company

• Federal Draft Insurance Company

• Financial Draft Insurance Corporation

• Federal Deposit Insurance Corporation

59. What is meant by the term "Discrete Compounding"?


• Paying interest on loans made to other banks

• The process of calculating interest and adding it to the existing principal and interest at the end of finite time intervals such as a day, a month or a year

• Compounding interest only on high interest loans

• The difference between the cost of money and the rate received on it

60. Which of the following is a risk with having money in a bank?


• The bank might close down

• There is no insurance mechanism in place on banks

• The US dollar might crash

• There is a run on the banks during turbulent economic times, due to which banks may be unable to give customers all of their money on demand

61. What is a typical retail banking service?


• Selling merchandise

• Offering consumers checking accounts

• Establishing web interfaces for customers

• Selling real estate

62. What does MMDA stand for?


• Massive money draft account

• Money making draft account

• Monopoly market deposit account

• Money market deposit account

63. What is "Demand Deposit" account another name for?


• A Treasury Bill

• A Checking Account

• A Certificate of Deposit

• A Mortgage

64. What is a negotiable instrument drawn against deposited funds to pay a specified amount of money to a specific person on demand called?


• A mandate

• A checking Account

• A loan request

• A promissory note

65. Why was the FDIC created?


• To manage consumer loans

• To provide a clearing house for consumer loans

• To provide a clearing house for consumer checks and drafts

• To give consumers the confidence that their money in the bank would remain safe even if the bank failed.

66. Why do the words Debit and Credit have meanings on a bank statement different from the ones which they have in normal accounting ( i. e. a debit is actually a withdrawal, a credit a deposit)?


• The bank statement is created from the bank's perspective, not the customer's

• The bank industry has different rules from those of the GAAP

• It has been a tradition since the 1800s

• None of the above

67. What is a bank branch?


• The entire company of a bank including all locations

• An investment tool

• A physical location of a bank, or one of the several locations of larger banks

• The internet site of a bank

68. What is the situation in which many customers try to withdraw their bank deposits simultaneously, but the bank's reserves are not sufficient to cover the withdrawals called?


• Run

• Overdraft

• Panic

• Bankruptcy

69. Why was the FDIC limit of insurance raised to $250,000 temporarily in 2008 thru 2009?


• The failure of several banks created a need to bolster consumer confidence in the industry

• To help consumers reduce their tax liabilities

• To help stimulate the economy

• To provide loans to consumers for housing

70. What is the primary way a bank earns money?


• By selling memberships

• Through ad revenue from their site

• By paying lower interest on deposits and charging higher interest on advances

• By charging fees on accounts

71. What is the primary function of a bank?


• To act as a payment agent for its customers, and to borrow and lend money

• To help people buy cars

• To hide money from the IRS

• To allow the rich to get richer

72. What is meant by the term "risk based pricing"?


• Charging a higher rate from customers more likely to default

• Pricing the online services of a bank high

• Charging a higher rate from high net worth customers to capitalize on their wealth

• Charging higher bank fees from customers based on their income

73. What does the term "Straight Paper" denote?


• It is another name for a bond

• It is another term for cash

• It is a method used for depositing checks

• It stands for unsecured notes, bills of exchange and/or banker's acceptances

74. What is a holder in due course?


• The payee of a negotiable instrument

• The drawee of a negotiable instrument

• An innocent party who purchases a negotiable instrument without any defect in the instrument or any notice of dishonor.

• The writer of a check

75. What is the term which describes illegally benefiting from float e. g. by depositing and drawing checks between accounts at two or more banks?


• Floating

• Rejecting

• Kiting

• Stocking

76. What type of account would someone put their money into if they wanted to earn a high rate of return and not to have access to their money for a fixed period e.g. 90 days?


• A certificate of deposit

• A checking account

• A savings account

• A stock account

77. What is "Negotiable Order of Withdrawal Account" i.e. NOW Account, another name for?


• A mortgage loan

• A checking account with no fees

• A checking account that earns interest

• A savings account

78. What can the FDIC do to a member bank if the bank fails to comply with the set standards?


• Send a letter to the Congress

• Stop insuring that bank's customers

• Declare the bank insolvent and take over its management

• Close down the bank

79. What type of account would someone who wants to earn a high rate of interest and does not intend to have many transactions open?


• A checking account

• A savings Account

• A mortgage loan

• A money market account

80. How does a bank make money by providing currency exchange services to its customers?


• By charging the customers a slightly higher exchange rate than the rate it pays

• By cheating the customers on the exchange rate

• By forcing them to deposit the money in their bank

• By asking the customers to introduce five friends to the bank as customers