Banking

What is the key difference between simple interest and compound interest?

• Simple interest pays a greater rate of return.

• Compound interest pays more than once per year.

• Compound interest is for loans and simple interest is for savings

• Simple interest is only for large banks to charge,

What is a financial institution owned by its members called?

• bank

• depository

• money place

• credit union

What percentage of funds does a bank have to keep on hand in order to meet the reserve requirement?

• 5%

• 10%

• 50%

• 80%

When a bank accepts your money, what do they do with it?

• They stick it in a shoe box and wait for you to come get it back.

• They loan most of it out to people who need money for cars and homes, etc.

• They put it in a big pile in the middle of the safe and dance around it.

• They write your name on every bill and look at it, longing for your return,

What is the interest rate spread and why is it important?

• It is the difference between interest rates on loans and deposits and it is a way banks make money.

• It is the amount of interest a bank will charge you for the loan you take out divided by the total cost of the asset. It helps you determine if a loan is fair.

• It is the net result of all transactions within the banking structure within a given fiscal time period and it is used by banks and federal regulators to determine the fiduciary responsibility of the financial institution is being upheld to the standards of the law.

• I just wanted to see how long I could write on that last answer.

What is a "run" on a bank?

• It is when the bank has a "run" of several months where they are profitable and stable.

• It is when the bank "runs" to the government to receive special treatment from banking laws.

• It is when the "run" of depositors creates greater liquidity in the bank's assets.

• It is when the bank is failing and people "run" to the bank to get their money out.

How does the FDIC help prevent a bank from failing?

• They help banks find new customers to take out large loans.

• They insure the deposits in the bank so people are not as likely to take all their money out at once.

• They promote the banks through advertising and create new business for the bank.

• They pass laws in Congress to allow the banks to charge more in interest.

Harry wants to save money in a bank account. He decides to open a _______________ account with a five-year maturity date because it offers a _________________ than a savings account does.

• CD; higher interest rate

• checking; more ATM withdrawals

• money market; a lower maturity period

Which of the following is not a characteristic of a SAVINGS ACCOUNT?

• Safe place to store money

• Owners can write checks from the money in the account

• Money is protected by Federal Insurance

• Money gains interest over time

• Great way to save for something you want or an emergency

An account you can deposit money into and then write checks or use debit card to withdraw money is known as a ____________________.

• Money Market

• Checking

• Savings

• ATM

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