Chapter 4 Test

What is the primary purpose of cash management?

• Spending as much as possible

• Investing in high-risk assets

• Ensuring liquidity and maximizing returns on funds

• Avoiding any form of debt

What does FDIC insurance cover?

• Up to $100,000 per depositor

• Up to $250,000 per depositor, per bank

• Unlimited funds per depositor

• Only business accounts

Which account type allows unlimited deposits and withdrawals for daily transactions?

• Certificate of Deposit

• Checking Account

• High-Yield Savings Account

• U.S. Treasury Bill

What happens to stock prices when interest rates are low?

• Stock prices tend to fall

• Stock prices remain stable

• Stock prices tend to rise

• Stock prices become unpredictable

Which savings option is backed by the U.S. government and designed for long-term savings?

• High-Yield Savings Account

• Series EE Bonds

• Money Market Mutual Fund

• Certificate of Deposit

What is a common drawback of Certificate of Deposit (CD) accounts?

• High fees

• Limited liquidity due to penalties on early withdrawals

• Lack of FDIC insurance

• High-interest rates

What is one primary risk of a high-interest rate environment?

• Encourages excessive consumer spending

• Increases borrowing costs

• Lowers stock prices

• Decreases house prices

What is the purpose of fractional reserve banking?

• To store all customer deposits in a safe place

• To allow banks to invest a percentage of deposits

• To ensure that all deposits are FDIC insured

• To invest deposits in high-yield bonds

Which account offers the highest interest rate with checking privileges?

• NOW accounts

• Money Market Deposit Accounts

• Regular savings account

• Checking account

What is a key feature of high-yield savings accounts?

• They offer unlimited transactions

• They are only available at commercial banks

• They pay higher interest rates than regular savings accounts

• They provide checking privileges