Money
Banking
Investing
Retirement
Insurance
100
"The Fed" is short for: A. The Federal Reserve System B. Congress C. FBI D. The Federal Deposit Insurance Corporation
A. The Federal Reserve System The Federal Reserve, or "the Fed," provides banking services to depository institutions, serves as the U.S. Government's fiscal agent, supervises and regulates most large banks, and formulates and implements monetary policy.
100
Which of the following is considered to be open-end credit? A. A mortgage. B. A car loan. C. Department store charge cards. D. Installment loans.
C. Department store charge cards. Open-end credit is a revolving live of credit that is offered by banks and other lenders to consumers. There is a limit set on the line of credit and the funds, products or services are accessed using a credit or debit card, check, store charge card or cash advance. Consumers pay interest on the outstanding balance. A car loan is made for a specified amount and a specific length of time and is therefore considered closed-end credit. A mortgage loan is also considered a form of closed-end credit since the house serves as collateral for the loan which is made at a specified interest rate for a specified time period.
100
What is the largest equities market in the world? A. American Stock Exchange (AMEX) B. NASDAQ market C. New York Stock Exchange (NYSE) D. Over-the-counter (OTC) market
C. New York Stock Exchange (NYSE) The largest of these markets is the New York Stock Exchange. It was founded in 1792 under a tree on Wall Street. Also known as the "Big Board" and "the Exchange." the NYSE has the most stringent listing requirements and is governed by a board of directors. Recent events have led the NYSE to develop and enforce stricter rules of corporate governance.
100
Electricity and food expenditures are: A. variable expenses that change from one period to another B. discreet expenses that do not have to be paid monthly C. fixed expenses that remain the same from one period to another D. personal expenses for an individual or family
A. variable expenses that change from one period to another All expenses can be divided into fixed and variable expenses. Variable expenses are those that change each time period. These include the cost of utility bills, food, clothing, entertainment, and education. Fixed expenses are those that are the same dollar amount each time period. They generally include mortgage, rent, and car payments.
100
The only type of life insurance that does not develop a cash value is: A. Term life insurance B. Whole life insurance C. Universal life insurance D. Variable universal life insurance
A. Term life insurance Term life insurance provides a death benefit at a low premium cost. All other types of life insurance are described as cash value life insurance because they develop some type of cash value or cash accumulation.
200
Banks use savings account deposits to: A. Make their services and products attractive for new depositors B. Pay for employee special projects C. Give loans to consumers and businesses D. Improve the quality of life in low-income communities
C. Give loans to consumers and businesses The basic functions of banks and credit unions are to be an intermediary between savers and borrowers. Banks and credit unions pay interest on customers' savings accounts and hold customers' money through checking accounts and then lend most of that money to other consumers and businesses for a fee (interest).
200
Another term for the dollar amount of your paycheck after taxes and other withholdings is: A. Discretionary income B. Adjusted gross income C. Net income D. Gross income
C. Net income Gross income minus all taxes and other required withholdings equals net income, sometimes called take-home pay. Gross pay is your salary or wage before any taxes or other withholdings, such as child support, health insurance, and union dues, have been subtracted. Net income is the dollar amount of your paycheck and is also called take-home pay.
200
The interest earned on United States Series EE Savings Bonds is A. exempt from state and local taxes. B. paid in a lump sum at the time the face value on the bond is reached. C. equal to the money paid to purchase it. D. deducted at the time of the bond's purchase.
A. exempt from state and local taxes. The interest rate on US savings bonds is exempt from state and local taxes.
200
After five years of owning a Roth Individual Retirement Account (IRA), a person wants to buy his first home, the person can withdraw money from the Roth IRA A. tax and penalty free. B. but must pay a set penalty at the time of withdrawal. C. and have penalties deferred until retirement. D. and owed taxes are deferred until retirement.
A. tax and penalty free. Under normal circumstances, withdrawals from a Roth IRA before retirement age are subject to both taxes and a penalty. However, use of funds for education, purchase of a first home and medical emergencies are three situations which permit the holder of the IRA to use savings in the funds without incurring a penalty or paying taxes on the amount withdrawn.
200
A person buys a flat screen, plasma, theater-like television. The person has homeowner's insurance. Why would it be appropriate to add a personal property floater to that insurance? A. To reduce the premium on the homeowner's insurance. B. To protect the person who owns the television from liability for damages. C. To show the insurance company a good faith investment has been made. D. To cover the cost of replacement should the television get damaged or stolen.
D. To cover the cost of replacement should the television get damaged or stolen. An extremely expensive item such as furs or jewelry or, in this case, the theater-like television, would usually not be covered in a standard insurance policy. As a result, policy holders often opt to attach a rider or floater to the policy to cover replacement or repair of these items. The policy holder also must pay an additional premium for the floater coverage.
300
A man budgeted $200 a month for clothing. This month the man spent $150 on clothing therefore that budget item is considered to have A. an outflow deficit. B. an income overage. C. a budget variance. D. a budget deficit.
C. a budget variance. The difference between the amount of money budgeted for items ($200 for clothing) and the actual amount of money spent for those items ($150 for clothing) is called a budget variance.
300
Which type of financial institution usually pays the highest rate of interest on savings account balances? A. Savings and loan associations B. Commercial banks C. Credit unions D. Investment firm money market accounts
C. Credit unions Credit unions usually pay the highest rates of interest because they have lower risks and costs of operation. They are not-for-profit organizations, and their members have something in common, such as their employer, geographic area, or religious affiliation. Credit unions also offer fewer services than a commercial bank.
300
Robyn is an investor. Which financial product makes her a shareholder in a corporation? A. Bonds B. Certificate of deposit C. Common stocks D. Bond mutual funds
C. Common stocks Stock represents shares of ownership in a corporation. Usually corporations issue stock to raise capital (money) to expand the business. An investor buys stock through a stockbroker, who earns a commission from both the purchase and the sale of stock. Stockholders receive dividends if the company issues dividends, have voting rights, and can sell their stock to another investor at any time. They may also receive dividends.
300
John's company will match his pre-tax contributions to the company's retirement plan, known as: A. A 401(k) B. A Roth IRA C. A defined benefit plan D. A traditional IRA
A. A 401(k) A 401(k) retirement plan is called a salary-reduction plan because the employee must make contributions. Then, the employer may match the employee's contributions up to limits set by the employer. Both the employee and employer contributions are pretax and the earnings are tax-deferred until withdrawn. Employees who choose not to be become part of their company's 401(k) plan by contributing part of their wage or salary to the plan also lose the employer's contribution. They are, in effect, "leaving free money on the table."
300
Ben's truck is crushed by a hit-and-run driver. Scott is hit by an uninsured driver. How will they receive payments? A. State motorist coverage B. Uninsured or no-fault motorist coverage C. Insolvent motorist coverage D. Auto liability coverage
B. Uninsured or no-fault motorist coverage Uninsured or no-fault motorist's protection covers the cost of injuries to the policyholder and family members. Uninsured or no-fault motorist's protection also covers car repairs, financial losses due to injuries, car damage caused by a hit-and-run driver, or the cost of other people's injuries by a driver who has insufficient coverage.
400
The following is usually considered a variable expense: A. mortgage payment B. electric bill payment C. rent payment D. car payment
B. electric bill payment All expenses can be divided into fixed and variable expenses. Variable expenses change from one specific time period (for example, each month, twice a year, once a year) to another. Examples of monthly variable expenses are gas and electric bills, and the cost of food, clothing, and entertainment. An example of a semiannual variable expense is tuition. Fixed expenses are the same from one time period to another. Examples of fixed monthly expenses are mortgage, rent, and car payments.
400
Predatory lending practices generally include: A. Very high interest rates and fees B. An interest rate based on the borrowers credit history C. Repayment terms that the consumer can afford D. Responsible financial advisers
A. Very high interest rates and fees Predatory lending uses abusive practices in any type of credit but the lenders primarily target applicants for home mortgages, home equity, and home refinancing loans. This practice tends to occur in low-income neighborhoods, particularly those with a large number of elderly or minority homeowners who have a poor credit history, or need cash quickly. These lenders use deceptive advertising and high pressure salespeople and give repayment terms that the borrower cannot afford.
400
A stock broker or financial consultant: A. Gives financial advice to clients B. Sells money orders and certified checks C. Guarantee a return on investment D. Do not have to be licensed
A. Gives financial advice to clients Stockbrokers represent individual investors who want to buy or sell stocks, bonds, and other securities, give financial advice to their clients and they work for a securities firm also known as a broker-dealer.
400
In terms of retirement income, a person should realize that the amount of money the person will receive from the Social Security System's benefits depends on the person's: A. earnings over a lifetime of work. B. net income from the person's last job. C. contributions minus the money the person will receive from other pension plans. D. average gross income from the last five years of employment.
A. earnings over a lifetime of work. Social Security retirement benefits are based on a person?s total earnings over a lifetime of work. To qualify for benefits, people born after 1928, need to have worked at least 40 quarters (a quarter is equal to three months). Except for approximately 03% of the working population (mostly state and federal workers), every waged employee and their employers pays into the Social Security System. The size of a person?s benefits depends on the length of time a person pays into the system and the amount paid into the system. There are also currently proposals being discussed to permit younger individuals to put part of their savings into private-sector investments. This is a decision that would have to be made by Congress.
400
For the past five years, a person has had a $20,000 whole life insurance policy that has a cash value clause. The person decides to surrender the policy. At the time of surrender, the person will receive A. one-fifth of the $20,000 face value. B. $20,000 less the premiums paid. C. a calculated amount of money which includes the premiums paid as well as the interest on that money. D. a calculated amount of money that must be converted to a term life insurance policy.
C. a calculated amount of money which includes the premiums paid as well as the interest on that money. The cash value of a whole life insurance policy is based on premiums paid plus some of the interest earned.
500
A person complains about how expensive it is to be a cigarette smoker. One of the reasons cigarettes are so expensive is that A. the tobacco supply is controlled by the Federal Trade Commission (FTC). B. the tobacco industry imports most of the tobacco. C. their cost is controlled by the Food and Drug Administration (FDA). D. the government imposes an excise tax on them.
D. the government imposes an excise tax on them. The government may impose a tax on specific goods and services such as alcohol, cigarettes, gasoline, and airline services, which are called excise taxes. These taxes produce revenue for the government and are usually placed on items not considered necessities. Often, as in the case of alcohol and cigarettes, these taxes are also levied as away to try to deter certain behaviors. As a result, these taxes have become known as excise taxes.
500
If a person has $1,000 in a savings account and earns $20 a year in interest on that account, the rate of return on the money is close to A. 5%. B. 2%. C. 10%. D. 20%.
B. 2%. Though interest is calculated on a daily basis, the closest Annual Percentage Rate earned is 2% ($20 is 2% of $1000).
500
Who benefits the most from inflation? A. Long-term fixed rate borrowers B. Lenders C. Persons on fixed incomes D. The government
A. Long-term fixed rate borrowers Inflation reduces the purchasing power of money, so every dollar you spend in the future has less value than it has now. Since the payments on long-term fixed rate loans, like 30-year mortgages remain the same for the term of the loan, future payments will take place with dollars that have less purchasing power. Inflation also raises long-term interest rates, so if you are already locked into a fixed rate loan. your interest rate looks more and more favorable.
500
An important consideration when saving money for emergencies is: A. high growth potential B. high degree of safety and liquidity C. diversification D. return on investment
B. high degree of safety and liquidity An emergency fund account needs to have a high degree of safety and liquidity. High safety means that there is very little chance of losing the principal (dollar amount in the account). High liquidity means it is easy to get cash out of the account quickly.
500
Insurance is frequently described as a method of "sharing the risk" because the: A. Risk of loss is shared with the insurance company sales person B. Insured shares the risk of loss with all the other policy holders C. Insured can share the risk by spreading the cost over a number of years D. Risk of loss is shared with the government
B. Insured shares the risk of loss with all the other policy holders Part of every policyholder's premium is put into a "pool" from which the few policyholders who have claims are paid. Policyholders know that some of them will experience losses and make claims; they just don't know who it will be. By sharing the risk, each policyholder can cover large risks at a low premium cost.
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