Financial Institutions
Financial institutions loan funds at ________ they pay depositors.
a higher interest rate than
Financial institutions typically loan money at higher interest rates than they pay to depositors in order to cover costs and generate profit.
________ management involves making decisions over a short-term period regarding cash inflows and outflows.
Money
Money management refers to making decisions about how to manage cash inflows and outflows over a short period, ensuring that funds are available for necessary expenses.
The ability to save funds is ________ when credit payments are ________.
Reduced; large
Large credit payments reduce the amount of disposable income available for saving. The higher the credit payments, the less you can save, as a significant portion of your income is directed toward repaying debt.
What is the primary difference between secured and unsecured loans?
A secured loan is backed by collateral, while an unsecured loan is not.
Secured loans are backed by assets like a house or car, which can be seized if the loan is not repaid. Unsecured loans, like credit cards or personal loans, do not require collateral but typically have higher interest rates.
What is the first step in creating a personal budget?
Determining income
The first step in creating a budget is understanding how much money you have coming in (income) to determine what you can spend. From there, you can track spending and set goals.
Savings institutions accept deposits and provide mortgage and personal loans to individuals. Another name for these financial institutions is
thrift institutions
Thrift institutions, also known as savings institutions, focus on savings accounts and provide loans, especially for mortgages.
Since CDs are insured by the FDIC, the rates are usually the same from one institution to another.
A) True
B) False
B) False
Explanation: Even though CDs are FDIC-insured, interest rates can vary between financial institutions due to competition, the term length, and current market conditions.
Which of the following will not be included on your credit report?
A) Social Security number
B) FICO score
C) Unpaid accounts
B) FICO score
Explanation: Your credit report includes personal details such as your Social Security number, along with unpaid accounts and credit history. However, your FICO score is a separate credit score, and it is not directly included in your credit report. It is derived from the information in the report.
Which of the following is a typical characteristic of a payday loan?
High-interest rates
Payday loans are short-term loans typically offered to borrowers with poor credit, but they come with extremely high-interest rates. They are meant to be paid off by the borrower’s next paycheck.
A financial plan should primarily include which of the following?
A) Investment strategies
B) Emergency savings
C) Tax avoidance schemes
Emergency savings
A financial plan should include a strategy for building an emergency fund to cover unexpected expenses. This ensures you’re financially prepared for emergencies like job loss or health issues.
Which of the following characteristics is common to both commercial banks and credit unions?
A) Lower fees
B) Insurance up to $250,000
C) Nonprofit
B
Both commercial banks and credit unions provide deposit insurance up to $250,000, ensuring safety for depositors.
If you lose your checkbook, the bank will usually not charge you for stopping payment on any unused blank checks.
A) True
B) False
A) True
Explanation: Most banks will not charge for stopping payment on checks if you lose your checkbook, but it is important to report the loss immediately to prevent fraud.
Which of the following is a disadvantage of using credit?
A) Ease of returning merchandise
B) Shopping convenience
C) Slowing of progress toward financial goals
C) Slowing of progress toward financial goals
Explanation: Using credit may slow progress toward financial goals, as funds that could be used for saving and investing are instead allocated to paying off debt. The more credit you use, the more time it takes to achieve long-term financial goals.
What does the term "annual percentage rate" (APR) refer to in a loan?
APR represents the cost of borrowing on an annual basis, including interest and fees.
APR provides a more accurate picture of how much a loan will cost annually, allowing consumers to compare different loan offers. It includes the interest rate as well as other costs like fees and insurance.
Does Mrs. H have a pet?
If yes, what kind?
No pets!
If you were taking out a personal loan, the highest rate would probably be charged by a
Finance Company
Finance companies typically charge higher interest rates due to the higher risk of default from borrowers.
Stopping payment on a check should be used if you paid to have your bathroom remodeled and the job was not completed.
A) True
B) False
A) True
Explanation: If a service has not been completed as agreed, stopping payment on the check can prevent paying for unfinished work or goods.
The item that receives the most weight in the FICO credit scoring system is:
Credit payment history
In the FICO scoring system, payment history is the most important factor. It accounts for about 35% of the score. This includes whether you have made payments on time, the number of late payments, and the severity of those late payments.
What is the typical effect of defaulting on a loan?
The borrower’s credit score is significantly lowered
Defaulting on a loan means that the borrower has failed to make payments as agreed. This negatively impacts their credit score and can lead to legal action or asset seizure.
What is the 50/30/20 rule in budgeting?
50% of your income goes toward necessities, 30% to savings, and 20% to discretionary spending.
Which of the following is classified as a nondepository institution?
A) Credit union
B) Insurance company
C) Savings institution
B
Insurance companies are considered nondepository institutions because they do not accept deposits or make loans in the same way as banks and credit unions.
Developing a monthly budget as part of your annual financial plan to determine excess cash or cash deficiencies, and then developing a plan to invest (or fund) the excess (deficient) cash position is a process called
Money management
Money management involves creating and following a budget to plan for cash flows, helping to allocate resources for investments or cover shortfalls.
Which of the following is not one of the three primary credit bureaus?
A) Equifax
B) Experian
C) Fair Isaac Corporation
Answer: C) Fair Isaac Corporation
Explanation: Fair Isaac Corporation (FICO) is not one of the three major credit bureaus. The three primary credit bureaus are Equifax, Experian, and TransUnion, which collect and maintain consumer credit information.
Which of the following types of loans is best for making a large purchase, like a car or home?
Installment loan
Installment loans are designed for large purchases and are repaid over a fixed period with regular payments. They are ideal for buying cars, homes, or making other significant purchases, as they offer lower interest rates than payday or personal loans.
Which of the following factors most affects the interest rate on a loan?
A) The borrower’s credit score
B) The color of the borrower’s car
C) The borrower’s age
The borrower’s credit score
The borrower’s credit score is one of the most important factors that lenders consider when determining the interest rate on a loan. A higher credit score typically results in a lower interest rate, as it indicates the borrower is a less risky investment for the lender.