Financial Institutions and Banking Practices
1. Which of the following is NOT a common feature of a financial institution?
- Access to investment products.
Explanation: Financial institutions commonly provide access to various financial products, including investment products. Therefore, the statement “Access to investment products” is a common feature of financial institutions.
2. Which of the following statements about check cashing companies is TRUE?
- They charge high fees.
Explanation: Check cashing companies are known for charging relatively high fees for their services.
3. Which of the following financial institutions typically have the highest fees?
- Check cashing and payday loan companies.
Explanation: Check cashing and payday loan companies are known for charging high fees, making them financial institutions with comparatively higher fees.
4. Which type of bank account typically offers the least (if any) interest?
- Checking Account.
Explanation: Checking accounts typically offer little to no interest compared to savings accounts.
5. Savings accounts typically offer more interest than what type of accounts?
- Checking Accounts.
Explanation: Savings accounts generally offer higher interest rates than checking accounts.
6. Which type of bank account is best for everyday transactions?
- Checking Account.
Explanation: Checking accounts are designed for everyday transactions, providing easy access to funds for activities like payments and withdrawals.
7. (True or False) A savings account that compounds interest daily will earn a higher return than a savings account that pays simple interest daily.
- TRUE.
Explanation: True. Compounding interest daily allows for the calculation of interest on both the initial principal and accumulated interest, resulting in higher returns compared to simple interest.
8. Which savings account will earn you the most money?
- One that compounds daily.
Explanation: A savings account that compounds interest daily will yield higher returns due to more frequent compounding.
9. Which savings account will earn you the least money?
- One that earns simple interest monthly.
Explanation: A savings account that earns simple interest monthly will generally yield lower returns compared to accounts with more frequent compounding.
10. Why is it important to reconcile your bank statements?
- To avoid spending more than what’s in your account, to detect any errors in your accounts, and to determine if you were charged any fees. (All of the above).
Explanation: Reconciling bank statements helps in managing finances, avoiding overspending, detecting errors, and identifying any unauthorized fees.
11. How can you avoid spending more than what is in your bank account?
- Keep your own records to compare with your financial institution’s records.
Explanation: Keeping personal records and comparing them with the financial institution’s records helps prevent overspending and ensures accurate financial management.
12. How could you reconcile your bank account to avoid spending more than you have?
- Compare your own records of your spending with your financial institution’s records.
Explanation: Reconciling involves comparing personal spending records with the financial institution’s records to ensure accuracy and avoid overspending.
13. What should you do before you withdraw money from the ATM?
- Inspect the ATM to make sure it wasn’t tampered with.
Explanation: Before withdrawing money from an ATM, it’s important to inspect the machine for any signs of tampering to ensure the transaction’s security.
14. What should you do before you approach an ATM?
- Check for any suspicious people lurking nearby.
Explanation: Before approaching an ATM, it’s essential to be aware of the surroundings and check for any suspicious individuals to ensure personal safety.
15. What should you do before you use an ATM?
- Inspect the ATM and its surroundings to make sure it is safe to use.
Explanation: Before using an ATM, it’s crucial to inspect the machine and its surroundings to ensure safety and security.
16. Which of the following statements about savings accounts is FALSE?
- Savings accounts allow an unlimited amount of withdrawals each month.
Explanation: Savings accounts typically have restrictions on the number of withdrawals allowed per month, and exceeding this limit may result in fees.
17. Which of the following statements about investing is TRUE?
- Investing is riskier than putting money in a savings account.
Explanation: True. Investing involves a level of risk, and returns are not guaranteed, unlike placing money in a savings account.
18. Investing is best for________.
- Long-term financial goals, like paying for retirement.
Explanation: Investing is generally recommended for long-term financial goals, such as saving for retirement, as it allows for potential growth over time.
19. Which of the following statements about stocks is TRUE?
- A stock is a share of ownership in a company.
Explanation: True. A stock represents ownership in a company, and stockholders are entitled to a portion of the company’s assets and earnings.
20. A mutual fund is ___________.
- A type of investment that invests in a mix of different types of investments.
Explanation: A mutual fund pools money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities.