Exam 5: Banking and Interest Rates

Describe how interest rates affect your personal budget, income statement, and balance sheet. What account groups do they affect? Give two specific examples.

A certificate of deposit guarantees or locks in an interest rate for a specified time and rate.

Lucky Louie has $10,000 that he wants to invest for 3 years but wants to take no risk on the investment. His best course of action would be to

Deposits at commercial banks are insured up to ________ per depositor by the Federal Deposit Insurance Corporation (FDIC).

Depository institutions are financial institutions that accept deposits (that are insured up to a maximum level) from individuals or firms and provide loans.

You can be assured that if your ATM query shows you have a certain balance in your checking account, that figure is more accurate than the amount in your check register.

Deposits in commercial banks that are members of the FDIC, are insured up to a maximum of $50,000 per account.

A ________ is a check that is written on behalf of a person for a fixed amount that is paid in advance.

Which of the following characteristics is common to both commercial banks and credit unions?

Use the following two columns of items to answer the matching questions below: -finance company A)nondepository institutions that facilitate the purchase and sale of securities by firms or individuals B)financial institutions that accept deposits and provide loans C)financial institutions that offer a diverse set of services D)a nondepository institution that sells shares to individuals and uses the proceeds to invest in securities and create a mutual fund E)a nondepository institution that provides insurance to protect against adverse events F)a nondepository institution that specializes in providing personal loans

The term structure of interest rates is the relationship between the maturities of ________ debt securities and the annualized yields offered on those securities.

Financial institutions that accept deposits (that are insured up to a maximum level) from individuals and provide loans are called

Banks do not charge fees for safety deposit boxes.

The ________ is an additional return beyond the risk-free rate that can be earned from a deposit guaranteed by the government.

It is illegal for a federally insured financial institution to charge those with poor credit records higher interest rates than those with good credit.

Which of the following is not a service provided by a commercial bank?

Nondepository institutions are financial institutions that provide various financial services, but their deposits are not federally insured.

Introductory high interest rates paid by financial institutions for new accounts are usually a good deal and you should therefore take advantage of them without question.

The term structure is often based on rates of return or yields offered by ________ which are ________ with different maturities issued by the U.S. Treasury.

When the Federal Reserve buys or sells Treasury securities to affect the money supply, it uses