A.3 Function, purpose, and general structure of financial institutions Flashcards
Which of the following best describes the primary function of a commercial bank?A) To facilitate buying and selling of securitiesB) To provide loans and take depositsC) To provide insurance servicesD) To manage mutual funds
To provide loans and take depositsExplanation: Commercial banks are financial institutions that accept deposits from customers and use those funds to provide loans to other customers.
Which of the following financial institutions is not typically considered a depository institution?A) Commercial bankB) Credit unionC) Savings and loan associationD) Investment bank
Investment bankExplanation: Investment banks are not depository institutions, as they do not accept deposits from customers.
Which of the following is not a common function of a brokerage firm?A) Providing investment advice to clientsB) Executing trades on behalf of clientsC) Underwriting new securities offeringsD) Accepting deposits from clients
Accepting deposits from clientsExplanation: Brokerage firms typically do not accept deposits from clients, but they do provide investment advice, execute trades, and underwrite new securities offerings.
Which of the following is not a characteristic of a money market mutual fund?A) High return potentialB) Low riskC) Short-term investmentsD) Liquidity
High return potentialExplanation: Money market mutual funds are generally considered to be low-risk investments that focus on short-term, highly liquid investments such as Treasury bills, certificates of deposit, and commercial paper.
Which of the following is not a function of the Federal Reserve System?A) Regulating the money supplyB) Providing loans to individualsC) Setting interest ratesD) Clearing checks
Providing loans to individualsExplanation: The Federal Reserve System is responsible for regulating the money supply, setting interest rates, and clearing checks, but it does not provide loans to individuals.
Which of the following is not a type of insurance most insurance companies offer?A) Life insuranceB) Health insuranceC) Property and casualty insuranceD)Homeowner’s Association Insurance
Homeowner’s association insurance. Explanation: Most insurance companies offer life insurance, health insurance, and property and casualty insurance, but they typically do not offer homeowner’s association insurance.
Which of the following is not a type of retirement account commonly offered by financial institutions?A) 401(k)B) Roth IRAC) Traditional IRAD) Money market account
Money market account Explanation: Money market accounts are not typically considered retirement accounts, as they are not subject to the same tax benefits and restrictions as 401(k)s, Roth IRAs, and traditional IRAs.
Which of the following is not a type of bond commonly offered by financial institutions?A) Corporate bondB) Municipal bondC) Treasury bondD) Savings bond
Savings bond Explanation: Savings bonds are issued by the U.S. Treasury, not by financial institutions. Corporate bonds, municipal bonds, and Treasury bonds are all commonly offered by financial institutions.
Which of the following is not a type of investment commonly offered by financial institutions?A) StocksB) Mutual fundsC) Real estateD) Cryptocurrency
Cryptocurrency Explanation: While some financial institutions may offer cryptocurrency investments, it is not a traditional type of investment commonly offered by most financial institutions.
Which of the following is not a factor that affects interest rates?A) InflationB) Economic growthC) Government spendingD) The price of gold
The price of gold Explanation: While factors such as inflation, economic growth, and government spending can all affect interest rates, the price of gold typically does not have a direct impact on interest rates. Gold prices are influenced by a variety of factors, including supply and demand, geopolitical events, and investor sentiment, but they do not necessarily correlate with changes in interest rates
Mary has a $10,000 CD that matures in one year. She wants to withdraw her money before the maturity date. What type of penalty can she expect to pay?A) A penalty equal to the interest earned on the CDB) A penalty equal to 10% of the CD’s principalC) A penalty equal to the CD’s entire principalD) No penalty
A penalty equal to the interest earned on the CD Explanation: Most CDs have an early withdrawal penalty, which is typically calculated as a percentage of the interest earned on the CD.
John wants to borrow $100,000 to purchase a new home. Which of the following types of loans would be the best option for him?A) Personal loanB) Auto loanC) Mortgage loanD) Student loan
Mortgage loan Explanation: A mortgage loan is specifically designed for home purchases and typically offers lower interest rates and longer repayment periods than other types of loans.
Sarah is interested in investing in the stock market, but she does not have the time or expertise to research individual stocks. Which of the following investment options would be the best fit for her?A) Individual stocksB) Mutual fundsC) Options contractsD) Futures contracts
Mutual funds Explanation: Mutual funds are professionally managed investment portfolios that invest in a diversified mix of stocks, bonds, and other assets. They are a good option for investors who want exposure to the stock market but do not want to manage their own portfolio.
Mark has $10,000 in a savings account that earns 1% interest per year. If he does not withdraw any money from the account, how much interest will he earn after one year?A) $10B) $50C) $100D) $1,000
$100Explanation: To calculate the interest earned, you can multiply the principal (or starting balance) by the interest rate and the length of time (in years): $10,000 x 0.01 x 1 = $100.
