Chapter 8 Quiz Flashcards
(103 cards)
1
Q
What are the five non-cash payment systems?
A
- Checks
- Credit, Debit, and other types of cards
- ACH
- Fedwire
- CHIPS
2
Q
A “substitute check” - a negotiable instrument used in the United States to represent the digital reproduction of an original paper check.
A
Image Replacement Document (IRD)
3
Q
The information coded at the bottom of the check in magnetic ink and used by the clearing agent, often a Federal Reserve bank, branch, or RCPC, to process the check.
A
Magnetic Ink Character Recognition (MICR)
4
Q
ECP
A
Electronic Check Presentment- a process that allows financial institutions to exchange digital images of checks instead of paper to increase the speed of the check clearing process.
5
Q
POD
A
Proof of Deposit- The verification that the dollar amount of a check or draft being deposited is correct. Compared to the amount on the deposit slip.
6
Q
An electronic network for financial transaction in the United States that processes large volumes of credit and debit transactions in batches. There are two such networks, one operated by the Federal Reserve and the other a private network.
A
Automated Clearing House (ACH)
7
Q
National Automated Clearinghouse Association
A
A non-profit membership association charged with overseeing the ACH system, which operates the largest EPN in the world.
8
Q
The only private sector ACH operator in the U.S.
A
Electronics Payment Network (EPN)
9
Q
POP
A
Point of Purchase- checks converted at check-out terminal at retailers.
10
Q
ARC
A
Accounts Receivable Conversion- used at lockbox site.
11
Q
BOC
A
Back Office Conversion-converted at back office of retailers.
12
Q
RCK
A
Re-Presented Check Entries- used to transmit ACH debit entries instead of returning physical checks.
13
Q
A process in which a check is deposited as many times as necessary in order for it to clear.
A
Check Re-Presentment
14
Q
ARC
A
Accounts Receivable Conversion- A process that allows paper checks received in payment for an account receivable to be electronically scanned and converted into an electronic payment through the Automated Clearing House.
15
Q
4 ways ACH differ from checks.
A
- Paper (checks) vs. Electronic (ACH)
- Payment info only (checks) vs. payment plus additional info (ACH)
- Payer and Payee (checks) vs. originator and receiver (ACH)
- Value Dated (ACH) - No float
16
Q
CHIPS
A
Clearing House Interbank Payments System-For international transactions
17
Q
RTGS
A
Real Time Gross Settlement- funds transfer systems where transfer of money or securities takes place from one institution to another on a “real time” and on a “gross” basis. Settlement in “real time” means payment transactions are not subject to an waiting period.
18
Q
SWIFT
A
Society for Worldwide Interbank Financial Telecommunications-transmits payment instructions, not value. Settlement occurs via Fedwire, CHIPS, ect.
19
Q
Two primary bank-issued cards.
A
VISA and MasterCard
20
Q
Three major credit card processes.
A
- Authorization-seeks approval and places a hold on account
- Clearing-Issuing bank charges cardholder account
- Settlement-funds transfered
21
Q
Four types of cards.
A
- Bank cards (debit, ATM)
- Credit Cards
- Stored Value Card (SVC)(gift card, payroll card)
- Smart cards (may be used for physical and system access)
22
Q
PSR
A
Payment System Risk
23
Q
Systemic Risk
A
Risk that failure of one bank could cause other failures and collapse of payment system.
24
Q
Credit Risk
A
Risk that party funding transaction will default on the settlement obligation.
25
Fraud Risk
Greatest risk is checks followed by credit cards.
26
Collection float components
1. Mail float
2. Processing float
3. Availability float
(measured in dollar days)
27
Lockbox
A centralized collection system in that deposited funds are transferred on a frequent basis from the lockbox collection sites to the corporate headquarters bank.
28
Wholesale lockboxes
Corporate to corporate payments (small volume, large dollar payments)
29
Retail lockboxes
Consumer to corporate payments (large volume, small dollar payments)
30
Hybrid lockboxes
Combines aspects of wholesale and retail lockboxes
31
EBPP
Electronic Bill Presentment and Payment (Consumer)
32
EIPP
Electronic Invoice Presentment and Payment (Corporate) B2B billion online
33
EDT
Electronic Depository Transfer
34
DTC
Depository Transfer Check- A check used by a designated collection bank for depositing the daily receipts of a corporation from multiple locations. ACH has gradually replaced DTC.
35
Minimum transfer=
(Wire Cost -EDT Cost)/(Days Accelerated X Opportunity Coast/356)
36
ZBA
Zero Balance Account- A checking account in which a balance of zero is maintained by automatically transferring funds from a master account in an amount only large enough to cover checks presented.
37
Positive Pay
A cash management service employed to deter check fraud. BANKS use positive pay to match the checks a company issues with those it presents for payment.
38
Reverse Positive Pay
A cash management service employed to deter check fraud. Banks sent presentment lists to the COMPANY to match the drafts a company issues with those that have been presented for payment.
39
The Competitive Equality Banking Act of 1987
Allowed existing non-bank banks to continue to operate but prohibited the establishment of new non-bank banks after May 4, 1999.
40
Financial Institutions Reform, Recovery and Enforcement Act
Mainly dealt with the disposition of insolvent S&Ls, further blurred the lines between depository institutions by allowing bank holding companies to buy healthy S&Ls. 1989
41
Financial services Modernization Act
1999(Gramm-Leach-Bililey)-Repealed the Banking Act of 1933 (Glass-Steagall) by allowing banks to affiliate with investment and insurance firms. Created a new organizational form, called a financial holding company.
42
Demand Deposit Accounts (DDA)
Checking Account
43
Savings accounts
A time deposit account that bears interest and includes a minimum balance requirement.
44
Money market demand accounts
MMDAs- DDA that pays interest with a limited number of payments.
45
Negotiable order of withdrawal accounts
NOW- Similar to MMDA but unlimited check writing feature
46
Super NOW acounts
High rate of interest that NOW accounts
47
Depository Institution Deregulation and Monetary Control Act of 1980 (DIDMCA)
This legislation homogenized many of the products offered by institutions. Differences among financial institutions have largely disappeared.
48
Federal Reserve Regulation Q (Banking Act of 1933)
Mandated that corporations not earn interest on DDAs.
49
Garn-St. Depository Institution Act of 1982
1. Allowed depository institutions to pay interest on MMDAs.
2. Allowed interstate acquisitions of failed or failing banks or thrifts, primarily to reduce the costs of government bailouts of troubled institutions. .
50
Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank)
1. repealed regulation Q, allowing corporations to earn interest on DDAs for the first time since the Great Depression
2. Depository institutions must make available the first $200 of funds deposited on the business day after the banking day in which the deposit occurs for non-next-day availability checks.
51
McFadden Act of 1927
limited bank branching by national banks to the same area where state-chartered banks in that state were permitted to branch. Concerned that the concentration of financial power would reduce lending to businesses in small towns.
52
Bank Holding Company Act of 1956
Prohibited further interstate acquisitions by holding companies unless specifically allowed by states law in the state of the proposed acquisition. Prohibited bank holding companies headquartered in one state from acquiring a bank in another state.
53
Interstate Banking and Branching Efficiency Act 1994
Bank holding companies were permitted to acquire banks located in any state beginning in September of 1995. Banks in one state could merge with those in another state beginning June 1997. Banks could establish branches in states where they had not previously had a branch if the host state expressly passed a law permitting such branches.
54
Banking Act of 1933
FDIC was created as a result of
55
Federal Reserve act of 1913
Created the Fed in response to bank runs occurring in 1907 that exposed weaknesses in the nation's payment systmes.
56
The Fed is run by?
The seven-member board of governors
57
A committee of the Federal Reserve that makes most of the monetary policy for the U.S. in its eight regularly scheduled meetings per year. Comprised of the seven members of the board of governors.
Federal Open Market Committee
58
Federal Advisory Council
Comprised of prominent commercial bankers that meet at least four times per year with the board of governors.
59
How many federal reserve districts are there? How many regional branches?
12 districts, 25 regional branches.
60
Sight drafts
payable on demand
61
Time drafts
payable at some future date
62
An instrument that gives the payor 24 hours to decide whether to honor or refuse payment after it has been presented to the payor's bank. Frequently used for claim reimbursement by insurance companies, which use the 24-hour period to verify the signature and endorsements.
Payable through draft
63
Government warrant
A PTD issued by a government agency.
64
A draft initiated by the payee, who has been authorized to draw against the payor's account.
Preauthorized Draft
65
The balance that reflects all the credits and debits posted to an account at a certain point in time, regardless of the availability to the account holder.
Ledger Balance
66
Sometimes called the "available balance," this balance reflects how much of a deposit balance is immediately spendable - that is, can actually be used (drawn on) by the account holder.
Collected Balance
67
Regulation CC of the Expedited Funds Act of 1987
Stipulates that from the day of deposit, checks must be given availability within two business days.
68
Check Clearing for the 21st Century Act
This legislation encourages banks to transmit check images electronically to print centers located near the paying backs, where substitute checks or IRDs are created from the images of the original checks.
69
A bookkeeping entry that simultaneously debits the payor's account and credits the payee's account.
Wire transfer
70
A value transfer transaction that makes use of the linked network of 12 Fed district banks which transfers funds for banks (and by extension their customers) by debiting or crediting the banks' reserve accounts.
Fedwire
71
The bank originating an ACH value transfer request. Depending on whether it is a debit or credit ACH transaction, it could be either the depositing bank or drawee bank.
Originating depository financial institution (ODFI)
72
The bank receiving an ACH value transfer request. Depending on whether it is a debit or credit ACH transaction, it could be either the depositing bank or drawee bank.
Receiving depository financial institution (RDFI)
73
Durbin
Passed as part of the Dodd-Frank financial reform legislation in 2010, required the Federal Reserve to limit fees charged to retailers for debit card processing.
74
Aggregate relationship approach
Credit and cash management services were both handled by the chosen bank
75
Transaction approach
Banks are selected based on the level of service and the associated fees.
76
Account analysis statement
Indicates the services used and the charges assessed.
77
A term that refers to the system operated by the card associations and member banks of those associations to provide for the standardized electronic exchange of financial and non-financial data associated with sale and credit data between merchant acquirers and card issuers on various types of MasterCard and Visa transactions. This system ties the "acquiring" and the "issuing" side of the card system together.
Interchange
78
An acronym that refers to any location where credit card transactions are performed with the cardholder present, such as a retail store.
POS
79
A situation in which a bank is permitted to add a check or checks it is clearing and an accompanying listing to whatever checks the local Fed district bank is send to the distant Fed office. In this way, the clearing bank can miss the local Fed's cutoff time but still meet the distant Fed's cutoff.
Piggyback
80
In the credit card world, this refers to any entity formed to administer and promote credit cards. The best known examples are MasterCard and Visa.
Credit Card Associations
81
The process of verifying that a credit card has sufficient funds (credit) available to cover the amount of the transaction and is not on a negative data base of cancelled or stolen cards.
Authorization
82
The average dollar amount of a merchant's typical sale.
Average Ticket
83
A check that is re-routed back to the drawee bank either for insufficient funds or other reasons.
Return Item
84
Sometime called "availability float," this is the delay in availability after deposit as a result of the time it takes for a check to settle through the clearing process and actual value transfer. As with other types of float, it is typically measured in "dollar-days," the product of dollars * number of days of delay.
Clearing Float
85
A payment card whose funds are withdrawn directly from the cardholder's checking account at the time of sale (online networks) or after batch settlement (off-line on a credit card network).
Debit Card
86
The amount of time that transpires from the point of receipt of the check at a lockbox or company mail room and the time when the check is deposited at the bank. As with other types of float, it is typically measured in "dollar-days," the product of dollars * number of days of delay.
Processing Float
87
A check deposited in the same bank on which it is drawn.
On-Us Check
88
A bank that is a member of the Federal Reserve system and that maintains a depository account for a non-member bank and contracts with the non-member bank to provide clearing services for the non-member
Correspondent Bank
89
An acronym that refers to the process of validating a cardholder's given address against the issuer's records, to determine accuracy and deter fraud.
AVS
90
An organization licensed as a member of Visa/MasterCard as an affiliated bank or bank/processor alliance that is in the business of processing credit card transactions for businesses. These organizations "receive" the credit card transaction from the merchant, "fund" the payment to the merchant and pass the transaction on to the Interchange network for presentment to the issuing bank or entity.
Acquirer
91
Step seven in the check clearing process, when the check is returned to the drawee bank for payment.
Presentment
92
A credit card transaction that is billed back to the merchant after the sale has been settled.
Chargeback
93
A financial institution that provides settlement services for financial instruments and commodities, derivatives and securities transactions. One type of such institution is a local or regional co-operative association of banks, S&Ls and credit unions to clear (settle) checks and other negotiable withdrawal instruments without recourse to the Federal Reserve clearing system.
Clearing House
94
The percentage of a sales transaction (ticket) that the bankcard acquirer or T&E card issuer charges the merchant for the settlement of the transactions.
Discount Rate.
95
An acronym referring to credit or debit card transactions initiated via mail, email, or telephone. Also known as card-non-present transactions.
MOTO
96
A numerical code used to identify the merchant during processing of daily transactions, rejects, adjustments, chargebacks, end-of-month processing fees, etc.
Merchant Identification Number (MID)
97
A situation in which checks are sent to the drawee bank or its local clearinghouse via courier. Mainly used for larger checks.
Direct Presenting
98
An acronym that refers to the process of electronically transmitting the data needed for authorizing, capturing and settling a credit card transaction.
Electronic Date Capture (EDC)
99
Principles of good cash handling. (5)
1. Segregation of Duties
2. Security
3. Reconciliation
4. Management Review
5. Documentation
100
Two methods to count currency.(2)
1. Hand to counter
| 2. Hand to hand
101
Procedures for collected money (4)
1. Secure
2. Balance
3. Deposit
4. Reconcile
102
Steps involved in payment clearing and settlement. (4)
1. Payment Instructions
2. Payment Generation
3. Clearing
4. Settlement
103
Credit card process. (3)
1. Authorization
2. Clearing
3. Settlement
