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  1. Which of the following statements concerning consumers as lenders is (are) correct?
    (RM 671)

    I Consumers are the most important lenders or suppliers of loanable funds in the economy.

    II As consumers buy financial assets, they supply loanable funds. 

    A. I only   
    B. Both I and II   
    C. Neither I nor II 
    D. II only   
    B. Both I and II 

    Both statements correctly describe consumers as lenders.
    (this multiple choice question has been scrambled)
  2. Which of the following is the most important type of financial asset owned by consumers?
    (RM 671-673) 

    A. Life insurance cash values   
    B. Time and savings deposits   
    C. U.S. government securities   
    D. Pension fund reserves 
    D. Pension fund reserves 

    Life insurance cash values represented less than 3% of financial assets owned by U.S. consumers in 2009. Time and savings deposits were about 13.5%. U.S. government securities were about 2%. Pension fund reserves were about 26% of household financial assets. 
     
    (this multiple choice question has been scrambled)
  3. All the following are financial instruments that offer some check transactions or payments services, EXCEPT:
    (RM 673-675) 

    A. Universal life insurance 
    B. Share drafts   
    C. NOW accounts   
    D. Money market deposit accounts   
    A. Universal life insurance 

    Universal life insurance is the only one of the four financial assets listed that does not offer check transactions or payments services.
    (this multiple choice question has been scrambled)
  4. Which of the following savings instruments are offered by money market mutual funds?
    (RM 673-674) 

    A. Money market deposit accounts   
    B. Share drafts   
    C. Share accounts   
    D. NOW accounts 
    C. Share accounts   

    MMDAs are offered primarily by banks. Share drafts are offered by credit unions and NOW accounts by banks and thrift institutions.
     
    (this multiple choice question has been scrambled)
  5. Which of the following is a transactions account offered by credit unions?           
    (RM 673-674) 

    A. Share draft   
    B. NOW account   
    C. Share account   
    D. Passbook savings account 
    A. Share draft   

    NOW accounts are offered by banks and thrift institutions, share accounts by money market mutual funds, and passbook savings accounts by commercial banks and savings banks.
     
    (this multiple choice question has been scrambled)
  6. All the following are interest-earning deposits that may be withdrawn by check at any time without penalty, EXCEPT:
    (RM 673-674) 

    A. Certificates of deposit   
    B. Money market deposit accounts 
    C. NOW accounts   
    D. Share drafts   
     
    A. Certificates of deposit   

    CDs normally do not offer withdrawals by check, and penalties are applicable for withdrawals prior to their maturity date.
     
    (this multiple choice question has been scrambled)
  7. All of the following benefits are available with a Roth IRA account, EXCEPT:
    (RM 674) 

    A. Non-taxable investment earnings   
    B. Federal deposit insurance coverage   
    C. Tax free contributions   
    D. Tax-free withdrawals 
    C. Tax free contributions   

    Roth IRA accounts do not provide for tax-free contributions. The investment earnings are not taxed, and qualified withdrawals are tax-free. Federal deposit insurance is available up to $250,000 when the Roth IRA is maintained at a bank. Traditional IRAs provide for contributions that are tax deductible, so they are sometimes said to allow tax-free contributions. Withdrawals from the traditional IRA, however, are taxable.
     
    (this multiple choice question has been scrambled)
  8. Which of the following statements concerning whether consumer borrowing is excessive is (are) correct?
    (RM 677-678)

    I             Total wealth and educational levels of consumers are important indicators of whether consumer debt levels are excessive.

    II            Total credit owed by consumers has reduced the ratio of consumer liabilities to consumer financial assets since 1950, so consumer borrowing cannot be excessive. 

    A. Neither I nor II 
    B. Both I and II   
    C. I only   
    D. II only   
    C. I only   

    The ratio of consumer liabilities to consumer financial assets has risen from about 10% in 1950 to about 30% in 2009, so II is incorrect.
     
    (this multiple choice question has been scrambled)
  9. Which of the following types of consumer credit is greatest in dollar volume?
    (RM 678) 

    A. Consumer installment credit   
    B. Residential mortgage credit   
    C. Non-installment credit   
    D. None of the above 
    B. Residential mortgage credit   

    Residential loans totaled over $10 trillion in 2009, whereas consumer installment loans and non-installment loans constituted a combined total of less than half of this amount.
     
     
    (this multiple choice question has been scrambled)
  10. Home equity loans typically have all the following characteristics, EXCEPT:
    (RM 679-680) 

    A. They have interest rates that adjust to market interest rates.   
    B. They represent a revolving credit line.   
    C. They are unsecured loans.   
    D. Their interest charges are deductible for federal income tax purposes. 
    C. They are unsecured loans. 

    Home equity loans have the borrower’s home pledged as collateral.
    (this multiple choice question has been scrambled)
  11. Which of the following statements concerning debit cards or credit cards is (are) correct?
    (RM 680-682)

    I             Debit cards are for installment payments on purchases and earn issuers substantial interest income on unpaid balances.

    II            Credit cards are primarily for convenience since withdrawals and purchases are automatically deducted from customers’ deposit balances. 

    A. I only   
    B. II only   
    C. Neither I nor II 
    D. Both I and II   
    C. Neither I nor II 

    I is incorrect because it describes credit cards, not debit cards. II is incorrect because it describes debit cards, not credit cards.
     
    (this multiple choice question has been scrambled)
  12. Which of the following statements concerning determinants of consumer borrowing is (are) correct?           
    (RM 683-684)

    I             Expectations of price and interest-rate changes are important, as are levels of borrower income, education, and stage of life.

    II            Business cycle conditions and durable goods demand are general conditions that play no role as determinants of consumer borrowing. 

    A. Neither I nor II
    B. Both I and II   
    C. I only   
    D. II only   
    C. I only   

    II is incorrect because business cycle conditions and demand for durable goods are important determinants of the level of consumer borrowing.
    (this multiple choice question has been scrambled)
  13. Which of the following types of lender accounts for the greatest volume of consumer loans?
    (RM 684-686) 

    A. Finance companies
    B. Credit unions   
    C. Savings and loan associations and savings banks   
    D. Commercial banks   
    D. Commercial banks 

    Savings and loans, savings banks, credit unions, and finance companies account for a much smaller volume of consumer loans than do commercial banks.
     
    (this multiple choice question has been scrambled)
  14. Which of the following types of consumer loans accounts for the greatest proportion of commercial bank loans?
    (RM 685)  

    A. Short-term residential mortgage loans   
    B. Revolving credit balances   
    C. Loans on mobile homes 
    D. Direct car loans   
    A. Short-term residential mortgage loans   

    About 50% of all consumer loans by commercial banks are residential mortgage loans.
     
    (this multiple choice question has been scrambled)
  15. Which of the following statements concerning consumer finance companies is (are) correct?           
    (RM 685)

    I             Consumer finance companies often are regulated by state laws concerning maximum allowable interest rates and loan sizes.

    II            Consumer finance companies buy installment contracts from retailers, while sales finance companies lend directly to borrowing consumers. 

    A. Both I and II   
    B. II only   
    C. I only   
    D. Neither I nor II 
    C. I only   

    II is incorrect because sales finance companies buy installment contracts from retailers, whereas consumer finance companies lend directly to borrowing consumers.
     
    (this multiple choice question has been scrambled)
  16. Which of the following statements concerning factors in making consumer loans is (are) correct?           
    (RM 686-687)

    I             Consumer loans are less risky and less costly to make than other types of loans, so lenders find them profitable despite the lower interest rates.

    II            Character is the key indicator of whether a consumer will make payments on time, but income levels and assets for collateral are also important. 

    A. Neither I nor II 
    B. I only   
    C. II only   
    D. Both I and II   
    C. II only   

    I is incorrect because consumer loans are risky and expensive to handle. Therefore, interest rates on consumer loans are higher than those on other types of loans.
     
    (this multiple choice question has been scrambled)
  17. Which of the following statements concerning FICO credit scores is correct?
    (RM 687) 

    A. Consumers are rated on the basis of their past payment history.   
    B. Lending institutions cannot refuse loans if scores are above the legal minimum.   
    C. Lenders, but not consumers, are given access to these scores.   
    D. The scores are like bond quality ratings from AAA to C. 
    A. Consumers are rated on the basis of their past payment history. 

    • The FICO score rates consumers on the basis of their past payment history. Scores are from 300 to 850, and lending institutions can set their own minimums for loans. Consumers can obtain their scores and can take steps to improve their scores so they can qualify for lower loan rates and lower insurance premiums.
    •  
  18. Which of the following statements concerning provisions of the Truth in Lending Act is (are) correct?           
    (RM 688-689)

    I             The right of rescission permits a consumer to cancel certain credit agreements within three business days.

    II            The annual percentage rate to be disclosed is the ratio of total finance charges to the unpaid balance, calculated by the actuarial method. 
     
    A. II only   
    B. I only   
    C. Neither I nor II 
    D. Both I and II   
    D. Both I and II

    Both I and II correctly describe provisions of the Truth in Lending Act.
     
    (this multiple choice question has been scrambled)
  19. Which of the following laws requires disclosure of the annual percentage rate (APR) on loans?           
    (RM 688-690) 

    A. Consumer Credit Protection Act of 1968 (Truth in Lending Law)   
    B. Fair Credit Reporting Act of 1970   
    C. Fair Credit Billing Act of 1974   
    D. Competitive Banking Equality Act of 1987 
    A. Consumer Credit Protection Act of 1968 (Truth in Lending Law)   

    The Fair Credit Billing Act of 1974 deals with procedures for resolving disputes over credit bills. The Fair Credit Reporting Act deals with access to consumer credit files. The Competitive Banking Equality Act of 1987 is concerned with disclosure of the terms on various deposit accounts that banks offer.
    (this multiple choice question has been scrambled)
  20. Which of the following consumer protections was provided by the Financial Services Modernization (Gramm-Leach-Bliley) Act in 1999?
    (RM 691) 

    A. Discrimination was prohibited against credit applicants on the basis of race, color, religion, age, sex, or national origin. 
    B. Consumers were allowed to send a fraud alert to national credit bureaus to combat identity theft.   
    C. Banks were required to disclose the number of days before a deposited check was available for spending.   
    D. Financial services firms were required to tell customers their privacy policy each year.   
    D. Financial services firms were required to tell customers their privacy policy each year. 

    Gramm-Leach-Bliley Act required firms to tell customers their privacy policy each year. This act also adopted tougher laws against identity theft but it was the Fair and Accurate Credit Transactions Act that permitted consumers to make a fraud alert by contacting credit bureaus. The Competitive Banking Equality Act required disclosure of the number of days before deposits were available.   The Equal Credit Opportunity Act prohibited discrimination against credit applicants on the basis of age, sex, religion, race, color, and national origin.
    (this multiple choice question has been scrambled)
  21. Which of the following statements concerning provisions of credit discrimination laws is (are) correct?
    (RM 692-693)

    I             Lenders must disclose lending practices in their areas so that lower-income areas will not be "redlined" or discriminated against.

    II            Discrimination in granting of credit on the basis of age, sex, race, color, marital status, receipt of public assistance, or exercise of legal rights is banned, and lenders are required to justify denials of loans. 

    A. II only   
    B. Neither I nor II
    C. Both I and II   
    D. I only   
    C. Both I and II   

    Both I and II correctly describe provisions of credit discrimination laws.
     
    (this multiple choice question has been scrambled)
  22. All the following statements concerning residential mortgages are correct, EXCEPT:           
    (RM 702-703) 

    A. FHA and VA loans involve partially-guaranteed interest and principal payments.   
    B. Very few conventional home mortgages are insured by private insurance companies. 
    C. Deductibility of interest payments makes after-tax interest rates on home mortgages lower than published lenders’ rates.   
    D. Conventional mortgage loans are not guaranteed by the government.   
    B. Very few conventional home mortgages are insured by private insurance companies.

    Most conventional home mortgages are insured by private insurance companies.
    (this multiple choice question has been scrambled)
  23. Which of the following statements concerning trends since 1974 in conventional mortgages on new homes is (are) correct?
    (RM 702-703)

    I             The average purchase price has risen sharply.

    II            The average loan amount has risen sharply. 

    A. II only   
    B. Both I and II   
    C. Neither I nor II 
    D. I only   
    B. Both I and II   

    Both I and II correctly describe trends in conventional mortgages on new homes since 1974.
     
    (this multiple choice question has been scrambled)
  24. All the following statements concerning the U.S. mortgage market are correct, EXCEPT:
    (RM 704-709) 

    A. The largest primary security market in the U.S. is the mortgage market.   
    B. Savings and loan associations and savings banks are among the most important lenders in the mortgage market in terms of the percentage of mortgages held.   
    C. A large and growing percentage of residential mortgages is held by U.S. life insurance companies. 
    D. Residential mortgages dominate the U.S. mortgage market.   
    C. A large and growing percentage of residential mortgages is held by U.S. life insurance companies. 

    Life insurance companies have been deemphasizing residential mortgage loans and emphasizing commercial and apartment building mortgages. They now hold less than 5% of all mortgage loans.
     
    (this multiple choice question has been scrambled)
  25. All the following statements concerning activities of lenders in the mortgage market are correct, EXCEPT:
    (RM 708-709) 

    A. Mortgage bankers buy mortgages from builders or developers and have been packaging groups of mortgages in private pass-throughs, selling certificates of participation. 
    B. Commercial banks hold all types of mortgages and have increased their share of the mortgage market.   
    C. Savings banks have been gaining rapidly in recent years in their share of the residential mortgage market.   
    D. Savings and loans associations are local lenders with an historical preference for single-family home mortgages but with recently diversified lending practices.   
    C. Savings banks have been gaining rapidly in recent years in their share of the residential mortgage market. 

    Savings banks have been losing market share in the mortgage-lending field.
    (this multiple choice question has been scrambled)
  26. Which of the following statements concerning the activities of the Federal National Mortgage Association (FNMA) is (are) correct?           
    (RM 710-711)

    I             FNMA raises its funds by selling short-term notes and longer-term debentures to investors.

    II            FNMA buys and sells both FHA-guaranteed and VA-guaranteed mortgages, among others.  

    A. Both I and II   
    B. Neither I nor II 
    C. I only   
    D. II only   
    A. Both I and II   

    Both I and II correctly describe activities of the Federal National Mortgage Association (Fannie Mae).
     
    (this multiple choice question has been scrambled)
  27. All the following statements concerning the Government National Mortgage Association (GNMA) or the Federal Home Loan Mortgage Corp. (FHLMC) are correct, EXCEPT:
    (RM 711-713) 

    A. GNMA guarantees payments on securities issued by private mortgage institutions that are backed by pools of government-guaranteed mortgages.   
    B. Collateralized mortgage obligations (CMOs) are mortgage-backed securities issued by FHLMC in several different maturity classes. 
    C. GNMA buys "assistance mortgages" issued at low interest rates to low-income families and then sells these mortgages to FNMA or investors at market prices.   
    D. Participation certificates and guaranteed mortgage certificates issued by FHLMC are guaranteed directly by the federal government.   
    D. Participation certificates and guaranteed mortgage certificates issued by FHLMC are guaranteed directly by the federal government.   

    The mortgage participation certificates and guaranteed mortgage certificates issued by the Federal Home Loan Mortgage Corporation (Freddie Mac) are not guaranteed by the federal government.
     
    (this multiple choice question has been scrambled)
  28. Securitized mortgages have produced which of the following effects in the mortgage market?           
    (RM 713)

    I            They have made it easier for lenders to get rid of old, low-yielding mortgages.

    II            They have reduced the volatility of mortgage interest rates caused by changing national and international market conditions. 

    A. II only   
    B. Neither I nor II 
    C. I only   
    D. Both I and II   
    C. I only

    II is incorrect because securitized mortgages have increased the sensitivity and volatility of mortgage interest rates due to changing national and international market conditions.
    (this multiple choice question has been scrambled)
  29. Which of the following statements concerning the variable-rate mortgage (VRM) or the adjustable mortgage instrument (AMI) is (are) correct?
    (RM 714-715)

    I             The VRM interest rate is tied to a market interest rate, and rate changes can change monthly mortgage payments.

    II            AMI interest rate changes can affect the principal, maturity, or monthly payment of a mortgage.
     
    A. Both I and II   
    B. II only   
    C. Neither I nor II 
    D. I only   
    A. Both I and II 

    I correctly describes the interest rate on a variable-rate mortgage, and II correctly describes that on an adjustable mortgage instrument.
     
    (this multiple choice question has been scrambled)
  30. Which of the following is a mortgage instrument most likely to be issued on a home that is already fully paid for?
    (RM 714-716)

    A. Adjustable mortgage
    B. Deferred-interest mortgage
    C. Shared-appreciation mortgage
    D. Reverse-annuity mortgage
    D. Reverse-annuity mortgage
    (this multiple choice question has been scrambled)
  31. Which of the following techniques have been used to help homeowners and lenders avoid foreclosure?  
    (RM 718-719) 

    A. Mortgage lock-ins   
    B. Loan modification agreements   
    C. Cash-outs 
    D. Housing futures contracts   
    B. Loan modification agreements   

    A reverse-annuity mortgage is designed to gradually release the equity in one’s home through the payment of a stream of income to the homeowner. The other types of mortgages listed in the question are designed to facilitate the purchase of a home and the buildup of equity in it.
     
    (this multiple choice question has been scrambled)

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