AnswersTX-Personal Financial Literacy and EconomicsBanking and Financial Institutions

Banking and Financial Institutions Answers

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1
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What does a bank’s interest rate measure?

A
the cost of depositing money in a bank
B
the cost of borrowing money from a bank
C
the cost of starting a new business
D
the cost of keeping a bank in business
2
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Read two excerpts from a speech by economist Ben Bernanke, former Chair of the Federal Reserve."Yet another striking feature of the Great Contraction [Depression] in the United States was the massive extent of banking panics and failures, culminating [resulting] in the Bank Holiday of March 1933, in which the entire US banking system was shut down. During the Depression decade, something close to half of all US commercial banks either failed or merged with other banks.”"The best thing that central bankers can do for the world is to avoid such crises by providing the economy with, in Milton Friedman’s words, a ‘stable monetary background.’. . .”—Ben Bernanke, 2002

A
Bank failures during the Depression were unavoidable no matter what the Fed did.
B
The Fed caused bank failures during the Depression by refusing to lower interest rates.
C
The Federal Reserve gains too much power whenever there are failing banks or other crises.
D
The Federal Reserve could have increased the money supply to help failing banks in the crisis.
3

Why did the US Congress create the Federal Reserve System in 1913?

A
to establish a central bank where American citizens could deposit their money
B
to establish a central bank to store the money used by the federal government
C
to establish a central bank that would help smaller banks survive during economic crises
D
to establish a central bank that would provide loans for people who were denied them at local banks
4

How did the Mechanics and Farmers Bank of Durham, NC, differ from most other banks of the early 1900s?

A
It was established by Black businessmen to serve their community.
B
It was the first banking institution to charge interest for borrowing money.
C
It was established to service large corporations in the North Carolina area.
D
It was the first to be insured by the Federal Deposit Insurance Corporation.
5

What is the money supply of the United States?

A
the total amount of money in the US economy
B
the sum of all deposits being held by US banks
C
the profits made by banks from the interest payment on loans
D
the total amount of money deposited within the central bank
6

Some savings accounts help depositors earn money. Where does this money come from?

A
from the federal government agency known as the FDIC
B
from the interest that borrowers pay to a bank for a loan
C
from the central banking system, which is called the Fed
D
from other depositors’ money kept in the bank’s vault
7

Review the photograph.

Question illustration
A
When mortgage interest rates go down, banks stop making loans.
B
When mortgage interest rates go down, banks make more money.
C
It’s easier for people to buy a new home when mortgage interest rates are down.
D
It’s more difficult for people to buy a new home when mortgage interest rates are down.
8

Why does the Fed sometimes increase interest rates?

A
to help more people get loans and become borrowers
B
to speed up the economy and help it grow quickly
C
to prevent banks from making profits that are too large
D
to slow inflation by stopping the economy from growing too fast
9

How does the Federal Deposit Insurance Company (FDIC) protect bank customers?

A
If customers can’t pay their bills, the FDIC provides them with short-term loans.
B
If customers lose their credit cards, the FDIC supplies them with replacements.
C
If a bank has a financial crisis, the FDIC safeguards its customers’ accounts.
D
If a bank can’t supply checkbooks, the FDIC can send them to customers.
10

Tran got a loan of $10,000 from the bank to help pay for his new car. He agreed to pay $800 in interest for the use of this money.

A
800 ÷ 10,000 = .08
B
10,000 ÷ 800 = 12.5
C
10,000 – 800 = 9,200
D
10,000 + 800 = 10,800
11

Juana has been earning money by babysitting on weekends. She plans to go to college when she graduates from high school in three years, and she’s trying to save as much money as she can. Juana also received some cash gifts for her recent quinceañera, or 15th birthday celebration. Juana’s mother is going to take her to the local branch of their bank to learn what she can do with her money to help save for college.

A
The employee will advise Juana to open a checking account so she can easily pay her bills.
B
The employee will advise Juana to open a savings account to earn interest on her money.
C
The employee will advise Juana to get a debit card so she has money for college expenses.
D
The employee will advise Juana to apply for a loan so she can begin to pay for college.
12

Parva is excited about buying her first home. She needs a loan of $100,000, and visits four different banks to see what kind of interest rate she can get. Parva makes a chart of the interest rate each bank offers.

Question illustration
A
First Bank
B
Cactus Bank
C
Tall Mountain Bank
D
Water Road Bank
13

Review the chart.

Question illustration
A
People Spend Less
B
Inflation Decreases
C
Money Supply Decreases
D
Businesses Create Jobs
14

Which is an example of predatory lending?

A
A woman fails to quality for a loan she needs in order to start a new business in her community.
B
A teenager applies for a loan at her local bank branch but is told that she’s too young to apply without a parent’s approval.
C
A Black couple pays a higher interest rate for a mortgage loan than a White couple living in the same city.
D
A Mexican American man opens a savings account, but when interest rates drop nationwide, his account doesn’t earn as much as he had hoped.
15

Milan wants to open a restaurant in his neighborhood, where he’ll serve his family’s favorite Croatian dishes. He’s found a location to rent and needs to purchase the proper equipment, but he has very little money of his own. Milan makes an appointment to talk to someone at the local branch of his bank about getting a loan.

A
auto
B
student
C
mortgage
D
commercial
16

What is the relationship between the Fed and other banks?

A
The Fed sets the salaries for employees at every bank in the nation.
B
The Fed decides who is eligible for loans and who is not at various banks.
C
The Fed monitors all deposits and loans at local banks to be sure they’re making a profit.
D
The Fed makes sure that banks follow rules, and it loans money to banks that are in a crisis.

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