Banking Exam Awareness 4 — Questions and Answers
Question 1: What does 'LIBOR' (London Interbank Offered Rate) represent in banking?
- A U.S. benchmark rate for consumer mortgages set by the Fed
- A benchmark interest rate at which major global banks lend to one another short-term (Correct answer)
- The minimum reserve rate set by the Bank of England
- An EU regulation on cross-border bank lending
Correct answer: A benchmark interest rate at which major global banks lend to one another short-term
LIBOR was a globally used reference rate for short-term interbank lending, now largely replaced by SOFR in the U.S.
Question 2: Which U.S. law prohibits banks from discriminating in lending based on race, color, religion, national origin, sex, familial status, or disability?
- Equal Credit Opportunity Act
- Fair Housing Act (Correct answer)
- Truth in Lending Act
- Home Mortgage Disclosure Act
Correct answer: Fair Housing Act
The Fair Housing Act prohibits discriminatory practices in residential real estate transactions, including mortgage lending.
Question 3: What is a 'certificate of deposit' (CD)?
- A document certifying a bank's reserve requirements are met
- A time deposit that pays a fixed interest rate until a specified maturity date (Correct answer)
- A government bond issued by the U.S. Treasury
- A certificate verifying a bank's FDIC membership
Correct answer: A time deposit that pays a fixed interest rate until a specified maturity date
A CD is a savings product where a customer deposits money for a fixed term and earns a higher interest rate than a regular savings account.
Question 4: What is 'fractional reserve banking'?
- A system where banks hold 100% of deposits in reserve
- A system where banks keep only a fraction of deposits in reserve and lend out the rest (Correct answer)
- A method of dividing bank assets into investment and commercial fractions
- A reserve requirement specific to fractional ownership mortgages
Correct answer: A system where banks keep only a fraction of deposits in reserve and lend out the rest
Under fractional reserve banking, banks hold a small fraction of deposits in reserve and lend the remainder, effectively creating money in the economy.
Question 5: Which U.S. regulation governs the disclosure of mortgage loan terms to borrowers before closing?
- Regulation Z (Truth in Lending Act) (Correct answer)
- Regulation B (Equal Credit Opportunity Act)
- Regulation E (Electronic Fund Transfer Act)
- Regulation DD (Truth in Savings Act)
Correct answer: Regulation Z (Truth in Lending Act)
Regulation Z implements the Truth in Lending Act and requires lenders to disclose APR, finance charges, and other loan terms to borrowers.
Question 6: What is the 'discount rate' in the context of the U.S. Federal Reserve?
- The interest rate at which banks lend to each other overnight
- The interest rate the Fed charges commercial banks for short-term loans from its discount window (Correct answer)
- The rate applied to Treasury bill auctions
- The reduction in face value when bonds are sold below par
Correct answer: The interest rate the Fed charges commercial banks for short-term loans from its discount window
The discount rate is the interest rate the Federal Reserve charges depository institutions for short-term borrowing at its discount window.
Question 7: What is 'wire fraud' in the context of banking awareness?
- Physical tampering with ATM machines to steal card data
- Using electronic communications to deceive someone for financial gain (Correct answer)
- Unauthorized access to a bank's internal network
- Manipulating wire transfer routing numbers to redirect funds without detection
Correct answer: Using electronic communications to deceive someone for financial gain
Wire fraud involves using electronic communications such as email, phone, or the internet to execute a scheme to defraud someone of money.
Banking Exam Awareness 4
What does 'LIBOR' (London Interbank Offered Rate) represent in banking?