Banking Exam General 4 — Questions and Answers
Question 1: Which of the following best describes a 'demand deposit'?
- A savings account with a fixed interest rate
- A deposit that can be withdrawn at any time without prior notice (Correct answer)
- A certificate of deposit with a 1-year term
- A loan that must be repaid on demand
Correct answer: A deposit that can be withdrawn at any time without prior notice
Demand deposits, like checking accounts, allow customers to withdraw funds at any time without advance notice.
Question 2: In banking, what is the 'prime rate'?
- The minimum wage paid to bank tellers
- The interest rate the Federal Reserve charges member banks
- A benchmark interest rate banks use as a base for lending to creditworthy customers (Correct answer)
- The highest possible mortgage rate
Correct answer: A benchmark interest rate banks use as a base for lending to creditworthy customers
The prime rate is a reference interest rate that banks use to set rates for various loans, typically tied to the federal funds rate.
Question 3: What is 'wire fraud' in the context of banking?
- Physical damage to bank communication lines
- A scheme to defraud using electronic communications or wire transfers (Correct answer)
- Unauthorized ATM withdrawals
- Counterfeiting paper currency
Correct answer: A scheme to defraud using electronic communications or wire transfers
Wire fraud involves using electronic communications such as phone, email, or wire transfers to execute a fraudulent scheme.
Question 4: What does the Community Reinvestment Act (CRA) require of banks?
- Banks must offer free checking to low-income customers
- Banks must meet the credit needs of the communities they serve, including low- and moderate-income areas (Correct answer)
- Banks must donate 1% of profits to community charities
- Banks must hire locally
Correct answer: Banks must meet the credit needs of the communities they serve, including low- and moderate-income areas
The CRA requires banks to help meet the credit needs of all communities, including low- and moderate-income neighborhoods.
Question 5: A bank's 'Tier 1 capital' is best described as:
- Total outstanding loans
- Core equity capital including common stock and retained earnings (Correct answer)
- All deposits held by the bank
- Short-term borrowings from other banks
Correct answer: Core equity capital including common stock and retained earnings
Tier 1 capital is the core measure of a bank's financial strength, consisting primarily of common equity and retained earnings.
Question 6: What is 'phishing' in banking security?
- A method of tracking suspicious wire transfers
- A fraudulent attempt to obtain sensitive information by disguising as a trustworthy entity (Correct answer)
- An internal audit technique
- A type of investment fraud
Correct answer: A fraudulent attempt to obtain sensitive information by disguising as a trustworthy entity
Phishing involves criminals impersonating legitimate institutions to trick customers into revealing passwords, account numbers, or personal data.
Question 7: Which financial statement shows a bank's assets, liabilities, and equity at a specific point in time?
- Income statement
- Cash flow statement
- Balance sheet (Correct answer)
- Statement of retained earnings
Correct answer: Balance sheet
The balance sheet (statement of financial position) shows what a bank owns (assets), owes (liabilities), and the owners' stake (equity) on a given date.
Banking Exam General 4
Which of the following best describes a 'demand deposit'?