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Banking Fundamentals Flashcards

7 cards from real Banking practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

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  1. What is 'fractional reserve banking'?

    Answer: A system where banks hold only a fraction of deposits as reserves and lend the rest

    Fractional reserve banking allows banks to lend out most deposited funds while keeping only a small fraction in reserve, enabling money creation in the economy.

  2. What is a 'correspondent bank'?

    Answer: A bank that provides services to another bank, typically to facilitate international transactions

    Correspondent banks act as intermediaries for other financial institutions, providing services like wire transfers and foreign exchange in locations where the other bank has no presence.

  3. What does 'charge-off' mean in banking terminology?

    Answer: The amount a bank removes from its books as a loss when a loan is deemed uncollectible

    A charge-off occurs when a bank writes off a loan balance as a loss, typically after payments are 180 days past due, though collection efforts may continue.

  4. What is the role of the Consumer Financial Protection Bureau (CFPB)?

    Answer: To regulate and supervise financial products and services to protect consumers

    The CFPB, created by the Dodd-Frank Act in 2010, supervises financial institutions and enforces consumer financial protection laws.

  5. What is a 'balloon payment' in a loan?

    Answer: A large lump-sum payment due at the end of a loan term

    A balloon payment is a large final payment required at the end of a loan that wasn't fully amortized through regular installments.

  6. Which of the following best describes 'credit risk'?

    Answer: The risk that a borrower will fail to repay a loan as agreed

    Credit risk is the possibility that a borrower or counterparty will default on their obligation, resulting in a financial loss for the lender.

  7. What is the purpose of a 'loan-to-value (LTV) ratio'?

    Answer: To express the ratio of a loan amount to the appraised value of the collateral

    The LTV ratio helps lenders assess lending risk by comparing the loan amount to the collateral's value; higher LTV means more risk for the lender.