Financial Products Flashcards

A customer wants a loan where the interest rate can change periodically based on a market index. Which product should a banker recommend?

Answer: Adjustable-rate mortgage (ARM)

An adjustable-rate mortgage (ARM) has an interest rate that fluctuates based on a benchmark index after an initial fixed period.

What is a key characteristic of a jumbo mortgage compared to a conforming loan?

Answer: It exceeds the conforming loan limits set by FHFA

A jumbo mortgage exceeds the conforming loan limits established by the Federal Housing Finance Agency (FHFA) and cannot be purchased by Fannie Mae or Freddie Mac.

Which type of CD allows the investor to benefit if interest rates rise during the term?

Answer: Bump-up CD

A bump-up CD allows the holder to request a one-time rate increase if the bank raises rates during the CD's term.

A small business owner needs funds to cover operating expenses during a slow season and plans to repay quickly. Which product is most appropriate?

Answer: Business line of credit

A business line of credit provides flexible, revolving access to funds ideal for covering short-term operating expenses.

What distinguishes a Roth IRA from a Traditional IRA regarding taxation?

Answer: Roth IRA withdrawals in retirement are tax-free

Roth IRA contributions are made with after-tax dollars, so qualified withdrawals in retirement are completely tax-free.

A customer purchases a financial product that pays a fixed income stream for 20 years regardless of how long they live. This is best described as a:

Answer: Period-certain annuity

A period-certain annuity guarantees payments for a specific time period, such as 20 years, regardless of the annuitant's survival.

Which banking product is specifically designed to help customers save for future healthcare expenses on a tax-advantaged basis?

Answer: Health Savings Account (HSA)

An HSA offers a triple tax advantage: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.