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Financial Products 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.

Read the first 7 Financial Products flashcards as text

  1. A corporate client wants to invest excess short-term cash with virtually no risk and high liquidity. Which product is most appropriate?

    Answer: Treasury bills (T-bills)

    Treasury bills are short-term government securities with maturities under one year, offering safety, liquidity, and backed by the full faith and credit of the U.S. government.

  2. What happens to the market value of an existing fixed-rate bond when interest rates rise?

    Answer: It decreases

    When interest rates rise, existing fixed-rate bonds become less attractive compared to new higher-yielding bonds, causing their market value to fall.

  3. Which feature of a 529 plan makes it a popular college savings tool?

    Answer: Earnings grow tax-free when used for qualified education expenses

    A 529 plan allows investment earnings to grow tax-free and withdrawals for qualified education expenses are also tax-free at the federal level.

  4. A bank offers a loan where the interest rate is tied to the prime rate plus a margin. This rate structure is best described as:

    Answer: Variable rate

    A variable (floating) rate loan has an interest rate that adjusts based on a benchmark rate such as the prime rate plus a fixed margin.

  5. What is the key benefit of a no-penalty CD compared to a traditional CD?

    Answer: It allows early withdrawal without a penalty fee

    A no-penalty CD allows the holder to withdraw funds before maturity without incurring an early withdrawal penalty, providing more flexibility.

  6. Which of the following best describes a mutual fund's Net Asset Value (NAV)?

    Answer: The per-share value of the fund calculated by dividing total net assets by shares outstanding

    NAV is calculated by dividing the total market value of the fund's assets minus liabilities by the number of outstanding shares.

  7. A customer wants overdraft protection linked to a savings account rather than a credit line. What is one potential downside of this arrangement?

    Answer: Overdraft transfers may deplete the savings account balance

    When overdraft protection is linked to a savings account, repeated overdrafts can drain the savings balance, eliminating the financial safety net.