Banking Banking Fundamentals 3

Question 1

What is 'fractional reserve banking'?

Accepted Answer

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

Answer

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.

Question 2

What is a 'correspondent bank'?

Accepted Answer

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

Answer

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.

Question 3

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

Accepted Answer

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

Answer

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.

Question 4

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

Accepted Answer

To regulate and supervise financial products and services to protect consumers

Answer

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

Question 5

What is a 'balloon payment' in a loan?

Accepted Answer

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

Answer

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

Banking Practice Test

Banking Practice Test

Banking Banking Fundamentals 3