Banking Financial Products 4

Question 1

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

Accepted Answer

Treasury bills (T-bills)

Answer

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.

Question 2

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

Accepted Answer

It decreases

Answer

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

Question 3

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

Accepted Answer

Earnings grow tax-free when used for qualified education expenses

Answer

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

Question 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:

Accepted Answer

Variable rate

Answer

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.

Question 5

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

Accepted Answer

It allows early withdrawal without a penalty fee

Answer

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

Banking Practice Test

Banking Practice Test

Banking Financial Products 4