Bcom Bachelor of Commerce Bachelor of Commerce: Banking & Insurance 2 — Questions and Answers
Question 1: Which type of bank account typically earns the highest interest rate?
- Checking account
- Savings account
- Certificate of Deposit (CD) (Correct answer)
- Money market account
Correct answer: Certificate of Deposit (CD)
Certificates of Deposit lock funds for a fixed term and typically offer higher interest rates than regular savings or checking accounts.
Question 2: What is the primary function of the Federal Reserve in the United States?
- Insuring bank deposits
- Setting fiscal policy
- Conducting monetary policy and regulating banks (Correct answer)
- Collecting federal taxes
Correct answer: Conducting monetary policy and regulating banks
The Federal Reserve conducts monetary policy, supervises banks, maintains financial system stability, and provides financial services.
Question 3: In insurance, what does 'subrogation' mean?
- Cancelling a policy mid-term
- The insurer's right to pursue a third party after paying a claim (Correct answer)
- Adding a new insured to an existing policy
- Reducing coverage limits mid-policy
Correct answer: The insurer's right to pursue a third party after paying a claim
Subrogation allows an insurer who paid a claim to step into the insured's shoes and recover the amount from the at-fault third party.
Question 4: What is a 'balloon payment' in the context of loans?
- An initial large down payment
- Small periodic payments followed by one large final payment (Correct answer)
- A penalty for early repayment
- Monthly installments that increase over time
Correct answer: Small periodic payments followed by one large final payment
A balloon payment loan requires small regular payments throughout the term with one large lump-sum payment due at the end.
Question 5: Which of the following best describes 'term life insurance'?
- Coverage that lasts your entire life and builds cash value
- Coverage for a specific period with no cash value component (Correct answer)
- Insurance tied to investment portfolios
- A policy that pays out on both death and disability
Correct answer: Coverage for a specific period with no cash value component
Term life insurance provides a death benefit for a specified period (e.g., 20 years) and expires without cash value if no claim is made.
Question 6: What is the 'reserve requirement' for commercial banks?
- The minimum capital banks must hold against loans
- The fraction of deposits banks must keep on hand and not lend out (Correct answer)
- The maximum interest rate banks can charge
- The required amount of foreign currency reserves
Correct answer: The fraction of deposits banks must keep on hand and not lend out
Reserve requirements mandate that banks hold a certain percentage of customer deposits as reserves rather than lending them all out.
Question 7: An insurance policy's 'declarations page' contains which of the following?
- Detailed exclusion clauses
- Policy conditions and duties of the insured
- Key policy information such as insured name, coverage amounts, and premium (Correct answer)
- Legal definitions of terms used in the policy
Correct answer: Key policy information such as insured name, coverage amounts, and premium
The declarations page is a summary page showing who is insured, what is covered, coverage limits, premium amount, and policy period.
Bcom Bachelor of Commerce Bachelor of Commerce: Banking & Insurance 2
Which type of bank account typically earns the highest interest rate?