Capital One Assessment Test Fundamentals and Core Concepts 4 — Questions and Answers
Question 1: Which of the following best describes 'net interest margin' (NIM) for a bank?
- Total revenue minus total operating expenses
- The difference between interest income earned and interest paid, divided by earning assets (Correct answer)
- The percentage of loans that default in a given year
- A bank's profit after taxes and dividends
Correct answer: The difference between interest income earned and interest paid, divided by earning assets
NIM measures how effectively a bank invests its funds by comparing interest earned on loans to interest paid on deposits.
Question 2: Which act established the Consumer Financial Protection Bureau (CFPB)?
- The Glass-Steagall Act
- The Gramm-Leach-Bliley Act
- The Dodd-Frank Wall Street Reform and Consumer Protection Act (Correct answer)
- The Bank Secrecy Act
Correct answer: The Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Act of 2010 created the CFPB to supervise and enforce federal consumer financial protection laws.
Question 3: What does 'credit risk' refer to in banking?
- The risk that interest rates will change unfavorably
- The risk that a borrower will fail to repay a loan as agreed (Correct answer)
- The risk that a bank's IT systems will be breached
- The risk of currency fluctuations affecting international loans
Correct answer: The risk that a borrower will fail to repay a loan as agreed
Credit risk is the possibility that a borrower defaults on their debt obligations, resulting in a loss for the lender.
Question 4: A customer makes only the minimum payment on a credit card balance each month. What is the primary consequence?
- The account will be immediately closed for non-compliance
- Interest accrues on the remaining balance, significantly extending payoff time (Correct answer)
- The credit limit is automatically reduced by the unpaid amount
- No interest is charged as long as minimum payments are made
Correct answer: Interest accrues on the remaining balance, significantly extending payoff time
Paying only the minimum allows interest to compound on the remaining balance, potentially turning a small debt into a long-term burden.
Question 5: In Capital One's context, what does 'underwriting' involve?
- Writing advertising copy for new credit card products
- Evaluating applicant risk to decide whether to approve credit and at what terms (Correct answer)
- Managing the bank's investment portfolio
- Insuring bank deposits with the FDIC
Correct answer: Evaluating applicant risk to decide whether to approve credit and at what terms
Underwriting is the process of assessing a credit applicant's risk profile to determine approval, credit limit, and interest rate.
Question 6: What is 'balance transfer' in the context of credit cards?
- Moving money from a savings account to pay a credit card bill
- Transferring an outstanding debt from one credit card to another, often to take advantage of a lower rate (Correct answer)
- Splitting a purchase into equal monthly installments
- Transferring a credit limit increase from one card to another
Correct answer: Transferring an outstanding debt from one credit card to another, often to take advantage of a lower rate
A balance transfer moves existing debt from a high-interest card to a new card, typically with a promotional low or 0% APR period.
Question 7: Which of the following is NOT one of the three major credit bureaus in the United States?
- Equifax
- Experian
- TransUnion
- Vantage (Correct answer)
Correct answer: Vantage
The three major U.S. credit bureaus are Equifax, Experian, and TransUnion; VantageScore is a credit scoring model, not a bureau.
Capital One Assessment Test Fundamentals and Core Concepts 4
Which of the following best describes 'net interest margin' (NIM) for a bank?