Banking Fundamentals Flashcards
7 cards from real CBP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Banking Fundamentals flashcards as text
Which federal agency provides deposit insurance for credit unions in the United States?
Answer: NCUA
The National Credit Union Administration (NCUA) insures deposits at federally insured credit unions up to $250,000 per depositor.
What is the primary purpose of the Federal Funds Rate?
Answer: Determine the interest rate banks charge each other for overnight lending of reserves
The Federal Funds Rate is the target interest rate at which commercial banks lend reserve balances to each other on an overnight basis.
A bank's net interest margin (NIM) is best described as:
Answer: The difference between interest earned on assets and interest paid on liabilities, expressed as a percentage of earning assets
NIM measures how much a bank earns from its interest-bearing activities relative to its earning assets, reflecting core profitability.
Under the Basel III framework, what does the Liquidity Coverage Ratio (LCR) require banks to maintain?
Answer: Enough high-quality liquid assets to survive a 30-day stress scenario
The LCR requires banks to hold high-quality liquid assets equal to or greater than projected net cash outflows over a 30-day stress period.
Which of the following best defines a correspondent bank relationship?
Answer: A financial institution that provides services to another bank that lacks the resources or access to perform them directly
Correspondent banking allows smaller or foreign banks to access financial services such as wire transfers, currency exchange, and check clearing through a larger bank.
What is the key distinction between a commercial bank and an investment bank?
Answer: Commercial banks accept deposits and make loans; investment banks facilitate capital markets activities
Commercial banks focus on deposit-taking and lending, while investment banks specialize in underwriting securities, M&A advisory, and capital market transactions.
The reserve requirement ratio requires banks to:
Answer: Hold a percentage of deposits as vault cash or central bank reserves
Reserve requirements mandate that banks hold a specified fraction of deposit liabilities as reserves, either in their vault or on deposit at the Federal Reserve.