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 of the following is an example of off-balance-sheet activity for a bank?
Answer: Issuing a standby letter of credit
Standby letters of credit represent contingent liabilities that do not appear on the balance sheet until triggered, making them a classic off-balance-sheet item.
When a central bank conducts an open market purchase of government securities, the immediate effect is:
Answer: An increase in bank reserves and an expansion of the money supply
Buying securities injects reserves into the banking system, increasing bank lending capacity and expanding the money supply.
The primary regulatory objective of Know Your Customer (KYC) procedures is to:
Answer: Identify and verify customer identity to prevent money laundering and financial crime
KYC is an anti-money laundering (AML) requirement that obligates banks to verify customer identities and assess the risk of illegal activity.
A bank that is 'asset sensitive' will most likely benefit from:
Answer: A rising interest rate environment
An asset-sensitive bank has more rate-sensitive assets than liabilities, so rising rates increase interest income more than interest expense, boosting NIM.
What does the term 'fractional reserve banking' mean?
Answer: Banks keep only a fraction of deposits in reserve and lend out the rest
In fractional reserve banking, banks hold a fraction of deposits as reserves while lending the remainder, which enables credit creation and money supply expansion.
Which of the following best describes the 'dual banking system' in the United States?
Answer: The parallel existence of state-chartered and federally chartered banks, each with its own regulator
The U.S. dual banking system allows banks to choose between a federal charter (regulated by the OCC) or a state charter (regulated by state authorities), creating competition between regulatory frameworks.
A certificate of deposit (CD) differs from a regular savings account primarily because:
Answer: CDs require a fixed deposit for a specified term and typically carry early withdrawal penalties
CDs lock funds for a predetermined period and generally offer higher interest rates than savings accounts in exchange for reduced liquidity and early withdrawal penalties.