Retail Banking Products 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 Retail Banking Products flashcards as text
Which index is most commonly used as the benchmark for adjustable-rate mortgages in the United States after LIBOR was phased out?
Answer: Secured Overnight Financing Rate (SOFR)
SOFR replaced LIBOR as the preferred benchmark for ARM pricing and other floating-rate instruments in the U.S. after LIBOR's discontinuation.
A customer purchases a $10,000 CD with a 5% annual interest rate, compounded monthly. What concept explains why the effective annual yield exceeds 5%?
Answer: Compounding frequency increases the effective annual rate above the nominal rate
When interest is compounded more frequently than annually, the effective annual rate (EAR) exceeds the stated nominal rate.
A 'teaser rate' on a credit card refers to:
Answer: A temporarily low introductory APR that resets to a higher rate after a promotional period
Teaser rates are artificially low promotional APRs designed to attract new cardholders, expiring after a defined introductory window.
Which retail mortgage product is specifically designed to help low-to-moderate income borrowers and requires a minimum down payment of 3.5%?
Answer: FHA loan
FHA loans are government-backed mortgages allowing down payments as low as 3.5%, making homeownership accessible to lower-income and first-time buyers.
When a bank offers a 'rate-lock' on a mortgage application, what risk is the bank managing on behalf of the borrower?
Answer: Interest rate risk — the risk that rates will rise before closing
A rate-lock guarantees the borrower's mortgage rate will not increase during the lock period, protecting against rising market rates before closing.
A customer who has a debit card with a Visa or Mastercard logo can use it as a credit card transaction at point-of-sale. What is the primary difference between the two transaction types?
Answer: Credit transactions require a signature and delay the debit; debit transactions require a PIN and debit immediately
Running a debit card as 'credit' routes through the card network with signature authorization and a delayed settlement, while 'debit' uses PIN and instant settlement.
In the context of retail banking, what is a 'balloon payment' mortgage?
Answer: A mortgage with lower regular payments and a large lump-sum payment due at maturity
A balloon mortgage has smaller periodic payments calculated on a long amortization but requires full repayment of the remaining principal in one large payment at maturity.