FiCEP Fundamentals 5 — Questions and Answers
Question 1: Which of the following is considered a 'secured' debt?
- Medical bill
- Credit card balance
- Student loan
- Auto loan (Correct answer)
Correct answer: Auto loan
An auto loan is secured by the vehicle as collateral, which the lender can repossess if the borrower defaults.
Question 2: What is the role of the Consumer Financial Protection Bureau (CFPB)?
- To insure consumer bank deposits up to $250,000
- To regulate and supervise financial products and protect consumers (Correct answer)
- To set the federal funds rate and control monetary policy
- To provide free credit counseling to low-income households
Correct answer: To regulate and supervise financial products and protect consumers
The CFPB is a federal agency that enforces consumer financial protection laws and oversees financial products and services.
Question 3: A client's spending plan shows consistent monthly shortfalls. What is the first counseling step?
- Advise them to apply for a personal loan to cover gaps
- Analyze income and expenses to identify areas for adjustment (Correct answer)
- Recommend filing for bankruptcy protection immediately
- Suggest deferring all discretionary spending indefinitely
Correct answer: Analyze income and expenses to identify areas for adjustment
Identifying the root cause of budget shortfalls requires a detailed review of both income sources and spending categories.
Question 4: What is 'credit utilization ratio' and what level is generally recommended?
- Total debt divided by annual income; below 36%
- Revolving credit used divided by total revolving credit limit; below 30% (Correct answer)
- Monthly debt payments divided by gross income; below 43%
- Number of credit accounts used divided by total accounts; below 50%
Correct answer: Revolving credit used divided by total revolving credit limit; below 30%
Credit utilization is the percentage of revolving credit in use, and keeping it below 30% supports a healthy credit score.
Question 5: Which document provides a detailed record of a consumer's borrowing and repayment history?
- Financial statement
- Credit report (Correct answer)
- Net worth statement
- Budget worksheet
Correct answer: Credit report
A credit report contains account history, payment records, public records, and inquiries compiled by credit bureaus.
Question 6: A client wants to understand the difference between a Roth IRA and a Traditional IRA. Which statement is accurate?
- Roth IRA contributions are tax-deductible; Traditional IRA withdrawals are tax-free
- Traditional IRA contributions may be tax-deductible; Roth IRA qualified withdrawals are tax-free (Correct answer)
- Both accounts require mandatory distributions at age 59½
- Roth IRAs have no contribution limits; Traditional IRAs are capped annually
Correct answer: Traditional IRA contributions may be tax-deductible; Roth IRA qualified withdrawals are tax-free
Traditional IRA contributions may reduce current taxable income, while Roth IRA qualified withdrawals in retirement are tax-free.
Question 7: In financial counseling, what does the term 'solvency' refer to?
- The ability to meet short-term obligations as they come due
- Having total assets that exceed total liabilities over the long term (Correct answer)
- Maintaining a positive monthly cash flow
- Achieving a debt-free status within five years
Correct answer: Having total assets that exceed total liabilities over the long term
Solvency means a person's total assets are greater than their total liabilities, indicating long-term financial viability.
FiCEP Fundamentals 5
Which of the following is considered a 'secured' debt?