CBP Banking Fundamentals 1 — Questions and Answers
Question 1: What is the primary function of a central bank?
- Provide loans to individuals
- Issue credit cards
- Regulate monetary policy (Correct answer)
- Offer investment services
Correct answer: Regulate monetary policy
The central bank manages a nation's currency, money supply, and interest rates, and often oversees the commercial banking system.
Question 2: Which type of account typically offers the highest interest rate?
- Checking account
- Savings account
- Certificate of Deposit (CD) (Correct answer)
- Money market account
Correct answer: Certificate of Deposit (CD)
Certificates of deposit (CDs) usually provide higher interest rates than checking or savings accounts due to fixed-term deposits.
Question 3: What does the term 'liquidity' refer to in banking?
- The ability to earn interest
- The ease of converting assets to cash (Correct answer)
- The rate of loan repayment
- The amount of a bank's reserves
Correct answer: The ease of converting assets to cash
Liquidity describes how quickly an asset can be converted into cash without affecting its market price.
Question 4: What is the purpose of the Know Your Customer (KYC) regulation?
- To assess loan eligibility
- To offer personalized banking services
- To prevent money laundering (Correct answer)
- To calculate credit scores
Correct answer: To prevent money laundering
KYC is a regulatory requirement that ensures banks verify the identity of clients to prevent illegal activities such as money laundering.
Question 5: Which of the following is a primary asset for a commercial bank?
- Deposits from customers
- Stockholder equity
- Loans to borrowers (Correct answer)
- Reserves held at the central bank
Correct answer: Loans to borrowers
Loans made to customers are considered a primary asset for commercial banks as they generate income.
Question 6: What is the main risk associated with credit card lending by banks?
- Operational risk
- Liquidity risk
- Credit risk (Correct answer)
- Market risk
Correct answer: Credit risk
Credit risk is the possibility that borrowers may fail to repay their credit card debt, leading to losses for banks.
CBP Banking Fundamentals 1
What is the primary function of a central bank?