RBC RBC - Online Assessment Financial Literacy and Banking Knowledge Questions and Answers 2 — Questions and Answers
Question 1: A client holds a diversified portfolio of stocks and bonds. What is the main benefit of this diversification?
- It eliminates all investment risk entirely
- It reduces overall portfolio volatility by spreading risk across asset classes (Correct answer)
- It guarantees returns above the benchmark index
- It removes the need for periodic rebalancing
Correct answer: It reduces overall portfolio volatility by spreading risk across asset classes
Diversification across asset classes reduces unsystematic (company-specific) risk by ensuring poor performance in one area can be offset by gains in another.
Question 2: What is the difference between a secured and an unsecured loan?
- Secured loans have higher interest rates than unsecured loans
- Secured loans are backed by collateral; unsecured loans rely solely on the borrower's creditworthiness (Correct answer)
- Unsecured loans require a co-signer; secured loans do not
- Secured loans are only available for business purposes
Correct answer: Secured loans are backed by collateral; unsecured loans rely solely on the borrower's creditworthiness
A secured loan is backed by an asset (e.g., home or car) that the lender can seize upon default, while an unsecured loan has no collateral and typically carries a higher interest rate.
Question 3: If the Bank of Canada raises its overnight lending rate, what is the likely immediate effect on RBC's prime rate?
- RBC's prime rate will decrease
- RBC's prime rate will increase (Correct answer)
- RBC's prime rate will remain unchanged
- RBC will stop offering variable-rate products
Correct answer: RBC's prime rate will increase
Canadian banks typically raise their prime rate in direct response to an increase in the Bank of Canada's overnight rate, as borrowing costs for banks rise.
Question 4: What is the purpose of a credit bureau report in the lending process?
- It certifies the value of collateral offered by the borrower
- It provides lenders with a detailed history of a borrower's past credit behaviour and outstanding obligations (Correct answer)
- It calculates the exact maximum loan amount a client may receive
- It confirms the borrower's employment and salary details
Correct answer: It provides lenders with a detailed history of a borrower's past credit behaviour and outstanding obligations
A credit bureau report (from Equifax or TransUnion) summarizes a borrower's credit history, repayment behaviour, and existing debts to help lenders assess creditworthiness.
Question 5: Which financial product would BEST help a small business manage cash flow gaps between issuing invoices and receiving payment?
- Term deposit
- Business line of credit (Correct answer)
- Registered Education Savings Plan (RESP)
- Fixed-rate personal mortgage
Correct answer: Business line of credit
A business line of credit provides flexible, revolving access to funds to cover short-term cash flow shortfalls between billing and payment collection.
Question 6: What does 'amortization period' mean in the context of a Canadian mortgage?
- The time until the mortgage interest rate is reset
- The total length of time over which the mortgage loan is scheduled to be fully repaid (Correct answer)
- The penalty period if the mortgage is paid off early
- The number of years the lender holds the title to the property
Correct answer: The total length of time over which the mortgage loan is scheduled to be fully repaid
The amortization period is the total time (commonly 25 years in Canada) over which the mortgage principal and interest are paid down to zero.
RBC RBC - Online Assessment Financial Literacy and Banking Knowledge Questions and Answers 2
A client holds a diversified portfolio of stocks and bonds.
What is the main benefit of this diversification?