RBC RBC - Online Assessment Financial Literacy and Banking Knowledge Questions and Answers 1 — Questions and Answers
Question 1: What does the term 'prime rate' refer to in the context of Canadian banking?
- The highest interest rate charged on all loans
- The benchmark interest rate set by the Bank of Canada used by banks to price loans (Correct answer)
- The interest rate offered exclusively to RBC Premier clients
- The penalty rate applied to overdue credit card balances
Correct answer: The benchmark interest rate set by the Bank of Canada used by banks to price loans
The prime rate is a benchmark lending rate influenced by the Bank of Canada's overnight rate, used by banks like RBC to price variable-rate loans and lines of credit.
Question 2: Which of the following best describes a Registered Retirement Savings Plan (RRSP)?
- A government pension plan funded by payroll deductions
- A tax-sheltered savings account where contributions reduce taxable income (Correct answer)
- A guaranteed investment certificate offered only to seniors
- A chequing account with a higher interest rate for retirees
Correct answer: A tax-sheltered savings account where contributions reduce taxable income
An RRSP is a tax-sheltered account where contributions are deductible from taxable income and investments grow tax-free until withdrawal.
Question 3: A client wants low risk and guaranteed returns over 1 year. Which product is MOST suitable?
- Common equity stocks
- Guaranteed Investment Certificate (GIC) (Correct answer)
- High-yield bond mutual fund
- Foreign exchange forward contract
Correct answer: Guaranteed Investment Certificate (GIC)
A GIC offers a guaranteed rate of return for a fixed term, making it the safest option for a client prioritizing capital preservation over a 1-year horizon.
Question 4: What is the primary purpose of the Canada Deposit Insurance Corporation (CDIC)?
- To regulate mortgage interest rates across Canadian banks
- To insure eligible deposits at member institutions up to a set limit per depositor (Correct answer)
- To provide investment advice to retail banking clients
- To approve all new banking products before they launch
Correct answer: To insure eligible deposits at member institutions up to a set limit per depositor
CDIC protects eligible deposits at member institutions (including RBC) up to $100,000 per depositor category in the event of a bank failure.
Question 5: Which ratio is most commonly used to assess a borrower's ability to service debt relative to income?
- Price-to-earnings ratio
- Debt service coverage ratio (DSCR) (Correct answer)
- Current ratio
- Return on equity (ROE)
Correct answer: Debt service coverage ratio (DSCR)
The debt service coverage ratio measures whether a borrower's income is sufficient to cover debt payments, making it a key underwriting metric.
Question 6: What distinguishes a TFSA (Tax-Free Savings Account) from an RRSP?
- TFSA contributions reduce taxable income; RRSP withdrawals are tax-free
- TFSA withdrawals are tax-free; RRSP contributions reduce taxable income (Correct answer)
- Both accounts have identical tax treatment at withdrawal
- TFSA is only available to clients over age 65
Correct answer: TFSA withdrawals are tax-free; RRSP contributions reduce taxable income
TFSA contributions are made with after-tax dollars but withdrawals are completely tax-free, while RRSP contributions reduce taxable income but withdrawals are taxed.
RBC RBC - Online Assessment Financial Literacy and Banking Knowledge Questions and Answers 1
What does the term 'prime rate' refer to in the context of Canadian banking?