RBS Financial Knowledge 2

Question 1

What is the primary purpose of 'Know Your Customer' (KYC) procedures at RBS?

Accepted Answer

To verify the identity of customers and assess potential risks of illegal activity

Answer

KYC procedures verify customer identity and assess risks of money laundering, fraud, and other financial crimes.

Question 2

What does it mean for a mortgage to be 'underwater' or 'in negative equity'?

Accepted Answer

The outstanding mortgage balance exceeds the current market value of the property

Answer

Negative equity means the borrower owes more on the mortgage than the property is currently worth on the market.

Question 3

What is the difference between a 'debit card' and a 'credit card' issued by RBS?

Accepted Answer

A debit card draws directly from the customer's account balance; a credit card borrows money up to a set limit

Answer

A debit card spends existing funds in your account, while a credit card extends a line of credit that must be repaid.

Question 4

What is 'interest rate risk' for a bank like RBS?

Accepted Answer

The risk that changes in interest rates will adversely affect the bank's financial position

Answer

Interest rate risk refers to the potential negative impact on a bank's earnings or balance sheet from fluctuations in market interest rates.

Question 5

What is a 'covenant' in the context of an RBS business loan agreement?

Accepted Answer

A condition the borrower must meet throughout the loan term, such as maintaining a minimum revenue level

Answer

Loan covenants are ongoing conditions imposed on the borrower to protect the lender's interests throughout the loan term.

RBS - Royal Bank of Scotland Practice Test