Banking Exam General 2 — Questions and Answers
Question 1: Which federal agency insures deposits at most U.S. commercial banks up to $250,000 per depositor?
- Federal Reserve
- FDIC (Correct answer)
- OCC
- CFPB
Correct answer: FDIC
The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per depositor, per insured bank.
Question 2: What is the primary purpose of a bank's reserve requirement?
- Maximize profit for shareholders
- Ensure banks maintain sufficient liquidity to meet depositor withdrawals (Correct answer)
- Fund the bank's loan portfolio
- Pay employee salaries
Correct answer: Ensure banks maintain sufficient liquidity to meet depositor withdrawals
Reserve requirements ensure banks keep a minimum fraction of deposits on hand to meet customer withdrawal demands.
Question 3: A customer writes a check for more than their account balance. What is this called?
- Stop payment
- Overdraft (Correct answer)
- Float
- Kiting
Correct answer: Overdraft
An overdraft occurs when a withdrawal or check exceeds the available balance in the account.
Question 4: What does APY stand for in banking?
- Annual Payment Yield
- Annual Percentage Yield (Correct answer)
- Average Principal Yield
- Accrued Profit Yearly
Correct answer: Annual Percentage Yield
APY (Annual Percentage Yield) reflects the real rate of return on savings, accounting for compound interest.
Question 5: Which type of bank account typically offers the highest interest rate but restricts early withdrawals?
- Checking account
- Money market account
- Certificate of Deposit (CD) (Correct answer)
- Savings account
Correct answer: Certificate of Deposit (CD)
CDs offer higher interest rates in exchange for locking funds for a fixed term, with penalties for early withdrawal.
Question 6: The Bank Secrecy Act (BSA) requires banks to file a Currency Transaction Report (CTR) for cash transactions exceeding what amount?
- $5,000
- $10,000 (Correct answer)
- $25,000
- $50,000
Correct answer: $10,000
Banks must file a CTR with FinCEN for any cash transaction exceeding $10,000 in a single business day.
Question 7: What is the term for the difference between the interest rate a bank charges on loans and the interest rate it pays on deposits?
- Net interest margin (Correct answer)
- Leverage ratio
- Loan-to-deposit ratio
- Capital adequacy ratio
Correct answer: Net interest margin
Net interest margin (NIM) measures the spread between interest earned on loans and interest paid on deposits, a key profitability metric.
Banking Exam General 2
Which federal agency insures deposits at most U.S. commercial banks up to $250,000 per depositor?