Banking Fundamentals Flashcards
7 cards from real Banking practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Banking Fundamentals flashcards as text
What is 'moral hazard' in the context of banking?
Answer: The tendency for entities to take on more risk when protected from the consequences of that risk
Moral hazard occurs when deposit insurance or government bailout expectations cause banks to take excessive risks because losses will be partially borne by others.
What is an 'adjustable-rate mortgage (ARM)'?
Answer: A mortgage where the interest rate changes periodically based on a benchmark index
An ARM has an interest rate that adjusts at set intervals based on a reference rate like SOFR, meaning monthly payments can rise or fall over time.
What is 'check kiting'?
Answer: A form of bank fraud that exploits float by drawing on funds from checks not yet cleared
Check kiting is fraud where someone uses the float time between depositing and clearing to artificially inflate account balances across multiple banks.
What is a 'money market account (MMA)'?
Answer: A deposit account that typically offers higher interest than a savings account and may allow limited check writing
A money market account is a bank deposit product combining features of savings and checking accounts, offering competitive interest rates with limited transaction capabilities.
What does 'underwriting' mean in banking?
Answer: The process of evaluating and assuming the risk of a loan or securities issuance
Underwriting is the risk assessment process by which a bank evaluates a borrower's creditworthiness or a security's risk before committing to lend money or issue the security.
What is the 'discount window' in U.S. banking?
Answer: A Federal Reserve lending facility that allows eligible banks to borrow funds short-term
The discount window is the Federal Reserve's lending facility where banks can borrow short-term funds, typically overnight, to meet reserve requirements or liquidity needs.
What is 'amortization' in the context of a bank loan?
Answer: The gradual repayment of a loan through scheduled payments that cover both principal and interest
Amortization is the process of systematically reducing loan principal through regular payments, with each payment covering interest first and the remainder reducing the balance.