Dollars and Sense: Bank Challenge Quiz

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About This Quiz

Banks have come under scrutiny with the tumultuous economy -- they do much more than just hold on to your money for you. Take the quiz and see if you know how banks really work.

Banks are critical to the U.S. economy because their primary function is to:

keep customers' money safe and stored in a vault

make money transactions more convenient for customers

put customers' money to use by lending it out to others

Correct Answer

Wrong Answer

The primary function of banks is to put their account holders' money to use by lending it out to others to do things such as buy homes, start businesses and send kids to college. Banks create money in the economy by making loans.

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In response to the banking crisis during the Great Depression, the United States government:

subsidized private insurance companies to take insurance on risky banks

established the U.S. Government's Federal Deposit Insurance Corporation (FDIC) to insure bank deposits

did nothing and let the free market fix itself

Correct Answer

Wrong Answer

The U.S. Federal Government established the Federal Deposit Insurance Corporation (FDIC) to back deposits in case the bank failed.

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How do banks make money?

charging borrowers a higher interest rate than they pay out to depositors

charging fees to those who use banking services

both of the above

Correct Answer

Wrong Answer

Banks make money with fees they charge for services and from the interest they charge on loans. The interest they charge is higher than the interest they pay on depositors' accounts.

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Who is primarily responsible for protecting the public from unsafe banking practices?

bank tellers

the agency that charters the bank

the U.S. Congress

Correct Answer

Wrong Answer

The agency that charters the bank is primarily responsible for protecting the public from unsafe banking practices. It conducts on-site examinations to make sure the bank's financial condition is good and that the bank is complying with banking laws.

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In deciding whether to issue a charter to a bank, an agency will asses the directors' and CEOs':

credit histories

education histories

romantic histories

Correct Answer

Wrong Answer

The credit histories and relevant business histories of the bank's directors and CEOs will greatly affect the acceptance or denial of the bank's charter.

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Bank organizers are responsible for contributing what percentage of the capital requirements to start a bank?

10 to 15 percent

50 to 55 percent

70 to 75 percent

Correct Answer

Wrong Answer

Bank organizers are typically responsible for 10 percent to 15 percent of start-up capital of a bank. The remainder is sold to shareholders.

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The Federal Reserve Act requires banks to:

warn depositors when they are in danger of failing

banks to take on risky loans

keep a certain percentage of their money in reserve

Correct Answer

Wrong Answer

The Federal Reserve Act requires banks to keep a certain percentage of their money in reserve. Despite this, if everyone came to withdraw their money from the bank at the same time, there wouldn't be enough.

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Which of the following types of accounts is a kind of checking account that pays interest?

money market account

certificate of deposit

NOW account

Correct Answer

Wrong Answer

A NOW (negotiable order of withdrawal) account is like a checking account that pays interest. Money market accounts and certificates of deposit have more limitations on when you can withdraw money.

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