#1
Which of the following is NOT a type of bank account?
Credit account
ExplanationCredit accounts are lines of credit, not traditional bank accounts.
#2
What is the purpose of a credit score?
To determine a person's ability to take out loans
ExplanationCredit scores assess the risk of lending money to an individual.
#3
What is the Federal Reserve System?
The central banking system of the United States
ExplanationIt regulates monetary policy and supervises financial institutions.
#4
What does APR stand for in the context of loans and credit cards?
Annual Percentage Rate
ExplanationAPR represents the annualized interest rate on loans or credit cards.
#5
What is the difference between a debit card and a credit card?
A debit card deducts money directly from a checking account, while a credit card allows borrowing up to a certain limit.
ExplanationDebit cards use funds already available, while credit cards allow borrowing.
#6
What is compound interest?
Interest calculated on the sum of the initial principal and the accumulated interest
ExplanationInterest is added to the principal, resulting in exponential growth.
#7
What is the role of the credit bureau in the credit system?
To collect and maintain credit information on consumers
ExplanationCredit bureaus compile data for credit reports and scores.
#8
What is the role of the FDIC in the United States banking system?
To ensure the safety of bank deposits
ExplanationIt insures deposits in member banks against bank failures.
#9
What is the purpose of collateral in a loan agreement?
To serve as insurance for the lender in case the borrower defaults
ExplanationCollateral provides security for the lender against loan default.
#10
What are the main components of a credit report?
Payment history, amounts owed, length of credit history, new credit, and types of credit used
ExplanationCredit reports detail financial behavior and creditworthiness.
#11
What is the role of a co-signer in a loan agreement?
To assume responsibility for repaying the loan if the borrower defaults
ExplanationCo-signers guarantee repayment if the primary borrower fails.
#12
What is the purpose of the Truth in Lending Act (TILA)?
To promote the informed use of consumer credit by requiring disclosures about its terms and costs
ExplanationTILA ensures transparency in lending practices.