CHAPTER 5 STUDY GUIDEFinancial Literacy 2014/15

  1. What are the three demand deposit accounts we talked about in class?
  • Checking Account
  • Savings Account
  • Money Market Account
  1. What is a postdated check? Will banks hold this for you and process them at a future date?
  • A check written with a future check
  • NO banks will not hold this for you and process it later
  1. List and describe the difference between the three different types of endorsements. Which one is considered a “third-party check”?
  • Blank – Signature only, least secure method
  • Restrictive – Signature and “For Deposit Only”
  • Special – Signature and “Pay to the Order Of”, THIS IS A THIRD PARTY CHECK
  1. Describe a U.S. savings bond. How much would you purchase it for?
  • Discount bond (pay less than face value)
  • Pay $50 (discount) for a $100 bond (face value)
  • Issued by the federal government
  1. When purchasing a U.S. savings bond, who are you loaning money to?
  • You are loaning money to the government
  1. What is the biggest drawback to opening up a CD? Hint: Do you have immediate access to your money?
  • You DO NOT have immediate access to your money
  • You will be charged a penalty for early withdrawal
  1. Vocab word to know: Truncated
  • When a paper check is transformed into a digital image
  1. Explain the term liquidity and list the 5 cash management tools reviewed in chapter 5 in order of MOST to LEAST liquid.
  • How quickly and easily assets can be turned into cash
  • Checking Account
  • Savings Account
  • Money Market Account
  • CD (Certificate of Deposit)
  • U.S. Savings Bond
  • 401k
  1. Your bank statement balance is $1,000. You have outstanding checks of $250. You have deposits in transit of $600. You have service fees of $10. You earned interest on the account in the amount of $5. What should be your adjusted bank balance?
  • 1,000 – 250 + 600 = $1,350
  1. Your checkbook register balance is $1,050. You have outstanding checks of $250. You have deposits in transit of $640. You have service fees of $8. You earned interest on the account in the amount of $3. What should be your adjusted bank balance?
  • 1,050 – 8 + 3 = $1,045

Define the following terms:

Outstanding Checks:

  • Written checks that have not yet been processed by the bank

Checkbook Register:

  • A tool used to track checking account transactions and keep a running balance of your account

Bounced Checks:

  • A check marked “NSF” and returned to the payee’s bank unpaid

Safe Deposit Box:

  • A secure container located in a bank vault, to store important documents and valuable jewelry

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