PRINCIPLES OF BANKING CORRECT EXAMS
ANSWERS AND QUESTIONS SET A+
✔✔What is a holder in due course? - ✔✔One who holds a negotiable instrument, such
as a check, and who takes the instrument:
1. For value
2. In good faith
3. Without notice that it is overdue or dishonored
4. Without knowledge that it has unauthorized signature or is altered
5. Without knowledge of claims to the instrument
6. Without knowledge of defense against payment
✔✔What is an on-us check? - ✔✔A check deposited or otherwise negotiated at the
bank on which it is drawn
✔✔What is a stop payment? - ✔✔An order by a depositor to the bank (the drawee) to
not pay a previously issued check or item
✔✔What is wrongful dishonor? - ✔✔Failure of the drawee to pay a properly payable
check
✔✔What is the difference between paying a check and cashing a check? - ✔✔Paying a
check: giving cash in exchange for an on-use check
Cashing a check: giving cash for a check drawn on another bank
✔✔What is a cash letter? - ✔✔An interbank electronic or paper transmittal form,
resembling a deposit slip, used to accompany cash items sent from one bank to another
✔✔What are some reasons a bank may put a hold on a deposit? - ✔✔1. Bank has
reason to doubt whether a check will be collectible
2. Check is over $5000
3. Customer has a history of repeatedly overdrawing the account
, ✔✔What is closed account fraud (paperhanging)? - ✔✔This involves one or more
checks being written against a closed account. Generally relies on the float time
involved in interbank transactions
✔✔What is check kiting? - ✔✔This begins with criminals opening several checking
accounts at different banks. Then the criminal writes checks to transfer funds from one
account to another. The transfers occur so frequently that actual funds don't exist in an
account when a check is written
✔✔What is Regulation J? - ✔✔The Collection of Checks and Fund Transfers: the
purpose is to provide holders in due course with the rules for collecting and returning
items and settling balances
✔✔How do banks contribute to their communities? - ✔✔The CRA makes banks
evaluate how they're helping meet credit needs of the community. They contribute by
offering loans and other credit services
✔✔What five government agencies regulate bank activities? - ✔✔FDIC, OCC, Federal
Reserve, CFPB, State Banking Departments
✔✔Why is the National Bank Act of 1863 important in relation to dual banking? Does
dual banking still exist today? - ✔✔The act created charters which led to dual banking
(state v. federal)
✔✔What were some of the causes of the Great Depression that began in 1929? - ✔✔-
People were buying on margin: people were borrowing money from banks to buy stocks
- It was very easy for people to get credit. This led to speculative investing and an
absence of deposit protections
✔✔Explain why easy credit, as exemplified by subprime lending, led to tighter credit,
both of which helped trigger the Great Recession (2008). - ✔✔Easy credit (subprime
loans) led to home prices soaring because people had the money (credit) to purchase
them. This caused even more relaxation with credit and led to a housing bubble. This
eventually led to the Credit CARD act which imposed consumer protections.
✔✔What are some trends in banking today? - ✔✔- Technological advances
- More services offered in banks
✔✔How does the Federal Reserve manage the money supply? - ✔✔The Fed utilizes
monetary policy to manage money. The Fed must ensure that the money supply does
not outpace the needs of the economy. It utilizes three tools: discount operations,
reserve requirements, and open-market operations
ANSWERS AND QUESTIONS SET A+
✔✔What is a holder in due course? - ✔✔One who holds a negotiable instrument, such
as a check, and who takes the instrument:
1. For value
2. In good faith
3. Without notice that it is overdue or dishonored
4. Without knowledge that it has unauthorized signature or is altered
5. Without knowledge of claims to the instrument
6. Without knowledge of defense against payment
✔✔What is an on-us check? - ✔✔A check deposited or otherwise negotiated at the
bank on which it is drawn
✔✔What is a stop payment? - ✔✔An order by a depositor to the bank (the drawee) to
not pay a previously issued check or item
✔✔What is wrongful dishonor? - ✔✔Failure of the drawee to pay a properly payable
check
✔✔What is the difference between paying a check and cashing a check? - ✔✔Paying a
check: giving cash in exchange for an on-use check
Cashing a check: giving cash for a check drawn on another bank
✔✔What is a cash letter? - ✔✔An interbank electronic or paper transmittal form,
resembling a deposit slip, used to accompany cash items sent from one bank to another
✔✔What are some reasons a bank may put a hold on a deposit? - ✔✔1. Bank has
reason to doubt whether a check will be collectible
2. Check is over $5000
3. Customer has a history of repeatedly overdrawing the account
, ✔✔What is closed account fraud (paperhanging)? - ✔✔This involves one or more
checks being written against a closed account. Generally relies on the float time
involved in interbank transactions
✔✔What is check kiting? - ✔✔This begins with criminals opening several checking
accounts at different banks. Then the criminal writes checks to transfer funds from one
account to another. The transfers occur so frequently that actual funds don't exist in an
account when a check is written
✔✔What is Regulation J? - ✔✔The Collection of Checks and Fund Transfers: the
purpose is to provide holders in due course with the rules for collecting and returning
items and settling balances
✔✔How do banks contribute to their communities? - ✔✔The CRA makes banks
evaluate how they're helping meet credit needs of the community. They contribute by
offering loans and other credit services
✔✔What five government agencies regulate bank activities? - ✔✔FDIC, OCC, Federal
Reserve, CFPB, State Banking Departments
✔✔Why is the National Bank Act of 1863 important in relation to dual banking? Does
dual banking still exist today? - ✔✔The act created charters which led to dual banking
(state v. federal)
✔✔What were some of the causes of the Great Depression that began in 1929? - ✔✔-
People were buying on margin: people were borrowing money from banks to buy stocks
- It was very easy for people to get credit. This led to speculative investing and an
absence of deposit protections
✔✔Explain why easy credit, as exemplified by subprime lending, led to tighter credit,
both of which helped trigger the Great Recession (2008). - ✔✔Easy credit (subprime
loans) led to home prices soaring because people had the money (credit) to purchase
them. This caused even more relaxation with credit and led to a housing bubble. This
eventually led to the Credit CARD act which imposed consumer protections.
✔✔What are some trends in banking today? - ✔✔- Technological advances
- More services offered in banks
✔✔How does the Federal Reserve manage the money supply? - ✔✔The Fed utilizes
monetary policy to manage money. The Fed must ensure that the money supply does
not outpace the needs of the economy. It utilizes three tools: discount operations,
reserve requirements, and open-market operations
