Credit And Non-Cash Alternatives

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| By Ppageegsd

Ppageegsd

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Quizzes Created: 14 | Total Attempts: 9,450

Questions: 10 | Attempts: 135 | Updated: Jul 31, 2024

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This quiz will assess your applied understanding of credit arrangements and the use of cash alternatives.

Questions and Answers

1.

An example of an open-end credit is a(n)_____.
- A.
  
  Mortgage
- B.
  
  Automobile loan
- C.
  
  Installment loan
- D.
  
  Credit card charge
Correct Answer
D. Credit card charge

Explanation
An open-end credit refers to a type of credit that allows the borrower to continuously borrow up to a certain limit and make payments based on the outstanding balance. A credit card charge fits this description as it allows the cardholder to make purchases up to their credit limit and pay off the balance over time. Unlike a mortgage, automobile loan, or installment loan, which have fixed terms and require regular payments until the loan is fully repaid, a credit card charge offers more flexibility in terms of borrowing and repayment.

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2.

Credit card holders are known as convenience users when they ________.
- A.
  
  Carry balances beyond the grace period
- B.
  
  Pay off their balances each month
- C.
  
  Pay finance charges
- D.
  
  Carry smart cards
Correct Answer
B. Pay off their balances each month

Explanation
Credit card holders are known as convenience users when they pay off their balances each month. This means that they do not carry any outstanding balance beyond the grace period and do not incur any finance charges. These users utilize their credit cards for the convenience and benefits they offer, such as rewards or cashback, but they are responsible and diligent in paying off their full balance before the due date.

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3.

Which of the "five C's of credit" requires that a person's assets exceed his or her liabilities?
- A.
  
  Character
- B.
  
  Capacity
- C.
  
  Capital
- D.
  
  Collateral
Correct Answer
C. Capital

Explanation
Capital refers to a person's financial resources and assets. It is the amount of money or assets that a person has which can be used to repay their debts or fulfill their financial obligations. In this context, having capital means that a person's assets exceed their liabilities, indicating a strong financial position and ability to repay debts. Therefore, capital is the "C" of credit that requires a person's assets to exceed their liabilities.

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4.

A ____________ is a type of promotional rate required to last at least six (6) months and is designed to entice new clients with "benefits" such as a low initial rates and 0% rate on balance transfer.
- A.
  
  Teaser rate
- B.
  
  Introductory rate
- C.
  
  Arbitrary rate
- D.
  
  Variable rate
Correct Answer
B. Introductory rate

Explanation
An introductory rate is a type of promotional rate that is designed to attract new clients by offering them benefits such as low initial rates and 0% rate on balance transfers. This rate is required to last at least six months, giving the new clients a temporary advantage and incentive to join.

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5.

The _______ requires credit card companies to give their cardholders at least 45 days notice of interest rate, fee and finance charge increases.
- A.
  
  Credit Corruption Control Act
- B.
  
  Credit Card Accountability Responsibility and Disclosure Act
- C.
  
  FICO Act
- D.
  
  Credit Revamp Act
Correct Answer
B. Credit Card Accountability Responsibility and Disclosure Act

Explanation
The Credit Card Accountability Responsibility and Disclosure Act requires credit card companies to give their cardholders at least 45 days notice of interest rate, fee and finance charge increases. This act was implemented to promote transparency and protect consumers from sudden changes in credit card terms and conditions. It ensures that cardholders have sufficient time to understand and evaluate these changes before they take effect.

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6.

_________ fee is charged to a credit card holder yearly for the privilege of "holding" the card.
- A.
  
  Annual
- B.
  
  Finance
- C.
  
  APR
- D.
  
  APY
Correct Answer
A. Annual

Explanation
The correct answer is "Annual". An annual fee is charged to a credit card holder yearly for the privilege of "holding" the card. This fee is separate from any interest charges or other fees associated with the use of the card.

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7.

______ is quoted annually but applied monthly to outstanding balances on a credit card.
- A.
  
  APY
- B.
  
  APR
- C.
  
  Finance charge
- D.
  
  Fixed rate
Correct Answer
B. APR

Explanation
APR stands for Annual Percentage Rate. It is quoted annually but applied monthly to outstanding balances on a credit card. This means that the interest rate, fees, and other costs associated with the credit card are expressed as an annual rate. However, these costs are actually calculated and applied on a monthly basis to the remaining balance on the card. APR is an important factor to consider when comparing credit cards as it gives a standardized way to compare the costs of borrowing across different cards.

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8.

________ is the cost of borrowing, including interest and fees, and is expressed in a dollar amount.
- A.
  
  Annual Percentage Rate
- B.
  
  Finance charge
- C.
  
  Annual Percentage Yield
- D.
  
  Minimum Payment
Correct Answer
B. Finance charge

Explanation
A finance charge refers to the total cost of borrowing, which includes both the interest and fees associated with a loan or credit. It is expressed as a dollar amount and represents the additional cost that borrowers have to pay on top of the principal amount borrowed. The finance charge is an important factor to consider when comparing different loan options, as it directly impacts the overall cost of borrowing and the affordability of the loan.

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9.

Your parents have decided to send you on last-minute trip to North Dakota for April vacation. They are debating on whether to let you borrow their debit card or to purchase a pre-paid card for your use. Your objective is to show them that you've been actively involved in your Personal Finance class by clearly explaining your understanding of how each cash alternative works, alongside the advantages and disadvantages of each. In the process, you are hoping they will see how responsible you are and allow you to go to Florida.
10.

Steve opened his first credit card last August with a credit line or limit of $500. To date, he has charged in excess of $2000 on the card. How can that be? Explain. Be certain to include a numeric representation in your response.

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Current Version
Jul 31, 2024

Quiz Edited by
ProProfs Editorial Team
Apr 12, 2012

Quiz Created by
Ppageegsd

Credit And Non-cash Alternatives

An example of an open-end credit is a(n)_____.

Credit card holders are known as convenience users when they ________.

Which of the "five C's of credit" requires that a person's assets exceed his or her liabilities?

A ____________ is a type of promotional rate required to last at least six (6) months and is designed to entice new clients with "benefits" such as a low initial rates and 0% rate on balance transfer.

The _______ requires credit card companies to give their cardholders at least 45 days notice of interest rate, fee and finance charge increases.

_________ fee is charged to a credit card holder yearly for the privilege of "holding" the card.

______ is quoted annually but applied monthly to outstanding balances on a credit card.

________ is the cost of borrowing, including interest and fees, and is expressed in a dollar amount.

Steve opened his first credit card last August with a credit line or limit of $500. To date, he has charged in excess of $2000 on the card. How can that be? Explain. Be certain to include a numeric representation in your response.