CTP Chapter 2

Question 1

Rules or regulations that specify the amount of capital (usually defined as equity funds) the owners of a bank must contribute to the business. This is typically in the form of a ratio of capital to at-risk assets (i.e., loans and other investments). The higher the ratio of capital to assets, the lower the risk on the part of the bank.

Answer 1

bank capital requirements

Question 2

A US legislative act under which US banks (and, in many cases, companies and individuals) are required to perform due diligence by determining a customer’s identity and monitoring transactions for suspicious activity. The primary intent of this is to deter money laundering and the use of secret foreign bank accounts

Answer 2

Bank Secrecy Act of 1970 (BSA)

Question 3

An entity that is responsible for implementing and managing a country’s monetary policy, including the country’s money supply and interest rates.

Answer 3

central bank

Question 4

A US law that provided the basis for electronic clearing of checks by allowing the substitution of a copy or image of a check for the original document in the clearing process.

Answer 4

Check Clearing for the 21st Century Act of 2003 (Check 21)

Question 5

An independent consumer protection entity within the US Federal Reserve that was created as part of the Dodd-Frank Act of 2010.

Answer 5

Consumer Financial Protection Bureau (CFPB)

Question 6

US legislation that was enacted to support electronic commerce (e-commerce) initiatives and grant digital signatures the same legal status as handwritten ink signatures. It establishes the legal certainty of e-commerce transactions and provides a measure of confidence around the enforceability of electronic transactions.

Answer 6

Electronic Signatures in Global and National Commerce Act of 2000 (E-SIGN Act)

Question 7

The process of turning over unclaimed assets to the government, in specific instances. In the business world, these statutes primarily impact banks or companies that hold unclaimed assets of customers, vendors, or employees. The most general occurrence of escheat is when an entity (e.g., a bank) holds money or property (e.g., an account in that bank) and the property goes unclaimed for some specified period of time (generally referred to as a dormant account). In many (primarily US) jurisdictions, if the owner cannot be located, such property must be given to the government.

Answer 7

escheatment

Question 8

The central bank for the European Union (EU). The ECB conducts a unified monetary policy for the eurozone, which includes all EU members that have adopted the euro as their common currency

Answer 8

European Central Bank (ECB)

Question 9

A union of more than two dozen member countries in Europe that have organized to work toward common political, social, and economic interests.

Answer 9

European Union (EU)

Question 10

An independent agency of the US federal government whose primary role is to protect depositors from losses caused by bank insolvency. This entity preserves and promotes public confidence in the US financial system by (1) insuring deposits in banks and thrift institutions up to a maximum of $250,000 per depositor; (2) identifying, monitoring, and addressing risks to the Deposit Insurance Fund (DIF); and (3) limiting the effect on the economy and the financial system when a bank or thrift institution fails.

Answer 10

Federal Deposit Insurance Corporation (FDIC)

Question 11

The committee of the US Federal Reserve that runs the open market operations that help to implement US monetary policy and control the money supply.

Answer 11

Federal Open Market Committee (FOMC)

Question 12

The central bank for the United States, from the perspective of monetary policy.

Answer 12

Federal Reserve (the Fed)

Question 13

The primary US government agency (operating as a bureau of the US Treasury) that oversees and implements policies to prevent and detect money laundering by criminal or terrorist organizations. It serves as the US financial intelligence unit (FIU).

Answer 13

Financial Crimes Enforcement Network (FinCEN)

Question 14

A US agency created under the Dodd-Frank Act, whose primary responsibility is to prevent systemic risk from threatening the financial system by identifying threats to financial stability and gaps in regulations, and facilitating coordination across federal and state agencies.. While it has a strong systemic oversight role, it has limited enforcement power and can only make recommendations to the primary regulators.

Answer 14

Financial Stability Oversight Council (FSOC)

Question 15

A type of tax credit available to a company with foreign income that has already been taxed by the foreign jurisdiction. For example, a US company’s income derived from its non-US operations typically is included in its tax return to determine the amount of US income tax due. If income from foreign sources has already been subjected to foreign income taxes, the same income is taxed twice. To relieve the effect of double taxation, US tax law grants a US company a tax credit against its total US income tax liability for foreign income taxes paid by the parent and its subsidiaries. This credit is called the foreign tax credit.

Answer 15

foreign tax credit

Question 16

An international standards-setting body that determines accounting standards at the global level through a set of pronouncements called the International Financial Reporting Standards, as laid out in the Conceptual Framework.

Answer 16

International Accounting Standards Board (IASB)

Question 17

The inability to pay one’s debts in a timely manner. The terms bankruptcy and insolvency are often used interchangeably, but in some jurisdictions, such as the United Kingdom, bankruptcy refers only to personal insolvency while the general term insolvency applies to both corporate and personal insolvency.

Answer 17

insolvency

Question 18

A set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements. It is issued by the International Accounting Standards Board.

Answer 18

International Financial Reporting Standards (IFRS)

Question 19

Government policy related to monitoring and controlling a country’s money supply and interest rates.

Answer 19

monetary policy

Question 20

Any financial transaction that generates an asset or a value as the result of an illegal act, which may involve actions such as tax evasion or false accounting

Answer 20

money laundering

Question 21

An office of the US Department of the Treasury that administers and enforces economic and trade sanctions against targeted foreign countries, terrorist-sponsoring organizations, and international narcotics traffickers. Can impose controls on financial transactions and freeze foreign assets under US jurisdiction.

Answer 21

Office of Foreign Assets Control (OFAC)

Question 22

A bureau of the US Treasury Department that was established by Congress in 1863 to regulate the national banking system. It is the primary chartering authority and regulator for national banks.

Answer 22

Office of the Comptroller of the Currency (OCC)

Question 23

A type of market that is more decentralized than a formal securities exchange. markets also rely upon electronic communication to conduct trading activity in an auction-style market between participating brokers and dealers. Government, municipal, and corporate debt, and some equity issuances that are not traded on exchanges, are sometimes traded in these markets.

Answer 23

over-the-counter (OTC) market

Question 24

The face value of a security, such as commercial paper or a company share.

Answer 24

par value

Question 25

A type of retirement plan, usually tax-exempt, wherein an employer makes contributions toward a pool of funds set aside for an employee’s future benefit. The pool of funds is then invested on the employee’s behalf, allowing the employee to receive benefits upon retirement.

Answer 25

pension plan

Question 26

A US federal agency designed to maintain a fair and orderly market for investors by regulating and supervising securities sales.

Answer 26

Securities and Exchange Commission (SEC)

Question 27

An organized exchange that facilitates the buying and selling of debt and equity securities. Also known as a stock exchange.

Answer 27

securities exchange

Question 28

The risk of collapse of an entire financial system or entire market, as opposed to risk associated with any one individual organization, group, or component of a system. It is a risk imposed by linkages and interdependencies in a market or an economy that lead to a potential cascading failure that could bring down an entire banking system or market.

Answer 28

systemic risk

Question 29

The setting of the price that subsidiaries of a large corporation charge one another for economic activity between them.

Answer 29

transfer pricing

Question 30

A set of proposals adopted by US states as laws to ensure uniformity for commercial financial transactions in the United States. It defines the rights and duties of all parties in a commercial transaction and provides a statutory definition of commonly accepted business practices.

Answer 30

Uniform Commercial Code (UCC)

Question 31

A type of sales tax that involves charging a separate tax at each discrete stage of production and/or distribution based on the increased value occurring at that stage.

Answer 31

value-added tax (VAT)

Question 32

A type of tax that is imposed directly on the consumer of goods that were purchased without paying sales tax (generally items purchased from a vendor in another state or over the internet, and delivered to the purchaser by mail or common carrier).

Answer 32

use tax

Question 33

A tax that is deducted at the payment source and paid directly to the tax authorities where the payment originates. Tax authorities often apply this on interest, dividend, and royalty payments, which means this type of tax may be charged on funds being moved by multinational companies from one country to another.

Answer 33

withholding tax