Certified Financial Management Specialist Practice Exam

What is the function of the Federal Deposit Insurance Corporation (FDIC)?

1. Regulate investment banks

2. Insure deposits in U.S. banks to protect consumers

3. Manage the monetary policy of the U.S.

4. Facilitate international bank transactions

The correct answer is: Insure deposits in U.S. banks to protect consumers

The Federal Deposit Insurance Corporation (FDIC) primarily functions to insure deposits in U.S. banks, which serves to protect consumers' savings. Established in 1933, the FDIC was created in response to widespread bank failures during the Great Depression, aiming to enhance public confidence in the U.S. banking system. By providing insurance coverage for deposits, the FDIC ensures that even if a bank fails, depositors can recover their funds up to a certain limit, which is currently $250,000 per depositor per insured bank. This safety net encourages people to keep their money in banks, contributing to the stability of the financial system. The other choices reflect roles that are outside the remit of the FDIC. While regulating investment banks, managing monetary policy, and facilitating international transactions are important functions within the financial sector, they fall under the responsibilities of other entities such as the Securities and Exchange Commission (SEC) for investment banks, the Federal Reserve for monetary policy, and various international banking entities for facilitating international transactions.