CHAPTER 4- QUESTION & ANSWERS

1) Which statement about the payment revolution is true?

A) Cards and electronic payments are taking the place of cash and checks.
B) Debit card use has been declining since 2003.
C) Approximately 20 percent of recurring bills are paid electronically.
D) By 2015, the U.S. will be a cashless society.
Answer: A
Diff: 1 Page Ref: 516

2) Which of the following is a peer-to-peer encrypted digital currency created in 2009 by Satoshi
Nakamoto?
A) Bitcoin
B) PayPal
C) Kindle
D) DotCoin
Answer: A
Diff: 3 Page Ref: 517

3) Factors that come into play in determining whether a particular method of e-payment achieves
critical mass include each of the following except
A) dependence.
B) ease of use.
C) divisibility.
D) regulations.
Answer: A
Diff: 3 Page Ref: 517-518

4) The process of determining whether a card is active and whether the customer has sufficient
funds for the purchase is called
A) settlement.
B) approval.
C) authorization.
D) procurement.
Answer: C
Diff: 1 Page Ref: 518
AACSB: Use of information technology

5) An electronic card that contains information that can be used for payment purposes best
describes
A) host card.
B) payment card.
C) funds card.
D) pocket card.
Answer: B
Diff: 1 Page Ref: 518
6) Forms of payment cards include each of the following except
A) credit cards.
B) purchase cards.
C) charge cards.
D) debit cards.
Answer: B
Diff: 1 Page Ref: 518

7) Which of the following is an example of a charge card?

A) MasterCard
B) EuroPay
C) Diner's Club card
D) Visa
Answer: C
Diff: 2 Page Ref: 518

8) Basic configurations for processing online payments include each of the following except
A) using a POS operated by an acquirer.
B) using a POS operated by a payment service provider.
C) owning the payment software.
D) contracting with an online cash checking company.
Answer: D
Diff: 3 Page Ref: 519

9) A(n) ________ is a third-party service connecting a merchant's EC system to the appropriate

acquiring bank or financial institution.
A) Internet service provider (ISP)
B) payment service provider (PSP)
C) application service provider (ASP)
D) credit service provider (CSP)
Answer: B
Diff: 2 Page Ref: 519

10) Which of the following participants in the online card payment process is the data center that
processes card transactions and settles funds to merchants?
A) processor
B) merchant
C) customer
D) acquiring bank
Answer: A
Diff: 2 Page Ref: 520
11) Which of the following participants in the online card payment process is the financial
institution that provides card services to banks?
A) issuing bank
B) credit card association
C) acquiring bank
D) processor
Answer: B
Diff: 2 Page Ref: 520

12) According to a CyberSource survey, online revenue losses due to fraud in 2010 were
A) $5.5 billion.
B) $150 million.
C) $2.7 billion.
D) $9 billion.
Answer: C
Diff: 3 Page Ref: 520

13) ________ offer Internet Merchant Accounts, which are special accounts for credit card
authorization and payment processing.
A) Acquiring banks
B) Issuing banks
C) Credit card associations
D) Payment processing services
Answer: A
Diff: 3 Page Ref: 520
AACSB: Use of information technology

14) Approximately 80 percent of merchants use the Address Verification System, which results in
a number of ________, meaning that the merchant may reject a valid order.
A) suspicious hits
B) false negatives
C) false positives
D) positive verifications
Answer: C
Diff: 3 Page Ref: 521

15) In 2010, the median number of fraud detection tools used by merchants was
A) 10.7.
B) 2.9.
C) 7.3.
D) 4.6.
Answer: D
Diff: 3 Page Ref: 521
16) Key tools used in combating online fraud include
A) negative lists.
B) manual reviews.
C) address verification.
D) all of the above.
Answer: D
Diff: 1 Page Ref: 521-522

17) Which of the following is an online fraud detection tool that matches a customer's transaction
against a file containing customer information that is flagged if the customer is a known
problem?
A) negative list
B) profile list
C) boycott list
D) compliance list
Answer: A
Diff: 1 Page Ref: 522

18) An electronic card containing an embedded microchip that enables predefined operations or
the addition, deletion, or manipulation of information on the card best defines
A) pocket card.
B) smart card.
C) EPROM card.
D) secure card.
Answer: B
Diff: 1 Page Ref: 522

19) A special system that handles file management, security, input/output, and command
execution and provides an application programming interface for a smart card best defines
A) networking operating system.
B) mobile operating system.
C) smart card operating system.
D) BIOS.
Answer: C
Diff: 1 Page Ref: 523

20) ________ are used for applications in which the data must be processed very quickly (e.g.,
mass-transit applications, such as paying bus or train fares) or when contact is difficult (e.g.,
security-entering mechanisms to buildings).
A) Contact cards
B) Contactless cards
C) RFID cards
D) EEPROM cards
Answer: B
Diff: 2 Page Ref: 523
21) Which of the following activates and reads the contents of the chip on a smart card, usually
passing the information on to a host system?
A) cloud reader
B) transmit reader
C) smart card reader
D) cube reader
Answer: C
Diff: 1 Page Ref: 523

22) A(n) ________ has two separate chips embedded in the card (contact and contactless), which
eliminates the need to carry multiple cards to support the various smart card readers and
applications.
A) dual-interface smart card
B) multi-debit card
C) hybrid smart card
D) RFID card
Answer: C
Diff: 2 Page Ref: 523
AACSB: Use of information technology

23) Smart cards that have erasable memory and are modifiable best describe
A) contact cards.
B) contactless cards.
C) EPROM cards.
D) EEPROM cards.
Answer: D
Diff: 2 Page Ref: 523

24) The largest demand for smart cards continues to come from
A) the Asia-Pacific region.
B) Europe.
C) North America.
D) South America.
Answer: A
Diff: 2 Page Ref: 523

25) If someone steals a smart card, the thief is usually out of luck, with the major exception of
________ used for retail purchases.
A) contact cards
B) contactless cards
C) EPROM cards
D) EEPROM cards
Answer: B
Diff: 2 Page Ref: 524
26) The overall implementation and use of contactless payment cards has been
A) slow.
B) rapid.
C) steady.
D) declining.
Answer: A
Diff: 2 Page Ref: 524

27) Which of the following is the initiative where all EU banks agreed to use the same basic
bank card standard, enabling the use of credit and debit cards throughout the EU?
A) EPROM
B) SEPA
C) EUMI
D) MCI
Answer: B
Diff: 2 Page Ref: 524

28) A ________ is a card that has monetary value loaded onto it and is usually rechargeable.
A) contact card
B) contactless card
C) stored-value card
D) closed loop card
Answer: C
Diff: 2 Page Ref: 525

29) Single-purpose cards issued by a specific merchant or merchant group that can only be used
to make purchases from that merchant or merchant group best describes
A) location-based cards.
B) dedicated cards.
C) open-loop cards.
D) closed-loop cards.
Answer: D
Diff: 2 Page Ref: 525

30) Payroll cards, government benefit cards, and prepaid debit cards are examples of ________
cards.
A) closed-loop
B) open-loop
C) contactless
D) EEPROM
Answer: B
Diff: 2 Page Ref: 526
31) Small online payments, typically under $10, are referred to as ________.
A) e-micropayments
B) e-minipayments
C) automated payments
D) contactless payments
Answer: A
Diff: 2 Page Ref: 527

32) The basic micropayment model where micropayments are added to a monthly bill for
existing services best describes
A) subscriptions.
B) stored value.
C) direct payment.
D) aggregation.
Answer: C
Diff: 2 Page Ref: 527

33) Basic micropayment models include each of the following except

A) stored value.
B) wholesale.
C) subscriptions.
D) direct payment.
Answer: B
Diff: 3 Page Ref: 527-528

34) Which of the following is the NACHA system where checks are collected at checkout
counters and later converted into e-checks?
A) POP
B) NOS
C) EPROM
D) BOC
Answer: D
Diff: 3 Page Ref: 529

35) The nationwide batch-oriented electronic funds transfer system that provides for interbank
clearing of electronic payments for participating financial institutions is called the
A) Automated Clearing House Network.
B) Federal Reserve System.
C) E-bill Presentment and Payment Network.
D) Receiving Depository Financial Institution.
Answer: A
Diff: 2 Page Ref: 530
AACSB: Use of information technology
36) E-check processing benefits include
A) reducing the float period and the number of checks that bounce because of insufficient funds.
B) speeding the checkout process for consumers.
C) improving the efficiency of the deposit process for merchants and financial institutions.
D) all of the above.
Answer: D
Diff: 1 Page Ref: 531

37) Types of mobile payments include each of the following except

A) EIPP payments.
B) POS payments.
C) remote payments.
D) mobile proximity payments.
Answer: A
Diff: 3 Page Ref: 531

38) The provision of financial services, in small amounts of money, to poor or low-income
clients, including consumers and the self-employed best describes
A) peer-to-peer loans.
B) microfinance.
C) low-risk mobile investments.
D) microloans.
Answer: B
Diff: 2 Page Ref: 533

39) Unlike the physical supply chain, inefficiencies characterize the financial supply chains of
most companies. Factors that create these inefficiencies include each of the following except
A) the time required to create, transfer, and process paper documentation.
B) the cost and errors associated with manual creation and reconciliation of documentation.
C) disputes arising from inaccurate or missing data.
D) too much transparency in inventory and cash positions when goods are in the supply chain.
Answer: D
Diff: 3 Page Ref: 535
AACSB: Use of information technology

40) Presenting and paying B2B invoices online best defines

A) EIPP.
B) NOC.
C) POP.
D) ACH.
Answer: A
Diff: 2 Page Ref: 535
41) EIPP models include each of the following except
A) consolidator.
B) seller direct.
C) buyer direct.
D) intermediate.
Answer: D
Diff: 3 Page Ref: 536

42) Among the forms of online B2B payments, the use of ________ is second only to ACH in
terms of frequency of use.
A) letters of credit
B) purchasing cards
C) Fedwire, or wire transfer
D) EDI
Answer: C
Diff: 2 Page Ref: 537
AACSB: Use of information technology

43) Special-purpose payment cards issued to a company's employees to be used solely for
purchasing nonstrategic materials and services up to a preset dollar limit best defines
A) purchasing cards.
B) smart cards.
C) mobile cards.
D) desk cards.
Answer: A
Diff: 2 Page Ref: 537

44) In global trade, a ________ is a written agreement by a bank to pay the seller, on account of
the buyer, a sum of money upon presentation of certain documents.
A) trade card payment
B) letter of credit
C) micropayment
D) bank check
Answer: B
Diff: 2 Page Ref: 537
AACSB: Use of information technology

45) For sellers the main benefit of a letter of credit (L/C) is

A) reduced risk because the bank assures the creditworthiness of the buyer.
B) reduced risk because the bank assumes the costs.
C) greater customer loyalty.
D) improved buyer satisfaction.
Answer: A
Diff: 2 Page Ref: 538
AACSB: Use of information technology