D367 Innovation in Finance
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Free D367 Innovation in Finance Questions
Fintechs enabled digital wallets for cryptocurrencies. What was the first of these cryptocurrencies called?
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Ethereum — a platform for smart contracts and decentralized applications.
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Bitcoin — the first major cryptocurrency, used by 100,000+ merchants worldwide, with many wallets such as Coinapult and Coinomi.
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Litecoin — a peer-to-peer cryptocurrency designed for faster transaction confirmations.
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Ripple — a digital payment protocol and cryptocurrency designed for global financial institutions.
Explanation
Explanation:
Bitcoin was the first widely recognized cryptocurrency and laid the foundation for digital currencies stored and transacted via fintech-enabled digital wallets. Introduced in 2009, Bitcoin allows secure, decentralized peer-to-peer transactions without relying on traditional banks. Its widespread adoption by merchants and the development of multiple compatible wallets, such as Coinapult and Coinomi, helped establish the cryptocurrency ecosystem and demonstrate the potential of blockchain-based digital payments in the global financial landscape.
Correct Answer:
Bitcoin — the first major cryptocurrency, used by 100,000+ merchants worldwide, with many wallets such as Coinapult and Coinomi.
How have fintechs influenced point-of-sale (POS) financing for consumers?
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They offer instant financing options at checkout
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By narrowing the credit rating process for borrowers
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Provide flexible installment plans via mobile apps
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Integrate loyalty rewards with financing options
Explanation
Explanation:
Fintech companies have significantly influenced point-of-sale (POS) financing by streamlining credit evaluations for consumers. One important impact is the narrowing of the credit rating process, allowing borrowers to access credit more quickly and efficiently at the point of purchase. This innovation reduces friction in the buying process, increases purchasing power for consumers, and encourages higher conversion rates for retailers by simplifying access to short-term financing.
Correct Answer:
By narrowing the credit rating process for borrowers
Which term refers to the due diligence financial institutions employ to ensure that the person opening the account is really who they say they are?
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Anti-money laundering (AML) checks — monitoring transactions to prevent illegal fund movements.
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Know your customer (KYC) compliance — once required in-person visits, now enabled by uploading documents or even selfies.
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Customer identification program (CIP) — verifying identity through government-issued IDs or digital authentication.
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Identity verification protocol — cross-checking personal information against public and private databases for authenticity.
Explanation
Explanation:
Know Your Customer (KYC) compliance is the standard practice financial institutions use to verify the identity of customers opening accounts. KYC procedures ensure that individuals are who they claim to be, helping prevent fraud, money laundering, and other illicit financial activities. Traditionally, this required in-person verification, but modern fintech solutions allow document uploads, selfies, and digital authentication to complete KYC efficiently while maintaining regulatory compliance and customer security.
Correct Answer:
Know your customer (KYC) compliance — once required in-person visits, now enabled by uploading documents or even selfies.
Which of the following is TRUE about robo-advising?
- Robo-advisers are a form of active investing
- Robo-advisers will automatically adjust your asset allocation based on your preferences
- Robo-advisers usually come with much higher fees than if you were to use a fund manager
- Robo-advisers are primarily used by people from older generations
Explanation
Robo-advisers are digital platforms that provide automated, algorithm-driven financial planning and investment management. They adjust your asset allocation automatically according to your risk profile, investment goals, and preferences. These platforms typically offer lower fees than traditional fund managers and are widely adopted across various age groups, making investing more accessible and efficient.
Correct Answer Is:
Robo-advisers will automatically adjust your asset allocation based on your preferences
If a new cryptocurrency is introduced that promises faster transaction speeds and lower fees than existing options, how might this innovation impact the current landscape of decentralized finance (DeFi)?
- It would likely have no effect, as existing cryptocurrencies are already well-established
- It could lead to increased competition among cryptocurrencies, potentially driving innovation and lowering costs in the DeFi space
- It would cause a decline in the use of all cryptocurrencies, as users would revert to traditional banking methods
- It would primarily benefit only the developers of the new cryptocurrency, with little impact on users
Explanation
Introducing a cryptocurrency with faster transaction speeds and lower fees could significantly impact the DeFi ecosystem. It would likely increase competition, prompting existing platforms to improve efficiency, reduce costs, and innovate to maintain user adoption. This competitive pressure encourages technological advancement, improves service quality, and benefits users by offering more choices, better performance, and lower transaction costs in decentralized finance.
Correct Answer Is:
It could lead to increased competition among cryptocurrencies, potentially driving innovation and lowering costs in the DeFi space
How has fintech technology changed the capabilities of individual investors?
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They now have access to AI-driven robo-advisors that provide portfolio recommendations and automated rebalancing.
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High-frequency trading uses algorithms to execute large volumes of trades at very high speeds, often based on short-term strategies.
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Mobile investment apps allow instant stock purchases, cryptocurrency trades, and real-time market tracking.
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Social trading platforms enable investors to follow and replicate strategies of experienced traders globally.
Explanation
Explanation:
Fintech technology has dramatically enhanced the tools and strategies available to individual investors. High-frequency trading, powered by sophisticated algorithms, allows investors to execute large volumes of trades at extremely high speeds, often capitalizing on short-term market fluctuations. This capability provides a competitive edge previously available only to institutional investors. Coupled with mobile platforms and AI-driven tools, fintech empowers individuals to participate more actively and strategically in financial markets, increasing accessibility and investment opportunities.
Correct Answer:
High-frequency trading uses algorithms to execute large volumes of trades at very high speeds, often based on short-term strategies.
If a new digital currency is introduced but lacks widespread acceptability, what challenges might it face in becoming a viable medium of exchange?
- It will likely be accepted by all merchants immediately
- It may struggle to gain user trust and widespread adoption
- It will automatically increase in value over time
- It will be easily integrated into existing financial systems without issues
Explanation
A new digital currency that is not widely accepted faces significant challenges in becoming a viable medium of exchange. Without broad merchant and user adoption, individuals may be reluctant to use it for transactions, limiting liquidity and utility. Building trust, encouraging acceptance, and establishing infrastructure are crucial for the currency to function effectively in commerce and gain a stable presence in the financial ecosystem.
Correct Answer Is:
It may struggle to gain user trust and widespread adoption
Every Fintech has the same basic mission. It is to _______.
- Kill bankers
- Kill the friction associated with current financial services
- Kill branch banking, as it is not eco-friendly or efficient
- Encourage online transactions as much as possible
- Obtain as much consumer data as possible
Explanation
The primary mission of fintech companies is to reduce friction in financial services, making transactions, lending, investing, and payments more efficient, accessible, and user-friendly. By leveraging technology, fintechs streamline processes, improve customer experiences, and eliminate unnecessary delays or complexities in traditional financial systems. This focus on reducing friction defines the core purpose of fintech innovation across the industry.
Correct Answer Is:
Kill the friction associated with current financial services
A fintech start-up is searching for an appropriate incubator to gain access to office space and legal advice. Which aspect of the start-up determines the kind of incubator the company should select?
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Level of technological innovation
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Size of the founding team
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Necessity of cost savings on infrastructure
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Scope of target market
Explanation
Explanation:
The choice of an incubator for a fintech start-up often depends on the start-up’s specific needs and constraints. One key factor is the necessity of cost savings on infrastructure. Start-ups with limited budgets or high operational costs benefit most from incubators that provide subsidized office space, legal support, and administrative services. Selecting an incubator that aligns with infrastructure needs allows the company to focus resources on product development and market growth while reducing overhead expenses.
Correct Answer:
Necessity of cost savings on infrastructure
What have fintechs done to transform the point-of-sale system and the shopping experience for customers?
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They integrate AI-driven personalized recommendations at checkout to enhance shopping experiences.
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They let customers pay from anywhere in the store with tablets, instead of waiting in a single checkout line.
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They provide advanced inventory management systems to ensure product availability in real time.
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They implement mobile apps that allow pre-ordering and curbside pickup for faster service.
Explanation
Explanation:
Fintech innovations have significantly changed the point-of-sale (POS) experience by making transactions more flexible and efficient. By enabling customers to pay from anywhere in the store using tablets or mobile devices, fintechs eliminate long queues and improve convenience. This transformation not only enhances the shopping experience but also allows retailers to integrate additional services such as personalized promotions, digital receipts, and loyalty program management, creating a seamless, customer-centric shopping environment.
Correct Answer:
They let customers pay from anywhere in the store with tablets, instead of waiting in a single checkout line.
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