Question 1

The New York Stock Exchange is an example of a:

Accepted Answer

A) financial instrument. 
B) financial institution. 
C) financial market. 
D) bank. 
A) financial instrument. 
B) financial institution. 
C) financial market. 
D) bank. C

Question 2

U.S.monetary policy is best described as:

Accepted Answer

A) aimed at keeping inflation low and stable and growth high and stable. 
B) determining the denominations of a country's currency. 
C) one of the most important functions of congress. 
D) attempting to keep inflation constant at zero percent. 
A) aimed at keeping inflation low and stable and growth high and stable. 
B) determining the denominations of a country's currency. 
C) one of the most important functions of congress. 
D) attempting to keep inflation constant at zero percent. A

Question 3

The primary function of central banks is to:

Accepted Answer

A) increase risk and volatility to increase compensation. 
B) control inflation, as well as help reduce the size and frequency of business cycle fluctuations. 
C) increase the uncertainty that firms face in making investment decisions. 
D) eliminate the need for banks to collect financial information. 
A) increase risk and volatility to increase compensation. 
B) control inflation, as well as help reduce the size and frequency of business cycle fluctuations. 
C) increase the uncertainty that firms face in making investment decisions. 
D) eliminate the need for banks to collect financial information. B

Question 4

A borrower seeking a mortgage today is often presented with the choice between a mortgage whose interest rate and monthly payment stays fixed for the duration of the loan, or a mortgage whose interest rate and monthly payment can change as other interest rates change.Typically the interest rate on the fixed-rate mortgage is higher.Having learned the five core principles, does this make sense?

Accepted Answer

Yes.The lender is shifting risk to the b

Question 5

Central banks can improve the welfare of a society by doing all of the following except:

Accepted Answer

A) serving the interests of government rather than the public at large. 
B) helping to promote economic growth. 
C) focusing on keeping the overall level of prices stable. 
D) helping to reduce the volatility of business cycles. 
A) serving the interests of government rather than the public at large. 
B) helping to promote economic growth. 
C) focusing on keeping the overall level of prices stable. 
D) helping to reduce the volatility of business cycles.

Question 6

Suppose that IBM considers expanding its operations.The expansion will require $400 million for two new factories which the corporation plans to raise by selling stock and bonds.Which of the core principles will come into play as investors decide whether or not to buy the stock and the bonds?
The five core principles are: #1) Time has value; #2) Risk requires compensation; #3) Information is the basis for decisions; #4) Markets determine prices and allocate resources; #5) Stability improves welfare.Investors considering buying IBM's stock and bonds would surely have principle #2 in mind; they would assess the risk involved in IBM's expansion and want to be compensated for it.This would clearly involve information (principle #3).Principle #1 would come into play with the bonds; are they 1-year bonds? 5-year bonds? The longer the time period involved, everything else constant, the greater the return investors would require.Principles #4 and #5 are not totally irrelevant here, as investors will rely on markets to price the stocks and bonds and will judge IBM's expansion based on the outlook for the economy as a whole (stability).

Accepted Answer

The five core principles are: #1) Time h

Question 7

Most financial markets in the United States operate under a system:

Accepted Answer

A) without any formal rules or regulation. 
B) with many rules and regulation to ensure a fair market. 
C) where it depends on which state where the financial market is located since some states do not have any regulations. 
D) that is totally controlled by the federal government. 
A) without any formal rules or regulation. 
B) with many rules and regulation to ensure a fair market. 
C) where it depends on which state where the financial market is located since some states do not have any regulations. 
D) that is totally controlled by the federal government.

Question 8

Which of the following is an example of a financial market?

Accepted Answer

A) A local coffeehouse where people regularly buy and sell financial instruments. 
B) A bank that only accepts deposits and issues loans. 
C) An electronic network used for buying and selling textbooks. 
D) A central bank used for raising taxes and borrowing on behalf of the government. 
A) A local coffeehouse where people regularly buy and sell financial instruments. 
B) A bank that only accepts deposits and issues loans. 
C) An electronic network used for buying and selling textbooks. 
D) A central bank used for raising taxes and borrowing on behalf of the government.

Question 9

The central bank of the United States is:

Accepted Answer

A) the Bank of America 
B) the Federal Reserve System 
C) the U.S.Treasury 
D) Citibank 
A) the Bank of America 
B) the Federal Reserve System 
C) the U.S.Treasury 
D) Citibank

Question 10

Investing in financial instruments in today's economy:

Accepted Answer

A) is an activity practiced only by the wealthy. 
B) involves costly transactions. 
C) requires a relatively large sum of money to invest (more than $100,000). 
D) is made easier by the use of mutual funds. 
A) is an activity practiced only by the wealthy. 
B) involves costly transactions. 
C) requires a relatively large sum of money to invest (more than $100,000). 
D) is made easier by the use of mutual funds.

Question 11

Identify the five core principles of Money and Banking.

Accepted Answer

#1) Time has value; #2) Risk r

Question 12

The amount of information an individual would seek before making a decision:

Accepted Answer

A) is about the same across all individuals. 
B) varies directly with the importance of the decision. 
C) is the same across all decisions but varies across individuals. 
D) depends on how much time it will take to get the information regardless of the decision. 
A) is about the same across all individuals. 
B) varies directly with the importance of the decision. 
C) is the same across all decisions but varies across individuals. 
D) depends on how much time it will take to get the information regardless of the decision.

Question 13

Identify which item is not one of the six parts of the financial system.

Accepted Answer

A) Financial markets 
B) Central banks 
C) Credit cards 
D) Financial institutions 
A) Financial markets 
B) Central banks 
C) Credit cards 
D) Financial institutions

Question 14

How do central banks, like the U.S.Federal Reserve, contribute to the welfare of a society?

Accepted Answer

One of the core principles is that stabi

Question 15

How do financial institutions evaluate the creditworthiness of potential borrowers?

Accepted Answer

A) They offer high interest rates because only the best borrowers will be able to afford them. 
B) They gather information regarding the borrowers' finances. 
C) They do not evaluate creditworthiness because everyone is treated the same. 
D) They do not evaluate the creditworthiness because they know the borrower will honor his/her obligation to repay the loan. 
A) They offer high interest rates because only the best borrowers will be able to afford them. 
B) They gather information regarding the borrowers' finances. 
C) They do not evaluate creditworthiness because everyone is treated the same. 
D) They do not evaluate the creditworthiness because they know the borrower will honor his/her obligation to repay the loan.

Question 16

In 2010, regulators of many nations agreed on a major update of internationally active banks known as:

Accepted Answer

A) Basel III. 
B) the Fred-Bob Act. 
C) the Gramm-Leach-Bliley Act. 
D) the Dodd-Frank Act. 
A) Basel III. 
B) the Fred-Bob Act. 
C) the Gramm-Leach-Bliley Act. 
D) the Dodd-Frank Act.

Question 17

Identify which of the following is not one of the five core principles of money and banking.

Accepted Answer

A) Risk requires compensation 
B) Time has value 
C) Information is the basis for decisions 
D) Stability creates risk 
A) Risk requires compensation 
B) Time has value 
C) Information is the basis for decisions 
D) Stability creates risk

Question 18

Stock prices are:

Accepted Answer

A) set by the company issuing the stock. 
B) set by the central bank. 
C) determined by market transactions. 
D) unrelated to the value of the company issuing the stock. 
A) set by the company issuing the stock. 
B) set by the central bank. 
C) determined by market transactions. 
D) unrelated to the value of the company issuing the stock.

Question 19

In the United States, control of the quantity of money is given to the:

Accepted Answer

A) President. 
B) Federal Reserve System. 
C) Bureau of Printing and Engraving. 
D) Department of the Treasury. 
A) President. 
B) Federal Reserve System. 
C) Bureau of Printing and Engraving. 
D) Department of the Treasury.

Question 20

The statement "risk requires compensation" implies that people:

Accepted Answer

A) do not take risk. 
B) only accept risk when they absolutely have to. 
C) will only accept risk when they are rewarded for doing so. 
D) avoid risk at all cost. 
A) do not take risk. 
B) only accept risk when they absolutely have to. 
C) will only accept risk when they are rewarded for doing so. 
D) avoid risk at all cost.

Exam 1: An Introduction to Money and the Financial System

The New York Stock Exchange is an example of a:

U.S.monetary policy is best described as:

The primary function of central banks is to:

Central banks can improve the welfare of a society by doing all of the following except:

Most financial markets in the United States operate under a system:

Which of the following is an example of a financial market?

The central bank of the United States is:

Investing in financial instruments in today's economy:

Identify the five core principles of Money and Banking.

The amount of information an individual would seek before making a decision:

Identify which item is not one of the six parts of the financial system.

How do central banks, like the U.S.Federal Reserve, contribute to the welfare of a society?

How do financial institutions evaluate the creditworthiness of potential borrowers?

In 2010, regulators of many nations agreed on a major update of internationally active banks known as:

Identify which of the following is not one of the five core principles of money and banking.

Stock prices are:

In the United States, control of the quantity of money is given to the:

The statement "risk requires compensation" implies that people:

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value, and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets, and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange-Rate Policy and the Central Bank

Money Growth, Money Demand, and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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