Deck 15: Money and the Financial System

Question 1

Historically, items as diverse as salt, fish, and rocks have been used by various cultures as money.

Answer 1

True

Question 2

Mutual savings banks were originally established for groups of people (like fishermen) to have a safe place for their savings.

Answer 2

True

Question 3

Finance companies require borrowers to pledge personal collateral when obtaining a loan.

Answer 3

True

Question 4

________ is the study of how money is managed by individuals, companies, and governments.

A) Accounting
B) Banking
C) Finance
D) Economics
E) Budgeting

Question 5

Anything that can be used for the payment of goods and services is defined as

A) finance.
B) commerce.
C) money.
D) a medium.
E) value.

Question 6

When early settlers needed to buy farming equipment and supplies, they often would use the milk, eggs, and crops their farms produced as currency. As it pertains to money, this scenario depicts

A) using materials that have their own value to society as money.
B) using unlimited-supply commodities as money.
C) using "IOUs" as money.
D) bartering unlimited goods for limited goods.
E) bartering unlimited goods for other unlimited goods.

Question 7

Gerald lives in an apartment in Chicago. Every month, he must pay rent and utilities to remain in his apartment. As it pertains to the functions of money, this is an example of a(n) ________ action.

A) financing
B) investing
C) entertainment
D) operating
E) essential

Question 8

Noelle has taught dance classes at a large studio for several years. Recently, she decided to start her own dance studio. As a function of money, this scenario describes Noelle's desire for ________ actions.

A) entertainment
B) financing
C) operating
D) investing
E) essential

Question 9

Rick owns and operates a small farm that produces vegetables and fruits. His friend Owen owns and operates a butcher shop that sells various kinds of meat. Rick often gives Owen vegetables and fruits in exchange for meat, and vice versa. This scenario best describes

A) using fiat money.
B) using "IOUs."
C) purchasing.
D) operating actions.
E) bartering.

Question 10

After using the barter system, it was decided that a simpler medium of exchange needed to take place, and the result was to

A) make it possible for any item to be freely converted to any other good upon agreement between parties.
B) determine set values for types of goods, so they could be converted more easily to other goods.
C) reduce the list of items that could be used as currency.
D) decide on a single item that could be freely converted to any other good upon agreement between parties.
E) add a middleman to all transactions to mediate between the buyer and seller.

Question 11

Chuck and Paula want to buy their first house. They have done online research and determined that most houses having the features they want in the area where they live cost around $350,000. They hire a real estate agent who helps them find and buy a house for $345,000. What function of money does this scenario best describe?

A) means of savings
B) store of value
C) measure of value
D) medium of exchange
E) counterfeit deterrent

Question 12

Kate makes $3,000 a month working as a radiology technician. She wants to buy a used car for $10,000. She plans to save $2,000 per month for 5 months to buy the car. What function of money does this scenario best describe?

A) measure of value
B) medium of exchange
C) yardstick of value
D) means of bartering
E) store of value

Question 13

What characteristic of money is directly affected by the health of the economy?

A) its function as a store of value
B) its function as a medium of exchange
C) its acceptability
D) its portability
E) its divisibility

Question 14

Nico trades his tablet for a cellphone. Since both are the same value, there is no exchange of money. What concept does this scenario illustrate?

A) discounting
B) checking
C) bartering
D) accruing
E) devaluing

Question 15

If businesses do not take money as payment for goods and services, consumers will have to find another means of paying for purchases. This is why ________ is probably the most important characteristic of money.

A) divisibility
B) acceptability
C) portability
D) stability
E) durability

Question 16

Anna is a high school senior who wants to buy a prom dress that costs $250. She postpones purchasing the dress and gets a weekend job at a restaurant to save money for it. After two months of saving, she is able to buy the dress. What characteristic of money does this scenario best relate to?

A) durability
B) portability
C) stability
D) acceptability
E) divisibility

Question 17

You feel confident that a $20 bill will buy tomorrow what it can buy today. This exemplifies which characteristic of money?

A) stability
B) durability
C) acceptability
D) divisibility
E) portability

Question 18

The life expectancy of a $20 bill is estimated to be 7.9 years. What characteristic of money does this statement illustrate?

A) divisibility
B) durability
C) acceptability
D) stability
E) portability

Question 19

U.S. money includes subtle colors in addition to the traditional green, as well as enhanced security features, such as a watermark, security thread, and color-shifting ink. What characteristic of money is being protected by these measures?

A) likelihood to be accepted
B) difficulty to counterfeit
C) enhanced divisibility
D) increased stability
E) increased portability

Question 20

The characteristic of money that relates to it having a long, useful life is its

A) stability.
B) inability to be counterfeited.
C) portability.
D) durability.
E) divisibility.

Question 21

What characteristic of money explains why many countries are discontinuing large denominated bills?

A) portability
B) divisibility
C) difficulty to counterfeit
D) stability
E) exchangeability

Question 22

A checking account is also called a demand deposit because

A) depositors can demand a certain rate of interest on the account.
B) retailers can demand that they be used instead of paper currency.
C) it is the only type of account that demands regulation by the Federal Reserve.
D) the Federal Reserve can demand a certain level of deposits for these accounts.
E) funds may be withdrawn by its owner without advance notice.

Question 23

Every month, Olivia receives a bill in the mail from her mortgage company. By the first of each month, she must send back her payment, along with the bottom part of the bill, which includes her account information and the amount enclosed. She pays these mortgage bills using a form of payment that is essentially a written order to her bank to pay the mortgage company the specified amount from the money in her bank account. What form of payment is Olivia using in this scenario?

A) paper money
B) a certificate of deposit
C) a check
D) a line of credit
E) a debit payment

Question 24

Which statement is TRUE regarding savings accounts?

A) Their funds can be withdrawn without advance notice.
B) They do not have limits on the number of withdrawals per period.
C) They are usually used for transactions.
D) Their funds can be moved to a checking account or turned into cash.
E) They are generally used as a medium of exchange.

Question 25

Parker wants to open a new bank account. He is looking for an account with a good interest rate that he can mostly use for savings but that he can also write a few checks from each month, to pay his mortgage and utility bills. Which type of account would Jeremy most likely open?

A) a checking account
B) a savings account
C) a certificate of deposit account
D) a time deposit account
E) a money market account

Question 26

When Nellie's uncle died, he left her $5,000. Since she doesn't plan to spend the money anytime soon, she decides to open an account that will guarantee her a fixed interest rate of 5 percent for five years. With this type of account, if she withdraws funds before the 5 years pass, she will have to pay a substantial penalty. What type of account did Nellie open?

A) a Negotiable Order of Withdrawal account
B) a checking account
C) a money market account
D) a demand deposit account
E) a certificate of deposit

Question 27

Consumers often use ________ as a popular substitute for cash payments due to the convenience and wide acceptance by merchants, as well as the ability to pay for purchases at a later date.

A) credit cards
B) CDs
C) money market accounts
D) savings accounts
E) time deposits

Question 28

Food Nation, a large grocery store, has its own credit card that customers can sign up for to save money. Customers using this card receive special weekly coupons for items in the store. What type of credit card is described in this scenario?

A) a reward card
B) a debit card
C) a wholesale club card
D) a standard credit card
E) a cash-back card

Question 29

All of the following are ways the Credit CARD Act of 2009 regulates the practices of credit card companies EXCEPT it

A) limited credit to young adults.
B) gave people less time to pay bills.
C) required young adults under the age of 21 to have an adult co-signer or prove their income level.
D) limited the ability of card issuers to raise interest rates.
E) made clearer due dates on billing cycles.

Question 30

When Tonya uses her ________ to purchase a pair of shoes, the payment comes immediately out of her checking account to the account of the shoe store that sold her the shoes.

A) credit card
B) savings account
C) certificate of deposit
D) debit card
E) time deposit

Question 31

Why would financial institutions want consumers to use debit cards?

A) For every transaction, the financial institution receives a transaction fee from merchants.
B) They give the institution a hard "paper trail" for customer transactions.
C) They increase the amount of interaction the institution has with its customers.
D) They allow institutions to replace all their banks with less expensive ATMs.
E) They reduce the number of teller transactions and check processing costs.

Question 32

A major difference between credit cards and debit cards is that

A) credit cards result in immediate payment, while debit card payments take longer to process.
B) debit cards offer a purchase "grace period," while credit cards do not.
C) debit cards work like a check.
D) debit cards provide a "paper trail," while credit cards do not.
E) it is easier for computer hackers to steal credit card information than debit card information.

Question 33

All of the following are major responsibilities of the Federal Reserve Board EXCEPT

A) controlling the supply of money.
B) providing short-term loans to businesses.
C) regulating banks and other financial institutions.
D) managing regional and national checking account procedures.
E) supervising the federal deposit insurance programs of banks belonging to the Federal Reserve System.

Question 34

If the Federal Reserve Board wants to increase the money supply in the economy, it will most likely

A) raise reserve requirements.
B) buy government securities.
C) print more money.
D) raise discount rates.
E) restrict credit controls.

Question 35

Superior Savings Bank is holding $20 million in deposits, with a 10 percent reserve requirement. As a result, the bank must have reserves of $2 million. If the Federal Reserve Board reduced the reserve requirement to 5 percent, what would this mean for Superior Savings Bank?

A) The bank could lend to customers the $1 million difference between the old reserve level and the new lower reserve level.
B) The bank would be grandfathered into the old reserve level, so nothing would change.
C) The bank could decide whether to keep the old reserve level or switch to the new lower reserve level.
D) The bank would have to ask the Federal Reserve Board for permission to switch to the new lower reserve level.
E) The bank would have to check with its customers before switching to the new lower reserve level.

Question 36

Mutual Bank is unable to meet the Federal Reserve Board's reserve requirements, so it must take out a loan from the Fed. In this scenario, Mutual Bank is said to have borrowed at the

A) "reserve source."
B) "discount door."
C) "discount window."
D) "reserve window."
E) "reserve discount."

Question 37

The Federal Reserve Board's credit controls allows the Fed to

A) determine who can and cannot have credit cards.
B) determine whether a business can or cannot accept credit card payments.
C) prevent certain items from being purchased with credit cards.
D) raise and lower minimum down payment amounts and payment periods.
E) raise and lower the prices for items that are commonly purchased with credit cards.

Question 38

Candace is an investor who purchases stock using credit. If the Federal Reserve Board lowers the margin requirement on buying stock with credit, what would Candace be likely to do?

A) consider investing in other items besides stock
B) trade some stock
C) sell all her stock
D) keep her stock as is
E) buy more stock

Question 39

All of the following are actions the Federal Reserve Board takes as part of its regulatory functions EXCEPT

A) controlling the total amount of credit borrowing in the stock market.
B) establishing and enforcing banking rules that affect monetary policy and the overall level of competition between different banks.
C) approving or disapproving mergers between banks and the formation of bank holding companies.
D) determining which nonbanking activities, such as brokerage services, leasing, and insurance, are appropriate for banks and which should be prohibited.
E) conducting surprise bank examinations to ensure that all rules are enforced and that correct accounting procedures are being followed.

Question 40

With the passage of the Check Clearing for the 21st Century Act (Check 21 Act), which of the following is now possible?

A) Checks can be sent for free via a new overnight delivery service.
B) Checks can be processed in less than a week.
C) Checks can be processed in a day.
D) Checks can be sent electronically, so banks can process them while they wait for the actual check to arrive for clearing.
E) Checks have been replaced with an electronic form banks can fill out.

Question 41

Josh and Camilla want to remodel the kitchen in their home. They decide to take out a home equity loan that will allow them to borrow money against the appraised value of their home. Which type of financial institution would Josh and Camilla most likely go to for this type of loan?

A) a savings and loan association
B) a commercial bank
C) a credit union
D) a mutual savings bank
E) an independent savings bank

Question 42

Nicole and Jesse are looking to purchase their first home. What is the name of the loan they will secure to buy their house?

A) a home equity loan
B) a mortgage
C) a collateral loan
D) a thrift
E) a pension

Question 43

Aiden and Ellie recently got married and now they are ready to purchase their first home together. After finding the house they want to buy, they go to a savings and loan association to get a mortgage. What will happen if Aiden and Ellie are ever unable to make their mortgage payments?

A) The savings and loan association will accept Aiden and Ellie's possessions, such as cars, appliances, and electronics, in lieu of payments.
B) The savings and loan association has the right to repossess their house.
C) The savings and loan association will give them discounts to help them pay their mortgage.
D) The savings and loan association will waive their interest to make the mortgage payments more manageable.
E) The savings and loan association will extend the time Aiden and Ellie have to make the payments.

Question 44

When Congress originally established insurance funds for banks, it did so to

A) prevent all future bank failures.
B) encourage depositors to withdraw their money from banks.
C) prevent banks and depositors from suing Congress for losses.
D) save the banks from losses when depositors withdraw their money.
E) make people feel secure about their savings.

Question 45

Ace Trucking is a manufacturer of expensive semi-trucks. If the company helps its customers finance the purchase of its trucks through its finance subsidiary, Ace Trucking would be acting as a(n)

A) insurance company.
B) brokerage firm.
C) credit union.
D) mortgage broker.
E) diversified firm.

Question 46

A money market fund and a money market account differ in that

A) a money market fund is a type of bank account, while a money market account is a type of mutual fund.
B) money market funds offer slightly lower interest rates than money market accounts.
C) a money market fund represents a pool of funds, while a money market account is basically a specialized, individual checking account.
D) money market funds do not offer any of the services that money market accounts offer.
E) money market accounts invest specifically in short-term debt securities issued by governments and large corporations, while money market funds are basically specialized, individual checking accounts.

Question 47

Alyssa wants to open an individual retirement account (IRA) to provide for her personal retirement needs. What is something she should consider when deciding between a traditional IRA versus a Roth IRA?

A) If she doesn't make enough money, she cannot fund a Roth IRA.
B) In a traditional IRA, the interest earned may be deferred tax-free until retirement; while in a Roth IRA, no tax is paid on the distribution withdrawn at retirement.
C) Traditional IRAs can be invested in more diverse financial assets than Roth IRAs.
D) Investors can contribute more to Roth IRAs than traditional IRAs.
E) Roth IRAs give individuals more freedom to choose their investments than traditional IRAs.

Question 48

In the process of buying a new house, Christy's mortgage company requires her to work with an institution that will protect her from financial losses due to accidents, fire, theft, and natural disasters. Which type of institution can provide this protection to Christy and her new home?

A) an insurance company
B) a pension fund
C) a commercial bank
D) a credit union
E) a diversified firm

Question 49

Jonathan is a fifty-year-old construction-site foreman who invests money with a firm that, in turn, pools it with other investor dollars and invests the money in well-diversified securities, managed by an investment professional within the firm. In this scenario, Jonathan is investing in a(n)

A) certificate of deposit.
B) individual retirement account.
C) mutual fund.
D) banker's acceptance.
E) time deposit.

Question 50

Amber is interested in investing her money in a mutual fund that invests in short-term debt securities issued by governments and large corporations. She also wants to be able to write checks and reinvest interest income from her investments. Which institution would Amber most likely choose for her investments?

A) a money market fund
B) a money market bank account
C) a pension fund
D) a brokerage firm
E) an insurance company

Question 51

Daniel owns his own computer repair shop. Business has not been good, so Daniel's credit limit has been exhausted, and he needs a short-term loan to help him stay in business. Which institution, known as the lender of last resort, would Daniel most likely turn to for a loan?

A) a brokerage firm
B) an investment firm
C) a finance company
D) a mutual fund provider
E) an insurance company

Question 52

Ethan is on his way to a concert, and he wants to deposit his paycheck, get cash, and check the balance of his bank account. Which type of electronic banking will he most likely use to complete these activities?

A) a credit card
B) an automated teller machine
C) an overnight deposit box
D) an electronic funds transfer
E) an automated clearinghouse

Question 53

Tonya has a savings and checking account at Big City Bank. She is about to have some home repairs done, so she wants to make sure that she has enough funds in her checking account. She uses her smartphone to transfer money from her savings account into her checking account. Which method of electronic banking does this scenario best describe?

A) a credit card transaction
B) mutual fund management
C) an automated teller machine transaction
D) an automated clearinghouse transaction
E) an electronic funds transfer

Question 54

The Federal Reserve took all of the following actions during the most recent financial crisis between 2007 and 2008 EXCEPT it

A) gave a directive to change the management of the banks that had to be bailed out.
B) bought up troubled assets from banks.
C) lent money at the discount window to nonbanks such as investment bankers and brokers.
D) kept the interest rates low to stimulate the economy.
E) entered into the financial markets by making markets in commercial paper and other securities where the markets had ceased to function.

Question 55

In reaction to the financial meltdown and severe recession between 2007 and 2008, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. What does the full name of this act imply?

A) that it intends to change the management of the banks that had to be bailed out
B) that it intends to eliminate the ability of banks to create this type of financial problem in the future
C) that it does not intend to interfere with how the banks are managed
D) that it intends to keep the discount rates high to discourage borrowing
E) that it intends to issue a directive to keep all information regarding derivative products confidential

Question 56

During 2007-2008, which of the following contributed to the collapse of the financial markets?

A) increasing housing prices
B) mortgages with high-qualifying borrowers
C) securities backed by subprime mortgages
D) increasing value of bank assets
E) a growing capital base

Question 57

A company that matches investors and borrowers with loans between $2,000 and $35,000 are referred to as

A) investment bankers.
B) automated clearinghouses.
C) mutual fund lenders.
D) peer-to-peer lenders.
E) finance companies.

Question 58

What are the four major responsibilities of the Federal Reserve Board?

Question 59

What are the different nonbanking institutions available? How are nonbanking institutions different from banking institutions?