Deck 18: Understanding Money, Banking, and Credit

Question 1

What is the term for the interest rate that the Federal Reserve System charges for loans to member banks? What happens to the amount of lending banks do when this interest rate is raised?

Answer 1

Answer not provided.

Question 2

What is included in the M₁ supply of money? How does the definition of M₁ differ from the definition of M₂?

Answer 2

Answer not provided.

Question 3

What are the primary functions of the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Association (NCUA)?

Answer 3

Answer not provided.

Question 4

Community Bank
Jeffrey is the training manager for the Community Bank in Maryland. Jeffrey has developed a training program for all new employees that emphasizes understanding the basics of money. Jeffrey and the bank's management believe that if the employees understand the basics of money, they can utilize the information in their own personal finances as well as guide and answer questions from bank customers.
The bank recently hired Laila. She was hired at a high-level position because she brought with her extensive bank management experience. Laila's responsibilities included making sure that the reserve requirement would always be met and keeping track of the interest rate that the Federal Reserve System charged for loans to member banks.
Refer to Community Bank. In his training, when Jeffrey suggests that money should retain its value over time, which of the following characteristics is he referring to?

A) Difficulty of counterfeiting
B) Liquidity
C) Divisibility
D) Stability
E) Portability

Question 5

Community Bank
Jeffrey is the training manager for the Community Bank in Maryland. Jeffrey has developed a training program for all new employees that emphasizes understanding the basics of money. Jeffrey and the bank's management believe that if the employees understand the basics of money, they can utilize the information in their own personal finances as well as guide and answer questions from bank customers.
The bank recently hired Laila. She was hired at a high-level position because she brought with her extensive bank management experience. Laila's responsibilities included making sure that the reserve requirement would always be met and keeping track of the interest rate that the Federal Reserve System charged for loans to member banks.
Refer to Community Bank. In giving examples to new employees, Jeffrey has indicated that when customers put their money in a bank, some are looking to retain and accumulate wealth. This refers to which of the following functions of money?

A) Money as a measure of value
B) Money as a portable exchange
C) Money as a store of value
D) Money as a medium of exchange
E) Money as a clearinghouse

Question 6

What is the difference between a short-term and a long-term loan? What does it mean to say that collateral is required for a loan?

Question 7

In what ways can a banker provide international banking services to help business firms import and export goods?

Question 8

The Federal Reserve System is responsible for enforcing the Truth-in-Lending Act and for setting margin requirements. In each case, who do these regulations affect and how are they affected?

Question 9

How is money used to eliminate the problems associated with the barter system?

Question 10

Define reserve requirement. Who sets it? What happens to the amount of money a bank loans when its reserve requirement is raised? When it is lowered?

Question 11

Name the five Cs of credit management. Why is each important?

Question 12

During the economic crisis, what specific steps did the Federal Reserve Board take to attempt to minimize the effects of the crisis for businesses and individuals? Were the steps viewed as having stabilized the economy?

Question 13

How do savings and loan associations (S&Ls) and credit unions differ from commercial banks?

Question 14

Today millions of Americans use credit cards. Why has this form of payment become so popular? What do you think are the dangers associated with using credit cards?

Question 15

How do automated teller machines, automated clearinghouses, point-of-sale terminals, and electronic check conversion affect the way people bank and perform financial transactions?

Question 16

Describe the banking services provided by insurance companies, pension funds, brokerage firms, finance companies, and investment banking firms.

Question 17

Assume you are the owner of a small construction firm in need of a $12,000 business loan. What steps can you take to improve your chances of getting a loan from your banker?

Question 18

How do the Federal Reserve's open-market operations affect the economy? What is the relationship between open-market operations and the federal funds rate?

Question 19

Money is a medium of exchange, a measure of value, and a store of value. What do these terms mean?

Question 20

How do checking accounts and certificates of deposit differ with respect to how quickly a depositor can spend these funds?

Question 21

Money that is held and spent later represents a ____, or a means for retaining and accumulating wealth.

A) denomination
B) near-money
C) common denominator
D) store of value
E) standard unit

Question 22

Community Bank
Jeffrey is the training manager for the Community Bank in Maryland. Jeffrey has developed a training program for all new employees that emphasizes understanding the basics of money. Jeffrey and the bank's management believe that if the employees understand the basics of money, they can utilize the information in their own personal finances as well as guide and answer questions from bank customers.
The bank recently hired Laila. She was hired at a high-level position because she brought with her extensive bank management experience. Laila's responsibilities included making sure that the reserve requirement would always be met and keeping track of the interest rate that the Federal Reserve System charged for loans to member banks.
Refer to Community Bank. One of Laila's responsibilities is keeping track of the interest rate that the Federal Reserve System charges for loans to member banks. Which of the following should Laila be tracking?

A) Federal rate
B) FRS rate
C) Reserve rate
D) Discount rate
E) System rate

Question 23

M&B Bank
Ken is a senior manager at M&B Bank. Initially, he started as a front counter worker and slowly progressed up the career ladder. In his role as a senior manager, Ken is keeping a keen eye on the industry, the Federal Reserve System, and the bank's competitors. Ken's previous boss did not do that well, and as a result the bank had suffered.
Several employees have pointed out that many businesses are not aware of the procedures for or a systematic way to evaluate the creditworthiness of their customers, collect past-due payments from customers, and protect their businesses from such losses. Based on feedback from several employees, M&B has decided to offer credit-counseling workshops for individuals and small businesses.
Refer to M&B Bank. As Ken keeps an eye on the industry, he notices many changes. Which of the following is not a change that Ken would have noticed or obtained information about?

A) Importance of customer service
B) Consolidation and mergers
C) Increased competition from nonbank competitors
D) Growth in online banking
E) Decrease in the use of credit cards and debit cards

Question 24

Anything used by a society to purchase products and services or resources is called

A) money.
B) barter.
C) capital.
D) cash.
E) funds.

Question 25

M&B Bank
Ken is a senior manager at M&B Bank. Initially, he started as a front counter worker and slowly progressed up the career ladder. In his role as a senior manager, Ken is keeping a keen eye on the industry, the Federal Reserve System, and the bank's competitors. Ken's previous boss did not do that well, and as a result the bank had suffered.
Several employees have pointed out that many businesses are not aware of the procedures for or a systematic way to evaluate the creditworthiness of their customers, collect past-due payments from customers, and protect their businesses from such losses. Based on feedback from several employees, M&B has decided to offer credit-counseling workshops for individuals and small businesses.
Refer to M&B Bank. While offering the credit-counseling workshops, the facilitator lists the five Cs of credit. Which of the following refers to the borrower's attitude toward credit obligations?

A) Capacity
B) Character
C) Collateral
D) Capital
E) Conditions

Question 26

Because it is the common denominator that we use to compare products and decide which ones we will buy, money functions as a(n)

A) accepted resource.
B) commercial tool.
C) measure of value.
D) instrument of socialism.
E) medium of exchange.

Question 27

Usually money is used as a

A) store of wealth.
B) means of payment.
C) medium of exchange.
D) measure of value.
E) All are acceptable uses of money.

Question 28

M&B Bank
Ken is a senior manager at M&B Bank. Initially, he started as a front counter worker and slowly progressed up the career ladder. In his role as a senior manager, Ken is keeping a keen eye on the industry, the Federal Reserve System, and the bank's competitors. Ken's previous boss did not do that well, and as a result the bank had suffered.
Several employees have pointed out that many businesses are not aware of the procedures for or a systematic way to evaluate the creditworthiness of their customers, collect past-due payments from customers, and protect their businesses from such losses. Based on feedback from several employees, M&B has decided to offer credit-counseling workshops for individuals and small businesses.
Refer to M&B Bank. M&B is chartered by the U.S. Comptroller of the Currency. M&B can be described as which of the following?

A) Non-commercial bank
B) Regional bank
C) State bank
D) Credit union
E) National bank

Question 29

A single standard that is used to assign value to or compare values of products or services is called

A) a store of value.
B) barter.
C) a medium of exchange.
D) capital.
E) a measure of value.

Question 30

When Skye purchases a meal at Hardee's, she will probably use the most common form of money today, which is

A) gold.
B) a credit card.
C) a debit card.
D) currency.
E) bartering.

Question 31

In many stores in Canada, U.S. currency is accepted for payment because the retailers know that their suppliers and other customers will also accept it. In this example, money serves as a

A) medium of exchange.
B) measure of exchange.
C) store of value.
D) foreign exchange currency.
E) measure of value.

Question 32

In explaining money to his twelve-year-old, Mike, the president of a small business, said that money is "symbolic." This should be correctly interpreted to mean that money is

A) an artificial device that aids in the exchange of resources for products, services, and resources.
B) a tangible asset.
C) meaningless.
D) abstract rather than practical.
E) beneficial to the buyer, not the seller.

Question 33

Community Bank
Jeffrey is the training manager for the Community Bank in Maryland. Jeffrey has developed a training program for all new employees that emphasizes understanding the basics of money. Jeffrey and the bank's management believe that if the employees understand the basics of money, they can utilize the information in their own personal finances as well as guide and answer questions from bank customers.
The bank recently hired Laila. She was hired at a high-level position because she brought with her extensive bank management experience. Laila's responsibilities included making sure that the reserve requirement would always be met and keeping track of the interest rate that the Federal Reserve System charged for loans to member banks.
Refer to Community Bank. One employee asked Jeffrey how much money could be found in the whole country. Jeffrey indicated that the government tracks this type of information via supply of money. What are the main measures of the supply of money?

A) One: M₁
B) Four: M₁, M₂, M₃, M₄
C) Two: M₁, M₂
D) Five: M₁, M₂, M₃, M₄, M₅
E) Three: M₁, M₂, M₃

Question 34

A system of exchange in which goods and services are traded directly for other goods and services is called a(n) ____ system.

A) monetary
B) barter
C) exchange
D) mercantile
E) trading

Question 35

M&B Bank
Ken is a senior manager at M&B Bank. Initially, he started as a front counter worker and slowly progressed up the career ladder. In his role as a senior manager, Ken is keeping a keen eye on the industry, the Federal Reserve System, and the bank's competitors. Ken's previous boss did not do that well, and as a result the bank had suffered.
Several employees have pointed out that many businesses are not aware of the procedures for or a systematic way to evaluate the creditworthiness of their customers, collect past-due payments from customers, and protect their businesses from such losses. Based on feedback from several employees, M&B has decided to offer credit-counseling workshops for individuals and small businesses.
Refer to M&B Bank. Ken was concerned about the method used by the Federal Reserve System to control the money supply. He believed this would result in the bank having less money to lend to customers. Which of the following methods refers to Ken's concern?

A) Increase the discount rate.
B) Decrease the reserve requirement.
C) Sell government securities.
D) Buy government securities.
E) Decrease the discount rate.

Question 36

Community Bank
Jeffrey is the training manager for the Community Bank in Maryland. Jeffrey has developed a training program for all new employees that emphasizes understanding the basics of money. Jeffrey and the bank's management believe that if the employees understand the basics of money, they can utilize the information in their own personal finances as well as guide and answer questions from bank customers.
The bank recently hired Laila. She was hired at a high-level position because she brought with her extensive bank management experience. Laila's responsibilities included making sure that the reserve requirement would always be met and keeping track of the interest rate that the Federal Reserve System charged for loans to member banks.
Refer to Community Bank. Because of her previous banking experience, Laila knows that a reserve requirement is

A) the percentage of its deposits a bank must retain, either in its own vault or on deposit with its Federal Reserve District Bank.
B) the percentage of its loans a bank must retain with its Reserve District Bank as deposits.
C) the percentage of its deposits a bank must send in taxes.
D) the percentage of its credit card balance a bank must retain in the customers' accounts.
E) certain accounts a bank must reserve for really wealthy customers.

Question 37

It is easy for Mark to compare the differences in price when he is shopping for a new truck because money is a

A) measure of value.
B) medium of exchange.
C) measure of exchange.
D) store of value.
E) standard intermediary.

Question 38

Ricardo Martinez collected $300 last weekend for mowing yards. Rather than spending the money immediately, he set it aside in an interest-bearing account. He hopes to accumulate more than $3,000 to offset his college expenses this fall. For Ricardo, money is serving as a

A) measure of the current exchange rate.
B) medium of exchange.
C) measure of value.
D) store of value.
E) barter.

Question 39

The United States trades a shipment of wheat to Saudi Arabia in exchange for a shipment of oil. This type of arrangement is called

A) an exchange medium.
B) barter.
C) an auction.
D) a moneyless transfer.
E) electronic commerce.

Question 40

Vince is saving to buy his first car. The Mini Cooper he wants is $28,000 right now, but it will take at least a year for him to accumulate the down payment. He also knows that although money is a store of value, he will probably need more than $28,000 to buy the car next year because of

A) bartering.
B) deflation.
C) low interest rates.
D) inflation.
E) recession.

Question 41

In her college economics class, Kelly will give a report on money. The title of her paper is "Money: It Doesn't Disintegrate When Handled or Melt in the Sun." Which of the five essential elements of money will she talk most about?

A) Divisibility
B) Portability
C) Stability
D) Durability
E) Difficulty to counterfeit

Question 42

Michael's total purchase at Subway is $7.58. He pays with a ten dollar bill knowing he will receive the appropriate change because money is

A) portable.
B) durable.
C) stable.
D) multipliable.
E) divisible.

Question 43

The Federal Reserve System was organized in

A) 1893.
B) 1933.
C) 1913.
D) 1943.
E) 1981.

Question 44

Neal has $25,000 invested in a money-market mutual fund. This type of fund is an example of

A) near-monies.
B) a demand deposit.
C) M₃.
D) a checking account.
E) an insurance policy.

Question 45

The definition of M₂ includes M₁ (currency and demand deposits) plus savings accounts, certain money-market securities, and

A) the value of stock owned by individuals.
B) the value of homes owned by individuals.
C) time deposits of more than $100,000.
D) certificates of deposit of less than $100,000.
E) foreign currency deposited in U.S. banks.

Question 46

Brian can easily carry $100 in his wallet because money is

A) the same as credit cards.
B) divisible.
C) stable.
D) portable.
E) durable.

Question 47

Jeff Becker is a truck driver for Eastside Distributors. As part of his job, he not only delivers merchandise but is involved in selling, inventory control, and collecting on accounts. Tuesday was a banner collection day for Jeff. He collected money on nearly every account. However, he did not take the time to count the cash carefully because he also had to take over another truck driver's route. He knew that according to company policy, he would have to make up any shortage. When he checked in for the day, the bookkeeper told him that one of his twenties was "no good." Jeff demanded a second expert opinion because money is

A) divisible.
B) portable.
C) stable.
D) durable.
E) difficult to counterfeit.

Question 48

Which of the following statements is false?

A) Inflation is a general rise in the level of prices.
B) Inflation can affect an individual's purchasing power when money is used as a store of value.
C) The consumer price index is based on two factors: the cost of housing and the cost of transportation.
D) The consumer price index measures the changes in prices of goods purchased by a typical consumer.
E) The base amount for the consumer price index is 100.

Question 49

Along with stability, all of the following are characteristics of money except

A) durability.
B) profitability.
C) difficulty of counterfeiting.
D) portability.
E) divisibility.

Question 50

Amounts held on deposit in checking accounts are

A) demand deposits.
B) the M₂ supply of money.
C) time deposits.
D) near-monies.
E) transfer deposits.

Question 51

During periods of high inflation, money loses which essential characteristic?

A) Divisibility
B) Portability
C) Stability
D) Durability
E) Difficulty of counterfeiting

Question 52

Thad deposits $2,000 in an interest-bearing savings account. This means that Thad has $2,000 in

A) demand deposits.
B) time deposits.
C) money supply.
D) checking accounts.
E) available accounts.

Question 53

M₁ and M₂ are both measures of

A) demand deposits.
B) gross domestic product.
C) reserve requirement levels.
D) the supply of money.
E) inflation.

Question 54

Dorothy Richards has a certificate of deposit for $40,000 at a local bank. This $40,000 would be included in

A) M₁.
B) M₂.
C) M₃.
D) M₁ and M₂.
E) M₁, M₂, and M₃.

Question 55

Time deposits include

A) near-monies.
B) demand deposits.
C) NOW accounts.
D) checking accounts.
E) negotiable order of withdrawal accounts.

Question 56

Nancy Murray has $6,000 in demand deposits with the Teachers Credit Union. This means that she has $6,000 in

A) savings accounts.
B) checking accounts.
C) certificates of deposit.
D) IRA accounts.
E) Keogh accounts.

Question 57

If a subcultural group in Africa started its own country, it should not use tissue paper to print currency because money should have

A) divisibility.
B) portability.
C) durability.
D) sustainability.
E) stability.

Question 58

All of the following are time deposits except

A) money-market mutual fund shares.
B) short-term government securities.
C) an interest-bearing savings account.
D) a checking account.
E) certificates of deposit.

Question 59

A friend overhears your conversation with another friend, who is discussing his new job with "the Fed." What does the term Fed stand for?

A) Federal Education System
B) Federal Monetary System
C) Federal Reserve Board
D) U.S. Congress
E) The executive branch of the U.S. government

Question 60

Which of the following would not be included in the M₁ definition of money?

A) Coins
B) Paper currency
C) Small-denomination CDs
D) Travelers checks
E) Demand deposits

Question 61

The interest rate that the Federal Reserve System charges for loans to member banks is called the

A) reserve requirement.
B) open-market rate.
C) margin requirement.
D) secured rate.
E) discount rate.

Question 62

Which of the following statements is true?

A) The process of deposit expansion decreases the amount of money a bank can lend to borrowers.
B) The process of deposit expansion is forbidden by the Federal Reserve.
C) The Federal Reserve uses deposit expansion to counteract the effects of inflation.
D) The Federal Reserve uses deposit expansion to slow down the growth rate of the economy.
E) Deposit expansion can increase the amount of money a bank can lend to borrowers.

Question 63

How many branch banks are in the Federal Reserve System?

A) Five
B) Seven
C) Twelve
D) Fourteen
E) Twenty-four

Question 64

Your friend Elizabeth says that all the Fed does is lower or raise interest rates. You explain that the Fed's actual mission is to

A) maintain an economically healthy and financially sound business environment.
B) set the rules and regulations with which all banks are required to comply.
C) prevent a recession at all costs.
D) manipulate the market through the regulation of reserve requirements.
E) buy and sell government bonds as part of open-market operations.

Question 65

Increasing the reserve requirement is a powerful ____ weapon that reduces the overall supply of money.

A) depression
B) anti-government
C) inflationary
D) anti-inflation
E) recessionary

Question 66

XYZ Bank has total time deposits of $100 million. The Federal Reserve requires this bank to maintain 10 percent of its deposits. In this situation, the bank must maintain

A) $0.
B) $1,200,000.
C) $10,000,000.
D) $24,000,000.
E) $100,000,000.

Question 67

The Federal Reserve System is controlled by the

A) board of governors.
B) president of the United States.
C) U.S. Senate.
D) member banks.
E) U.S. Treasury Department.

Question 68

The percentage of deposits that a bank must retain for depositors is called

A) the demand deposit.
B) a trust fund.
C) amortization.
D) collateral.
E) a reserve requirement.

Question 69

The seven members of the Federal Reserve System are

A) elected in a general election.
B) appointed by the Senate.
C) appointed by the president.
D) employees of the U.S. Treasury Department.
E) appointed by the House of Representatives.

Question 70

Of the following, which is false about the "stress" tests that were instituted and conducted by the Federal Reserve and other federal agencies?

A) The tests were conducted in spring of 2009.
B) The tests measured how well banks could weather the economic crisis.
C) The tests were conducted with the 19 largest U.S. banks.
D) The banks that failed were provided non-recourse loans to help secure the banks' survival.
E) Banks that failed the test were required to obtain new capital through stocks and bonds or accept federal government funds.

Question 71

The Senate confirms the appointment of each member of the board of governors for a term of ____ year(s).

A) one
B) five
C) eight
D) ten
E) fourteen

Question 72

What is commercial paper?

A) A specific amount on deposit in a checking account that is owned by corporations
B) A synonym for near-monies
C) Interest-bearing bonds offered by large corporations
D) Long-term bonds issued by only the largest U.S. corporations
E) Short-term promissory notes issued by large corporations

Question 73

Which of the following methods does the Federal Reserve System not use to control the money supply and the economy?

A) Buys government securities and bonds
B) Increases the reserve requirement
C) Increases the discount rate
D) Lends money to private businesses
E) Sells government securities and bonds

Question 74

First State Bank has $50 million in deposits, and the reserve requirement is 10 percent. How much can it lend?

A) $5 million
B) $50 thousand
C) $40 million
D) $55 million
E) $45 million

Question 75

During the recent economic crisis, the Fed took several important steps to attempt to minimize the effects of the crisis for both businesses and individuals. Which of the following was not a step that the Fed took during this time?

A) Expanded its network of district banks to 18
B) Provided liquidity
C) Supported troubled financial markets
D) Supported important financial institutions
E) Conducted stress tests for major banks

Question 76

The primary function of the Fed is to

A) charter national banks.
B) regulate the supply of money in the world to support capitalism.
C) appoint its board members.
D) charter district banks.
E) regulate the supply of money in the United States to maintain a healthy economy.

Question 77

When reserve requirements are low, there is

A) an increase in the overall money supply.
B) less money to lend customers.
C) a reduction in the overall money supply.
D) an economic slowdown.
E) None of these answers are correct.

Question 78

All of the following are functions of the Federal Reserve System except to

A) regulate the supply of money.
B) insure commercial depositors' deposits when there is a bank closure.
C) inspect U.S. currency.
D) set margin requirements.
E) be a clearinghouse for checks.

Question 79

In the Federal Reserve System, there are ____ district banks.

A) twenty-four
B) nineteen
C) fifteen
D) twelve
E) eight

Question 80

At the bank where Natasha works, loans are made on the money that customers deposit and then in turn on what borrowers deposit, which allows the bank to make more loans. This is referred to as

A) reserve requirements.
B) duplicate lending.
C) open-market operations.
D) margin lending.
E) deposit expansion.