Deck 15: Money and the Financial System

Question 1

Money is a medium of exchange.

Answer 1

True
Explanation: Money serves three important functions: as a medium of exchange,a measure of value,and a store of value.

Question 2

Certificates of deposit are accounts with funds that usually cannot be withdrawn without advance notice and/or have limits on the number of withdrawals per period.

Answer 2

False
Explanation: Saving accounts are funds that usually cannot be withdrawn without advance notice,also known as time deposits.CDs are accounts that guarantee depositors a set interest rate so long as the funds are not withdrawn before the end of the set interval.

Question 3

What are the three functions of money?

Answer 3

Money has three central functions.The first is as a medium of exchange for needed goods and services.Second,it is a measure of value-people use money as a common standard on the value of goods and services.Finally,money is a store of value and therefore is used as an easy means of accumulating and storing wealth.

Question 4

When used to accumulate wealth,money functions as a

A) yardstick of value.
B) store of value.
C) measure of value.
D) medium of exchange.
E) counterfeit deterrent.

Question 5

A savings account is the same thing as a money market account.

Question 6

A checking account is also called a demand deposit account.

Question 7

Using commodities such as corn,livestock,or artisanal goods is not an effective means of exchange because the system lacks

A) divisibility.
B) stability.
C) perishability.
D) durability.
E) counterfeitability.

Question 8

Fiat money is backed by gold.

Question 9

The three important functions of money are that it serves as a medium of exchange,a measure of value,and a store of value.

Question 10

When currency is stable,it provides no incentive to save.

Question 11

As a medium of exchange,money

A) eliminates the cumbersome barter system.
B) creates a complicated service structure.
C) makes it harder to trade.
D) is hard to divide.
E) is backed by gold.

Question 12

In some countries with very high inflation rates,citizens must spend their money as fast as they receive it in order to keep up with or stay ahead of the rapidly rising prices of consumer goods.Under these conditions,money is said to lack

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

Question 13

Discuss the most important characteristic of money.

Question 14

When a dollar bill is handled hundreds of times and is still being used,it has which of the following characteristics?

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

Question 15

The most important characteristic of money is its acceptability for purchase of goods and services.

Question 16

Money has all the following characteristics except

A) portability.
B) durability.
C) difficulty to counterfeit.
D) intangibility.
E) stability.

Question 17

When inflation is very high,money is no longer a ______ means of exchange.

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

Question 18

Because the U.S.government promises that its metallic coins and paper money are legally acceptable as a means of exchange for products,they are considered which type of money?

A) Far
B) Credit
C) Near
D) Illegitimate
E) Fiat

Question 19

Funds in a demand deposit account cannot be withdrawn without a 24-hour notice.

Question 20

The primary advantage of using money instead of bartering is that money is more

A) easily divided into small units.
B) easily carried around.
C) stable.
D) easily accepted.
E) easily counterfeited.

Question 21

A check

A) is riskier than cash for paying bills but is usually considered more efficient.
B) is a demand deposit.
C) may be written off a certificate of deposit.
D) may earn interest but not as much as a savings account.
E) is a written order to a bank to pay the indicated party the amount specified on the check from money on deposit.

Question 22

Behind all forms of "near money" stands

A) government gold reserves.
B) colored rocks.
C) merchants' reluctance to accept them.
D) people's faith in their resistance to counterfeiting.
E) people's faith in their ability to exchange them for currency.

Question 23

The acronym NOW,when used in financial circles,stands for ___________ and is a type of interest-bearing checking account.

A) near order withdrawal
B) negotiable order of wicking
C) near order of wicking
D) negotiable order of withdrawal
E) negative order of withdrawal

Question 24

What are the different types of checking accounts outlined in your text?

Question 25

When the Fed buys securities,it decreases the money in circulation.

Question 26

Credit cards have become quite popular as a substitute for money.Why?

Question 27

When the Fed raises the discount rate,it is easier to borrow money.

Question 28

The Federal Reserve Board regulates U.S.financial institutions.

Question 29

The Federal Reserve System is responsible for

A) apprehending counterfeiters.
B) creating a stable environment for economic growth.
C) insuring savings accounts.
D) encouraging foreign trade.
E) eliminating unemployment.

Question 30

Credit cards have become an increasingly popular substitute for money because of their convenience and acceptance by merchants around the world.

Question 31

In general,the longer the term of a certificate of deposit,the

A) less safe it is.
B) higher its interest rate.
C) lower its value.
D) lower its interest rate.
E) higher its inflation rate.

Question 32

Money market accounts differ from interest-bearing checking accounts in that

A) owners can write only a limited number of checks,and there may be a minimum amount allowed for each check.
B) owners can take out their funds whenever they want in whatever amount they want.
C) owners cannot withdraw the funds before the end of a specified interval.
D) owners cannot convert them into cash.
E) owners cannot withdraw the funds without advance notice.

Question 33

The Federal Reserve Board is responsible for supervising the insurance funds that protect deposits in member institutions,such as FDIC insured banks.

Question 34

Another name for a checking account is a

A) demand deposit.
B) money market account.
C) time deposit.
D) mutual fund.
E) share account.

Question 35

The Federal Reserve provides all of the following services except

A) using monetary policy to control the money supply.
B) regulating financial institutions.
C) managing regional and national check clearing.
D) managing the deposit insurance of banks in the Federal Reserve System.
E) offering certificates of deposit for interested individuals.

Question 36

Another name for a savings account is a(n)

A) interest deposit.
B) term deposit.
C) demand deposit.
D) time deposit.
E) certificate of deposit.

Question 37

The Federal Reserve System was established by Congress in 1913 to

A) regulate the banking industry.
B) allow huge swings in the economy.
C) depend on Congress politically.
D) reduce the money supply.
E) increase the money supply.

Question 38

If consumers do not pay off their entire credit card balance,they will

A) have to pay interest on the total paid and unpaid amount.
B) receive interest on the paid amount.
C) have to pay interest on the unpaid amount.
D) get a rebate from the card issuer.
E) have the purchased goods repossessed.

Question 39

The Federal Reserve provides national check processing.

Question 40

Credit cards are

A) difficult to use.
B) preapproved lines of credit granted by a bank or finance company.
C) demand deposits.
D) time deposits.
E) money stored in a bank or other financial institution that can be withdrawn without advance notice.

Question 41

Savings and loan associations have traditionally specialized in savings accounts and home mortgages.

Question 42

When the Federal Reserve sells investments,it

A) decreases the money supply.
B) increases the money supply.
C) increases the amount of insurance for accounts.
D) clears all checks in the system immediately.
E) maintains the money supply.

Question 43

Commercial banks have traditionally

A) relied on checking and savings accounts for funds.
B) invested heavily in mortgages.
C) not been required to keep reserves.
D) had only a small share of all deposits.
E) offered savings accounts.

Question 44

Which of the following limited commercial banks from engaging in certain high-risk trading activities and raised the required capital they must hold on their balance sheets?

A) Federal Deposit Insurance Act
B) Financial Services Modernization Act
C) Gramm-Leach-Bliley Act
D) Glass-Stegal Act
E) Dodd-Frank Act

Question 45

Which of the following is not a tool used by the Fed to implement its monetary policy?

A) Open market operations
B) Reserve requirements
C) Credit controls
D) Discount rate
E) Individual savings accounts

Question 46

The major difference between banks and credit unions is that

A) credit unions are owned and controlled by depositors.
B) banks distribute their profits to depositors.
C) credit unions make large loans to corporations.
D) bank depositors vote for the bank officers.
E) credit unions have higher default rates than banks.

Question 47

The Federal Deposit Insurance Corporation (FDIC)was established in 1933 to help stop bank failures throughout the country during the Great Depression.

Question 48

If employees of a local school district conduct their financial business through the same financial institution that they own and only they are allowed to join,the institution is probably a(n)

A) commercial bank.
B) credit union.
C) savings and loan association.
D) insurance company.
E) federal bank.

Question 49

When the Fed increases the reserve requirement,it

A) decreases the money supply.
B) increases the money supply.
C) increases the amount of insurance for accounts.
D) clears all of the checks in the system immediately.
E) reduces the percentage of deposits that banks must hold in reserve.

Question 50

To carry out its function of controlling the supply of money,the Federal Reserve Board

A) uses financial policy.
B) uses monetary policy.
C) prints money.
D) taxes issues.
E) destroys old money.

Question 51

The financial institution that traditionally concentrated on long-term loans,such as mortgages,and is sometimes called a thrift,is a(n)

A) commercial bank.
B) credit union.
C) savings and loan association.
D) mutual bank.
E) insurance company.

Question 52

Discuss what coverage the Federal Deposit Insurance Corporation (FDIC)provides to banking institutions.

Question 53

If the Federal Reserve System wanted to increase the money supply,it would most likely take which action first?

A) Raise the reserve requirement
B) Buy securities on the open market
C) Print more money
D) Lower the discount rate
E) Reduce credit controls

Question 54

Which of the following is similar to a savings and loan association except that it is owned by its depositors?

A) Commercial bank
B) Thrift institution
C) Mutual savings bank
D) Federal bank
E) Finance company

Question 55

Commercial banks offer a variety of services,particularly commercial loans and checking accounts.

Question 56

The oldest and largest of all financial institutions are

A) commercial banks.
B) credit unions.
C) savings & loans.
D) insurance companies.
E) thrift institutions.

Question 57

The primary business of savings and loan associations has been

A) making loans to large corporations.
B) savings accounts and mortgages.
C) loans to foreign governments.
D) insuring deposits.
E) selling life insurance.

Question 58

A credit union is owned and controlled by a larger bank.

Question 59

Define monetary policy and list what tools the Federal Reserve has available for use if the money supply grows too quickly for too long.

Question 60

Mutual savings banks are similar to savings and loan associations except that they are owned by their depositors.

Question 61

If a person invests in the stock market through a firm that pools funds from a large number of people and buys and professionally manages stock from a number of diversified companies,that person is investing in a(n)

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

Question 62

Advantages of direct deposits of paychecks and other income to consumers include convenience,safety,and potential interest earnings.

Question 63

Which of the following reduces the cost of handling bank transactions and are found in banks,airports,and other public places?

A) Credit cards
B) Automated teller machines
C) Overnight deposit boxes
D) Checking machines
E) Direct mail

Question 64

__________ has allowed consumers to perform an ever-widening array of financial and banking functions from their personal or work computers.

A) Online banking
B) Automated clearinghouses
C) Mutual funds
D) Credit unions
E) Exchange traded funds

Question 65

Which of the following permit deposits and withdrawals to be made directly to a bank account through the use of magnetic tape?

A) Brokerage firms
B) Investment banks
C) Online banking
D) Automatic teller machines
E) Automated clearinghouses

Question 66

An example of electronic funds transfers (EFT)is using an automated teller machine to withdraw cash.

Question 67

A nonbanking institution that buys and sells stocks and other securities for customers is a(n)

A) money market fund.
B) pension fund.
C) insurance company.
D) brokerage firm.
E) automated clearinghouse.

Question 68

Most experts believe that banks will continue to consolidate and get larger over time.

Question 69

What are the different nonbanking institutions available? What do they not offer that banking institutions do?

Question 70

During the financial crisis,many large banks saw their capital base grow.

Question 71

A mutual fund allows many small investors to

A) buy stocks individually.
B) invest in a diversified stock market portfolio.
C) take no risk while investing in stocks.
D) make loans.
E) float commercial paper.

Question 72

Which of the following is not a type of pension fund?

A) Individual retirement accounts
B) Corporate insurance plans for employees
C) Insurance company life insurance plans
D) Social Security
E) Roth individual retirement accounts

Question 73

The U.S.government created the Troubled Asset Relief Program (TARP)in an effort to prevent economic collapse during the most recent financial recession.

Question 74

Money market funds are a form of mutual fund that

A) invests in short-term debt securities issued by governments and corporations.
B) dispenses cash and allows balance inquiries.
C) buy and sell stocks,bonds,and other securities and provide other services.
D) is set aside by corporations to provide retirement income.
E) protects clients against financial losses from certain specified risks.

Question 75

What is a mutual fund?

Question 76

Finance companies buy and sell stocks and bonds for their customers.

Question 77

Finance companies

A) typically function as the lender of last resort for individuals and businesses with poor credit ratings or whose other lines of credit have been exhausted.
B) offer lower interest rates than a bank and a lower rate of risk.
C) usually do not require collateral.
D) do not make loans to individuals.
E) are insured by the FDIC but at a lower rate than regular banks.

Question 78

How have the roles of commercial banks changed in recent decades because of new laws and regulatory shifts?

Question 79

Mutual funds spread the risk of investing across many securities.

Question 80

Investment bankers offer short-term loans at substantially higher interest rates than banks.