Question 1

If the U.S. Supreme Court ruled that states could no longer require people to have auto insurance, do you think most people would cancel their policies? Explain.

Accepted Answer

Probably not. Auto insurance falls under the principle that risk requires compensation. For most people the additional risk they would face of driving without insurance exceeds the cost of the insurance, so they are better off purchasing auto insurance to reduce their risk.

Question 2

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

Question 3

The New York Stock Exchange is an example of a:

Accepted Answer

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

Question 4

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

Accepted Answer

The answer of How do central banks, like the U.S....

Question 5

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?

Accepted Answer

The answer of Suppose that IBM considers expanding its operations....

Question 6

Which core principle(s) could you use to explain why credit card issuers charge such high rates of interest?

Accepted Answer

The answer of Which core principle(s) could you use to...

Question 7

When an individual obtains a car loan and makes all of the regular monthly payments, the sum of the payments made will exceed the purchase price of the car. This is due primarily to the core principle:

Accepted Answer

A)   risk requires compensation.
B)   information is the basis for decisions.
C)   markets determine prices and allocate resources.
D)   time has value.

Question 8

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.

Question 9

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.

Question 10

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.

Question 11

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

Accepted Answer

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

Question 12

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

Question 13

What is the primary function of U.S. regulatory agencies in the U.S. financial system?

Accepted Answer

The answer of What is the primary function of U.S....

Question 14

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.

Question 15

Identify the five core principles of Money and Banking.

Accepted Answer

The answer of Identify the five core principles of Money...

Question 16

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.

Question 17

Which of the following statements best describes financial instruments?

Accepted Answer

A)   All financial instruments are a means of payment.
B)   Financial instruments can transfer resources between people but not risk.
C)   Financial instruments can transfer resources and risk between people.
D)   Financial instruments can transfer risk but not resources between people.

Question 18

Which of the following statements best describes financial markets?

Accepted Answer

A)   Financial markets lower the cost and increase the speed of buying and selling financial instruments.
B)   Financial markets increase the speed of buying and selling, but they also increase the cost since people are earning fees for these transactions.
C)   Financial markets are a good example of unregulated markets.
D)   Financial markets today offer fewer instruments than they did in the past.

Question 19

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

Question 20

The largest regulatory change in U.S. financial markets since 1930 is known as:

Accepted Answer

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

Exam 1: An Introduction to Money and the Financial System