FINC 409 Exam #1

The primary goal of the financial manager of a profit-seeking organization should be to:
a. maximize market share
b. maximize the owners' wealth
c. increase sales and profit
d. have healthy cash flow

maximize the owners wealth

Finance has its origins in:
a. economics and statistics
b. accounting and sociology
c. accounting and economics
d. psychology and mathematics

accounting and economics

Finance is:
a. the study of how individuals, institutions, governments, and businesses acquire, spend, and manage money and other financial assets
b. the study of how acquire, spend, and manage money and other financial assets
c. the study of how acquire,

the study of individuals, institutions, government, and businesses acquire, spend and manage money and other financial assets

Crucial elements of the three areas of finance include:
a. financial institutions
b. financial markets
c. investments and financial management
d. all of the above

all of the above

An area of finance that involves the sale or marketing of securities, the analysis of securities, and the management of investment risk through portfolio diversification is referred to as:
a. financial management
b. investments
c. financial institutions
d

Investments

The issuing of new securities, mortgages, and other claims to wealth takes place in the:
a. secondary market
b. money market
c. primary market
d. securities market

primary market

Multiple Answer Question: Select ALL of the following statements that an effective financial system must have:
a. several sets of policy makers who pass laws and make decisions relating to fiscal and monetary
policies
b. an efficient for creating and tran

A, B, and C

An area of finance that refers to the physical locations or electronic forums that facilitate the flow of funds among investors, businesses, and governments is called:
a. financial management
b. investments
c. financial institutions
d. financial markets
e

none of the above

An area of finance that involves financial planning, asset management and fund-raising decisions to enhance the value of businesses is called:
a. financial management
b. investments
c. financial institutions
d. financial markets
e. none of the above

financial management

An area of finance that involves the study of organizations or intermediaries that help the financial system operate efficiently and transfer funds from savers and investors to individuals, businesses, and governments that seek to spend or invest the fund

financial institutions

An area of finance that involves the study of government institutions and their involvement in rescuing private firms is called:
a. financial management
b. investments
c. financial institutions
d. financial markets
e. none of the above

none of the above- not an area of finance

The ______________ is a term used to describe the financial system, institutions, markets, businesses, individuals, and global interactions that help the economy operate efficiently
a. financial environment
b. regulatory environment
c. international envir

financial environment

The primary securities markets are
a. the markets for previously issued securities such as the New York Stock Exchange
b. the markets where financial assets such as stocks and bonds are initially issued
c. the three most important financial markets in any

the markets where financial assets such as stocks and bonds are initially issued

Economists use a ___________________ framework to explain how the prices and quantities of goods and services are determined in a free-market economic system.
a. opportunity
b. marginal cost
c. supply-and-demand
d. anti-monopoly
e. none of the above

supply and demand

____________________ provide the record-keeping mechanism for showing ownership of the financial instruments used in the flow of financial funds between savers and borrowers and record revenues, expenses, and profitability of organizations that produce an

Accountants (finance has its origins in economics and accounting)

______________________________________ are crucial elements of the three areas of finance.
a. Businesses and the federal government
b. International organizations such as the World Bank and International Monetary Fund
c. Well-developed barter systems
d. F

Financial institutions, financial markets, investments, and financial management

___________ are intermediaries, such as banks, insurance companies, and investment companies that engage in financial activities to aid the flow of funds from savers to borrowers or investors.
a. Financial Institutions
b. Financial market organizations
c.

Financial institutions

_______________ in business involves making decisions relating to the efficient use of financial resources in the production and sale of goods and services.
a. Financial management
b. Financial economics
c. Investment management
d. Asset allocation
e. non

financial management

Maximizing _____________________ is accomplished through effective financial planning and analysis, asset management, and the acquisition of financial capital.
a. the value of perquisites.
b. the owners' wealth.
c. the firm's profits
d. the firm's earning

the owners wealth

Successful businesses typically progress through a series of life-cycle stages�from the idea stage to exiting the business; these five stages include the:
a. development stage, startup stage, survival stage, rapid growth stage, and maturity stage.
b. idea

development, startup, survival, rapid growth, and maturity

_______________ is the study of how growth-driven, performance-focused, early-stage (from development through early rapid growth) firms raise financial capital and manage their operations and assets.
a. Personal finance
b. Corporate finance
c. Entrepreneu

Entrepreneurial finance

______________ is the study of how individuals prepare for financial emergencies, protect against premature death and the loss of property, and accumulate wealth over time.
a. Personal finance
b. Corporate finance
c. Entrepreneurial finance
d. Investment

personal finance

Reasons we study finance include all of the following except:
a. To make informed economic decisions
b. To make informed personal and business investment decisions
c. To make informed career decisions based on a basic understanding of business finance
d.

to make informed medical decisions

Multiple Answer Question: Select ALL of the following are among the six principles of finance:
a. Money has a time value.
b. Higher returns are expected for taking on more risk.
c. Diversification of investments most of the time increases risk.
d. Financi

A, B and D

Multiple Answer Question: Select ALL of the following are not among the six principles of finance:
a. All decisions are ultimately financial decisions.
b. Higher returns are expected for taking on more risk.
c. Diversification of investments can reduce ri

A and E

Which statement best describes the six principles of finance?
a. Money has a time value; Higher returns are expected for taking on more risk; Diversification of investments does not impact risk; Financial markets are efficient in pricing securities; Manag

Money has a time value; Higher returns are expected for taking on more risk; Diversification of investments can reduce risk; Financial markets are efficient in pricing securities; Manager and stockholder objectives may differ; Reputation doesn't matter.

Multiple Answer Question: Select ALL of the following that an effective financial system needs:
a. an efficient monetary system
b. to be able to create capital by channeling savings into investment
c. markets in which to buy and sell claims to wealth
d. c

An efficient monetary system, to be able to create capital by channeling savings into investment, and markets in which to buy and sell claims to wealth

Crucial elements of well-developed financial systems include all of the following except:
a. government control of the economy not in capitalism
b. financial intermediaries (institutions)
c. financial markets
d. all of the above

government control of the economy not in capitalism

Financial functions in the U.S. financial system include:
a. transferring financial assets
b. creating money
c. accumulating savings
d. all of the above

all of the above

$1,000 invested today at 6% interest would be worth ________ one year from now. (Choose the closest answer.)
a. $1,600
b. $1,060
c. $1,160
d. $1,006

$1,060 (1000 x 1.06)= 1060

If the interest rate is greater than 0%, then a dollar today is worth
a. more than a dollar tomorrow
b. the same as a dollar tomorrow
c. less than a dollar tomorrow
d. there is not sufficient information to tell

more than a dollar tomorrow

If the interest rate is equal to 0%, then a dollar today is worth
a. more than a dollar tomorrow
b. the same as a dollar tomorrow
c. less than a dollar tomorrow
d. there is not sufficient information to tell

the same as a dollar tomorrow

A basic financial function of an effective financial system is a monetary system that performs which of the following?
a. transferring money
b. storing gold and silver to back up money
c. creating jobs
d. transferring real assets

transferring money

Rational investors would consider an investment in a risky business venture only if they feel the expected the return is high enough to justify the
a. greater risk
b. higher cost.
c. longer useful life.
d. more complex designs.
e. none of the above.

greater risk

Two risky assets can be combined to lower overall risk. This principle is commonly referred to as
a. blending
b. asset allocation
c. diversification
d. portfolio segmentation
e. none of the above

Diversification

In the United States, most money is created by:
a. depository institutions
b. the United States Treasury
c. capital markets
d. None of the above

depository institutions

Basic financial functions of an effective financial system include:
a. creating money
b. transferring money
c. accumulating savings
d. all of the above
e. none of the above

all of the above

The theory of ___________________ implies that information is quickly embedded in prices making it difficult for investors to "beat the market."
a. stock investing
b. efficient markets
c. portfolio management
d. asset allocation
e. none of the above

Efficient markets

The basic components of an effective financial system in a developed economy include:
a. a monetary system
b. a savings-investment process
c. markets for the transfer of financial assets
d. all of the above

all of the above

The possible conflict between managers and owners is sometimes called the
a. principal-subordinate problem
b. principal-agent problem
c. boss-subordinate problem
d. boss-agent problem
e. none of the above

principal-agent problem

_____________ behavior refers to how an individual or organization treats others legally, fairly, and honestly.
a. Principal-agent
b. Stakeholder
c. Responsible
d. Ethical
e. none of the above

Ethical

Career opportunities in finance involving both treasury and control functions are generally associated with:
a. business financial management
b. financial intermediaries
c. securities markets
d. government organizations

business financial management

Intermediaries that help the financial system operate efficiently and transfer funds from savers and investors to individuals, businesses, and governments that seek to spend or invest the funds are known as:
a. financial markets
b. financial institutions

financial institutions

An economy's _____________________ is the interaction of policy makers, a monetary system, financial institutions, and financial markets to expedite the flow of financial capital from savings into investment:
a. banking system
b. stock market
c. capital m

financial system

An efficient ______________ that is comprised of a central bank and a banking system that is able to create and transfer a stable medium of exchange called money.
a. allocation system
b. banking system
c. monetary system
d. market system
e. none of the ab

monetary system

An effective financial system must have
a. financial markets that facilitate the transfer of financial assets among individuals, institutions, businesses, and governments.
b. financial institutions or intermediaries that support capital formation either b

all of the above are required

________________ facilitate the transfer of financial assets among individuals, institutions, businesses, and governments.
a. Financial markets
b. Government institutions
c. Regulatory authorities
d. none of the above

financial markets

The _________________ is primarily responsible for the amount of money that is created, although most of the money is actually created by depository institutions.
a. Securities Exchange Commission
b. Federal Treasury
c. Federal Reserve System
d. Financial

Federal reserve system

Functions of the monetary system include all of the following except
a. creating money
b. transferring money
c. accumulating savings
d. all of the above are included as functions of a monetary system

accumulating savings

_________ markets are where debt securities with maturities of one year or less are issued and traded.
a. Money
b. Capital
c. Primary
d. Secondary

Money (one year or less)

_________ markets are where debt instruments or securities with maturities longer than one year and corporate stocks or equity securities are issued and traded.
a. Money
b. Capital
c. Primary
d. Secondary

Capital (longer than one year)

______ markets are where the initial offering or origination of debt and equity securities takes place
a. Money
b. Capital
c. Primary
d. Secondary

Primary (initial)

_________markets are physical locations or electronic forums where debt (bonds and mortgages) and equity securities are traded
a. Money
b. Capital
c. Primary
d. Secondary

Secondary

True or False- Finance is the study of how individuals, institutions, and businesses acquire, spend and manage money and other financial resources.

True

True or False- Money markets are the markets where debt securities with maturities of one year or less are issued and traded.

True (one year or less)

True or False- Personal finance is the study of how growth-driven performance-focused, early-stage firms raise financial capital and manage operations and assets.

False (Entrepreneurial finance)

True or False- Capital markets are markets where debt securities with maturities of greater than one year and equity securities are issued and traded.

True

True or False- The six principles of finance include (1) Money has a time value, (2) Higher returns are expected for taking on more risk, (3) Diversification of investments can reduce risk, (4) Financial markets are efficient in pricing securities, (5) Ma

True

True or False- The U.S. Treasury Department is primarily responsible for the amount of money that is created in the U.S. economy.

False (the Federal Reserve System is)

True or False- The six principles of finance include (1) Money has a time value, (2) Higher returns are expected for taking on less risk, (3) Diversification of investments can increase risk, (4) Financial markets are inefficient in pricing securities, (5

False

Paper money fully backed by a precious metal and issued by the government is called:
a. fiat money
b. representative full-bodied money
c. full-bodied money
d. credit money

representative full bodied money

Fiat money is:
a. representative full-bodied money
b. full-bodied money
c. legal tender proclaimed to be money by law
d. all of the above

legal tender proclaimed to be money by law

With a mint ratio of 15 ounces of silver to 1 ounce of gold and a market ration of 15.5 ounces of silver to 1 ounce of gold:
a. gold coins should go out of circulation
b. silver coins should go out of circulation
c. paper money will predominate
d. the bim

gold coins should go out o circulation

The U.S. bimetallic standard was based on:
a. gold and platinum
b. silver and gold
c. gold and copper
d. silver and copper

Silver and gold

Which of the following would not be considered liquid?
a. money in savings accounts
b. coins
c. currency
d. all the above are liquid
e. none of the above are liquid

all of the above are liquid

When it is a means of paying for goods and services and discharging debts, money is referred to as a:
a. store of purchasing power
b. medium of exchange
c. standard of value
d. liquid asset

liquid asset

Which of the following statements are correct?
a. debit cards provide for the immediate direct transfer of deposit accounts
b. debit cards may be used for cash advances, even when there is not sufficient money in the account
c. debit cards may not be used

debit cards provide for the immediate direct transfer of deposit accounts

Under the Bretton Woods agreement, a fixed exchange rate system tied to gold and the U.S. dollar dominated international trade during:
a. World War II
b. 1880-1914
c. 1944-1973
d. 1914-1932

1944-1973

The only paper money of significance in the economy today is:
a. silver certificates
b. demand deposits
c. greenbacks
d. Federal Reserve notes

federal reserve notes

Token coins are:
a. full-bodied coins
b. coins containing metal of less value than their stated value
c. coins containing gold or silver
d. representative full-bodied money

coins containing metal of less value than their stated value

Which of the following describes the basic function of money?
a. store of purchasing power
b. standard of value
c. medium of exchange
d. liquidity

Medium of exchange

The M1 definition of the money supply includes which of the following items?
a. currency
b. demand deposits and other checkable deposits at depository institutions
c. travelers' checks
d. all of the above

all of the above

Which of the following statements is false?
a. The Bretton Wood System of fixed exchange rates was maintained until 1975.
b. Under the Bretton Wood System, one ounce of gold was set equal to $35.
c. Under the Bretton Wood System, each participating countr

The Bretton Wood System of fixed exchange rates was maintained until 1975.

Which of the following are not included in M1?
a. negotiable orders of withdrawal
b. automatic transfer service accounts
c. money market deposit accounts
d. credit union share draft accounts

money market deposit accounts

Money market mutual funds do which of the following?
a. issue shares to customers
b. invest in liquid instruments
c. invest in interest-bearing debt instruments
d. all the above

all of the above

Which of the following statements is correct?
a. Both gold and silver have now been completely removed from any monetary role in the U.S. economy.
b. Savings deposits and small time deposits at depository institutions constitute part of the M1 money suppl

Both gold and silver have now been completely removed from any monetary role in the U.S. economy.

Fiat money is:
a. paper money issued by central banks with full metallic backing
b. government notes representing a specific amount of gold in storage
c. full bodied money
d. none of the above

none of the above (fiat money- legal tender proclaimed to be money by law)

Any circulating money which has little real value relative to its monetary value is called:
a. credit money
b. representative full-bodied money
c. full-bodied money
d. all of the above

credit money

Inflation is:
a. an increase in the purchasing power of money
b. a decrease in the quality of goods and services
c. an increase in the prices of goods and services not offset by increases in the quality of those goods and
services
d. a measure of the mone

an increase in the prices of goods and services not offset by increases in the quality of those goods and
services

The function of money that expresses prices and contracts for deferred payments in terms of the monetary unit is referred to as:
a. store of purchasing power
b. standard of value
c. medium of exchange
d. credit money

standard of value

Increased credit card usage:
a. may expand money supply
b. may contract the money supply
c. neither expands nor contracts money supply
d. none of the above

may expand money supply

Which are included in the money supply?
a. outstanding balances on credit cards
b. credit card limits
c. both the above
d. neither the above

neither of the above

The supply of a currency in international markets depends largely on the:
a. Federal Reserve System
b. imports of the issuing country
c. amount of exports that currency will buy from the issuing country
d. confidence of market participants in the restrain

imports of the issuing country

The advantages claimed for a bimetallic standard were not gained in actual practice because:
a. one of the metals disappeared from circulation because the mint and market ratios were not the same
b. the supply of gold was inadequate
c. the supply of silve

one of the metals disappeared from circulation because the mint and market ratios were not the same

Barter involves the exchange of:
a. goods for gold
b. goods for silver
c. gold for silver
d. goods and services

goods and services

When coins have a stated value equal to the value of the metal they contain, they are referred to as:
a. full-bodied money
b. representative full-bodied money
c. token coins
d. all of the above

full bodied money

Which of the following are not depository institutions?
a. The Federal Reserve
b. credit unions
c. savings banks
d. commercial banks

the federal reserve

Continentals" were backed by:
a. gold
b. silver
c. possible future tax revenues
d. none of the above

possible future tax revenues

Today's Federal Reserve notes are:
a. backed by gold
b. backed by silver
c. fiat money Nothing backs Federal Reserve notes
d. none of the above

fiat money

Credit money is backed by:
a. gold
b. silver
c. creditworthiness of the issuer
d. creditworthiness of the depository institution
e. none of the above

creditworthiness of the issuer

Deposit money is backed by:
a. gold
b. silver
c. creditworthiness of the issuer
d. creditworthiness of the depository institution
e. none of the above

creditworthiness of the depository institution

All money should perform the following functions EXCEPT:
a. guarantee of validity
b. medium of exchange
c. standard of value
d. store of value

Guarantee of validity

The velocity of money measures:
a. the quantity of money in an economy
b. the rate of circulation of the money supply
c. the level of inflation caused by the money supply
d. none of the above

the rate of circulation of the money supply

Three of the functions of money are:
a. medium of exchange, store of value, and measure of liquidity
b. conduit for international trade, store of value, and standard of value
c. medium of exchange, store of value, and standard of value
d. inflation hedge,

medium of exchange, store of value, and standard of value

An increase in the general overall prices of goods and services that is not offset by increases in the quality of those goods and services is the definition for:
a. liquidity
b. inflation
c. full-bodied goods and services d. store of purchasing power

inflation

A monetary standard based on two metals, usually silver and gold is called:
a. full-bodied money
b. a bimetallic standard
c. Fiat money
d. none of the above

a bimetallic standard

Paper money backed by a precious metal is called:
a. full-bodied money
b. a bimetallic standard
c. representative full-bodied money
d. none of the above

representative full bodied money

Legal tender proclaimed to be money by law is called:
a. representative money
b. fiat money
c. representative full-bodied money
d. none of the above

fiat money

A measure of the output of goods and services in an economy is called:
a. output
b. money supply
c. gross domestic product
d. velocity

gross domestic product

If the money supply for an economy is $3 trillion and the velocity of money is 4.5, then GDP is: (Chose the closest answer.)
a. $0.67 trillion
b. $1.5 trillion
c. $7.5 trillion
d. $13.5 trillion

$13.5 trillion (4.5 x 3 trillion)

If the money supply for an economy is $3 trillion and GDP is $10 trillion, then the velocity of money is: (Chose the closest answer.)
a. 3.33
b. 13.0
c. 7.0
d. 30

3.33 (10 trillion divided by 3 trillion)

A rise in prices not offset by increases in quality is called:
a. deflation
b. inflation
c. stagflation
d. none of the above

inflation

A rise in prices that is fully offset by increases in quality is called:
a. deflation
b. inflation
c. stagflation
d. none of the above

none of the above

A major factor in the severity of the 2007-09 financial crisis was the massive amounts of debt taken on by:
a. individuals
b. business
c. financial institutions
d. all of the above
e. none of the above

all of the above

Historically speaking, ___________ taken as a group has/have generally been a surplus economic unit in the past:
a. individuals
b. business
c. government
d. a and c
e. none of the above

individuals

___________ include the direct ownership of land, buildings or homes, equipment, inventories, durable goods, and even precious metals.
a. financial assets
b. real assets
c. government investments
d. all three (A, B, and C) are included
e. none of three (A

real assets

__________ accounts are increasingly used to make direct deposits to, and payments from, checkable deposit accounts.
a. single balance
b. money market
c. automatic transfer service (ATS)
d. capital market
e. none of the above

automatic transfer service

________ is anything generally accepted as a means of paying for goods and services and for paying off debts. It must be easily divisible, so that exchanges can take place in small or large quantities; relatively inexpensive to store and transfer; and rea

money

_________ is a short-term unsecured promissory note issued by a high credit-quality corporation with maturities generally of one to three months in length with an active secondary market.
a. A negotiable certificate of deposit (NCD)
b. A repurchase agreem

Commercial paper

59. _____________ is a promise of future payment issued by a firm and guaranteed by a bank that is used to finance international trade with typical maturities ranging from one to six months.
a. A negotiable certificate of deposit (NCD)
b. A repurchase agr

a bankers acceptance

_________ is a short-term debt security sold by a business firm or financial institution to another business or institution where the seller agrees to buy back the security at a specified price and date.
a. A negotiable certificate of deposit (NCD)
b. A r

A repurchase agreement

________ are very short-term loans, usually with maturities of one day to one week made between depository institutions.
a. Overnight loans
b. Commercial paper
c. Federal funds
d. A banker's acceptance
e. none of the above

Federal funds

The velocity of money measures the rate of circulation of the money supply and can be expressed by the following equation (note: GDP = gross domestic product and MS = money supply):
a. VM = GDP/MS
b. VM = MS/GDP
c. VM = MS x GDP
d. all of the above

VM= GDP/MS

If annual GDP is $100 billion and the MS is $20 billion, the velocity of money (VM) is ________.
a. 2
b. 5
c. 20
d. 50

5 (100 divided by 20)

_____________ believe that when the money supply exceeds the amount of money demanded, the public will spend more rapidly, causing real economic activity or prices to rise. They also believe that a too-rapid rate of growth in the money supply will ultimat

Monetarists

_______ believe that a change in the money supply first causes a change in interest rate levels, which, in turn, alters the demand for goods and services.
a. Monetarists
b. Keynesians
c. Neo Classicalists
d. none of the above

Keynesians

A major international development occurred on January 1, 1999, when eleven European countries gave up their individual currencies and adopted a unified currency called the _____________.
a. Dollar
b. Pound
c. Euro
d. none of the above

Euro

The of goods and services may be expressed as the ratio of _____________.
price level
a. GDP to real output
b. real output to GDP
c. Velocity to GDP
d. real output to velocity

GDP to real output

Real output in an economy may be expressed as the ratio of _____________.
a. GDP to real output
b. real output to GDP
c. price level to GDP
d. GDP to price level

GDP to price level

__________ provide predetermined credit limits to consumers at the time the cards are issued.
a. debit cards
b. ATM cards
c. credit cards
d. none of the above

credit cards

___________________issue shares to customers and invest the proceeds in highly liquid, very-short- maturity, interest-bearing debt instruments called money market investments.
a. Money market mutual funds (MMMFs)
b. Corporations
c. Insurance companies
d.

money market mutual funds

_______________________ is the sum of an individual's money, real assets, and financial assets or claims against others less the individual's debt obligations.
a. Portfolio value
b. Individual net worth
c. Personal wealth
d. Investment value
e. None of th

Individuals net worth

Paper money that is issued by the government and is proclaimed to be legal tender by law is called:
a. representative full-bodied money
b. full-bodied money
c. fiat money
d. credit money
e. token coins

Credit money

Which of the following statements is true?
a. If the demand for a particular currency falls relative to supply, then the exchange rate will rise.
b. The velocity of money is greater than zero and less than plus one.
c. The output of goods and services in

The output of goods and services in an economy is referred to as the gross domestic product.

If the velocity of money is 2.5 and GDP is $19 trillion, then the money supply for an economy is: (Chose the closest answer.)
a. $21.5 trillion
b. $7.6 trillion
c. $66.5 trillion
d. $16.5 trillion

19 divided by 2.5 = 7.6

Multiple Answer Question: Select ALL of the following statements that are true about bitcoins:
a. It is a decentralized currency system.
b. They are a bimetallic currency.
c. In the U.S. they are controlled by the Fed.
d. They are a digital currency.
e. T

A and D

True or False- Depository institutions include commercial banks, savings and loans, savings banks, and credit unions.

True

Multiple Answer Question: Select ALL of the following that are not depository institutions:
a. credit unions
b. savings and loan associations
c. mutual funds a type of securities firm, not a depository institution
d. savings banks
e. brokerage firms

C and E

The Bank of North America:
a. was the first incorporated bank in the United States
b. was patterned after the Central Bank of England
c. was established to assist in financing the Civil War
d. all the above
e. none of the above

was the first incorporated bank in the United States

The National Banking Act of 1864 provided for:
a. federally chartered banks
b. the establishment of a system of central banks
c. deregulation and monetary control
d. the establishment of deposit insurance

federally chartered banks

The Depository Institutions Deregulation and Monetary Control Act:
a. established a system of central banks
b. has resulted in more competition among depository institutions
c. increased federal deposit insurance from $40,000 to $80,000 for each account
d

has resulted in more competition among depository institutions

The most basic functions of depository institutions are:
a. safekeeping for depositors
b. record keeping for depositors
c. efficient and economical transfer of payments
d. accepting deposits and granting loans

accepting deposits and granting loans

Multiple Answer Question: Select ALL of the following that are an asset of commercial banks: a. cash asset
b. loans to individuals asset
c. time deposits liability
d. U.S. government securities asset e. demand deposits liability

A, B, and D

The principal assets of savings banks are:
a. securities
b. vault cash and deposits at other banks
c. mortgage loans
d. all the above

Mortgage loans

Credit unions are:
a. for profit organizations
b. made up of individuals who possess common bonds of association
c. institutions that derive funds from investment activities
d. all the above

made up of individuals who possess common bonds of association

NOW accounts:
a. are not subject to ceilidh rates under regulation Q
b. enable depository institutions to complete effectively for funds that were flowing in marge amounts to the money market funds
c. typically pay interest rates equal t that paid by mone

enable depository institutions to complete effectively for funds that were flowing in marge amounts to the money market funds

The adequacy of capital for commercial banks as measured by regulatory authorities is:
a. a composite of equity capital and total assets
b. a measure of investment success
c. based on the total amount of deposits of a bank
d. based on the ratio of federal

a composite of equity capital and total assets

The interest rate charged by banks for short-term unsecured loans to their highest quality business customers is referred to as the:
a. discount rate
b. federal funds rate
c. prime rate
d. all the above

Prime rate

The Resolution Trust Corporation was brought into existence to:
a. help savings and loan institutions invest funds in a wide range of higher yielding instruments
b. authorize savings and loan institutions to issue a new money market account
with no regula

take over and liquidate the assets of failed savings and loan institutions

The First Bank of the United States ceased operations because:
a. the need to provide financing for the Civil War was not supported by Congress
b. of the opposition of state banking interests
c. its charter had expired and there was no provision for its r

both a and c

During the colonial period in the nation's history, banks depended on:
a. their own issue of paper money
b. foreign sources for their loanable funds
c. deposits of foreign currency such as the Spanish dollar
d. the investment of their own stockholders

their own issue of paper money

The holding-company device to control two or more commercial banks:
a. has diminished in importance in recent years
b. has increased in importance in recent years
c. is limited to state chartered banks
d. is sometimes described as chain banking

has increased in importance in recent years

One of the advantages claimed by branch banking is:
a. lower interest rates are usually available from branch banks
b. convenience for customers
c. banking operations are easier to regulate
d. all the above

convenience for customers

The function of adequate bank capital for a commercial bank is to:
a. meet bank reserve requirements
b. provide funds for real estate loans
c. provide a cushion against credit risk and interest rate risk
d. support the purchase of bank buildings and equip

provide a cushion against credit risk and interest rate risk

Unit banking means:
a. a bank may have only one full-service office
b. the bank is owned by a unit trust
c. all branch offices are controlled by a central unit
d. none of the above

a bank may have only one full-service office

Limited branch banking:
a. permits banks to locate offices within a geographically defined distance of the main office
b. is controlled by the Federal Reserve system
c. means that banks may only engage in certain limited activities
d. none of the above

permits banks to locate offices within a geographically defined distance of the main office

Statewide branch banking:
a. is prohibited in all 50 states
b. means that branch systems are less likely to fail than independent systems
c. permits banks to be located within a geographically defined distance of the main office
d. none of the above

means that branch systems are less likely to fail than independent systems

The principal assets of banks do not include:
a. cash
b. loans
c. time deposits liability
d. securities owned

time deposits liability

Foreign banks in the United States:
a. are prohibited in all 50 states
b. need the approval of the Federal Reserve
c. are not subject to federal examination
d. none of the above

need the approval of the Federal Reserve

Which of the following would not be part of a bank's Stockholders' Equity?
a. bank premises asset
b. common stock of the bank
c. retained earnings
d. all of the above are part of a bank's Stockholders' Equity

bank premises asset

Legislation that provided for the separation of commercial banking and investment banking activities in the United States is called
a. Garn-St. Germain Depository Institutions Act
b. Glass-Steagall Act
c. Hunt Commission legislation
d. Depository Institut

Glass-Steagall Act

The National Banking Act of 1864:
a. established minimum capital requirements for federally chartered banks
b. regulated loans with respect to safety and liquidity
c. established minimum reserve requirements
d. all of the above

all the above

The Monetary Control Act:
a. extended the Fed's control to thrift institutions and non-member commercial banks
b. has resulted in more competition among depository institutions
c. increased federal deposit insurance from $40,000 to $80,000 for each accoun

extended the Fed's control to thrift institutions and non-member commercial banks

The primary purpose of this Act was to aid the savings and loan industry
a. Garn-St. Germain Depository Institutions Act
b. Glass-Steagall Act
c. Hunt Commission legislation
d. Depository Institutions Deregulation and Monetary Control Act

Garn-St. Germain Depository Institutions Act

In general, the effective rate of interest on a discount loan
a. is lower than that on standard loan
b. is higher than that on a standard loan
c. is identical to that on a standard loan
d. none of the above

is higher than that on a standard loan

Primary reserves
a. include the cash assets of the bank.
b. are short term securities held by banks that are quickly converted into cash at little cost to the banks.
c. include securities sold in primary markets.
d. include securities sold in secondary ma

include the cash assets of the bank.

Reasons that banks become insolvent include all of the following EXCEPT:
a. excessive credit risk
b. interest rate risk
c. a bank's assets exceeding its liabilities
d. all of the above are reasons that banks become insolvent

a bank's assets exceeding its liabilities

Commercial banks obtain the bulk of their loanable funds from:
a. depositors
b. the issue of certificates of deposit
c. sale of bank stock
d. sale of subordinated debenture bonds

Depositors

The likelihood that borrowers are ill and would not be able to make interest and principal payments is an example of:
a. interest rate risk
b. credit (default) risk
c. liquidity risk
d. capital adequacy risk

credit (default) risk

Financial institutions include:
a. banks
b. pension funds
c. insurance companies
d. all of the above

all of the above

Another name for an open-end investment company is a:
a. brokerage firm
b. finance company
c. mutual fund
d. investment bank

mutual fund

Types of financial institutions include all of the following EXCEPT:
a. commercial banks
b. pension funds
c. insurance companies
d. brokerage firms
e. all of the above are types of financial institutions

all of the above are types of financial institutions

Types of financial institutions include all of the following EXCEPT:
a. commercial banks
b. pension funds
c. insurance companies
d. all of the above are types of financial institutions

all of the above are types of financial institutions

An open-end investment company that can issue an unlimited number of its shares to investors and use the pooled proceeds to purchase corporate and government securities is called a (n)
a. mutual fund
b. pension fund
c. insurance company d. brokerage firm

mutual fund

An organization that sells or markets new securities issued by businesses to individuals and institutional investors is called a (n)
a. mutual fund
b. investment bank
c. insurance company
d. brokerage firm

investment bank

An organization that receives contributions from employees and/or their employers and invests the proceeds on behalf of the employees for use during their retirement years is called a (n)
a. mutual fund
b. savings bank
c. pension fund
d. retirement fund

pension fund

An organization that sells shares in their firms to individuals and others and invests the proceeds in corporate and government securities is called a (n)
a. investment company
b. investment bank
c. insurance company
d. brokerage firm

investment company

An organization that provides loans directly to consumers and businesses or aid individuals in obtaining financing for durable goods is called a (n)
a. commercial bank
b. investment bank
c. savings and loan
d. finance company

finance company

The _______________________ provided for separation of commercial banking and investment banking activities in the United States.
a. Glass Steagall Act
b. Gramm-Leach-Bliley Act
c. Garn-Saint Germain Act
d. Depository Institutions Deregulation and Monetar

Glass Steagall Act

The _______________________ was designed to reduce or eliminate interest rate limitations and increase access to various sources of funds available to banks and thrifts and expand the uses of the funds of S&Ls.
a. Glass Steagall Act
b. Gramm-Leach-Bliley

Depository Institutions Deregulation and Monetary Control Act

The _______________________ was designed mainly to assist the savings and loan industry.
a. Glass Steagall Act
b. Gramm-Leach-Bliley Act
c. Garn-Saint Germain Act
d. Depository Institutions Deregulation and Monetary Control Act

Garn-Saint Germain Act

Multiple Answer Question: Select ALL of the following that are ways to clear a check through the U.S. banking system:
a. through a Federal Reserve Bank
b. through the U.S. Treasury Bank
c. through a bank clearinghouse
d. bank to bank

A, C, and D

The _______________________ made it possible for banks to receive federal charters and provided a basis for national banking laws.
a. Glass Steagall Act
b. National Banking Act
c. Garn-Saint Germain Act
d. Federal Reserve Act

National Banking Act

The _______________________ established the U.S. central banking system and increased the effectiveness of commercial banking in general.
a. Glass Steagall Act
b. National Banking Act
c. Garn-Saint Germain Act
d. Federal Reserve Act

Federal Reserve Act

The item on the liabilities and equity section of a bank's balance sheet that represents the largest proportion of a typical bank's liabilities and stockholders' equity is:
a. deposits
b. stockholders' equity
c. securities
d. federal funds

deposits

The item on the assets side of a bank's balance sheet that represents the largest proportion of bank assets is:
a. deposits
b. stockholders' equity
c. securities
d. loans

loans

__________________ is the process by which individual savings are accumulated in depository institutions and, in turn, lent or invested.
a. Investing
b. Financial intermediation
c. The multiplier effect
d. Lending
e. none of the above

Financial intermediation

__________________ accept savings from individuals and then lend these pooled savings to businesses, governments, and individuals.
a. Insurance companies
b. Commercial finance companies
c. Depository institutions
d. Investment banks
e. none of the above

Depository institutions

______________ accept savings from individuals and then lend these pooled savings to businesses, governments, and individuals.
a. Insurance companies
b. Commercial finance companies
c. Government institutions
d. Investment banks
e. none of the above

none of the above

______________ collect premiums on insurance policies and employee/employer contributions from pension fund participants and provide retirement benefits and insurance against major financial losses.
a. Banks
b. Contractual savings organizations
c. Investm

Contractual savings organizations

________________ collect premiums on insurance policies and employee/employer contributions from pension fund participants and provide retirement benefits and insurance against major financial losses.
a. Banks
b. Finance companies
c. Investment banking fi

None of the above

______________ are the two important forms of contractual savings organizations.
a. Insurance companies and pension funds
b. Banks and insurance companies
c. Investment banks and pension funds
d. Pension funds and brokerage firms
e. none of the above

Insurance companies and pension funds

_________________ are the two important forms of contractual savings organizations.
a. Insurance companies and brokerage firms
b. Banks and insurance companies
c. Investment banks and pension funds
d. Pension funds and brokerage firms
e. none of the above

none of the above

_____________ accept and invest individual savings and also facilitate the sale and transfer of securities between investors.
a. Securities firms
b. Pension funds
c. Asset management companies
d. none of the above

Securities firms

Investment companies (mutual funds), investment banking firms, and brokerage firms are the primary types of ____________.
a. banks
b. securities firms
c. pension funds
d. finance companies
e. none of the above

securities firms

____________ provide loans directly to consumers and businesses and help borrowers obtain mortgage loans on real property.
a. Banks
b. Securities firms
c. Pension funds
d. Finance firms
e. none of the above

Finance firms

____________ are non-commercial bank depository institutions that include savings banks and credit unions, which accumulate individual savings and lend primarily to other individuals.
a. Thrift institutions
b. Securities firms
c. Pension funds
d. Finance

Thrift institutions

_____________ are non-commercial bank depository institutions that include savings banks and credit unions, which accumulate individual savings and lend primarily to other individuals.
a. Banks
b. Securities firms
c. Pension funds
d. Finance companies
e.

none of the above

____________ accept the savings of individuals and lend pooled savings to individuals primarily in the form of mortgage loans and operate almost entirely in New England , New York, and New Jersey, with most of their assets continuing to be invested in mor

Savings banks

____________ are cooperative nonprofit organizations that exist primarily to provide member depositors with consumer credit, including the financing of automobiles and the purchase of homes, and derive their funds almost entirely from the savings of their

Credit unions

. If $5,000 is borrowed on a discount basis and the rate is 10 percent, the actual annual percentage interest rate on this loan would be: (Pick the closest answer.)
a. 10%
b. 10.1%
c. 11%
d. 11.1%

11.1%

______________ provide loans directly to consumers and businesses or aid individuals in obtaining financing of durable goods and homes, whereas ______________ help individuals obtain mortgage loans on homes and other real property by bringing together bor

finance companies, mortgage banking firms

The Equity Capital Ratio for a bank with equity capital of $3 million and total assets of $50 million would be: (Pick the closest answer.)
a. 3%
b. 6%
c. 2.83%
d. 5.66%

6%

Checks may be cleared by:
a. the Federal Reserve
b. banks in the banking system
c. both a and b
d. neither a nor b

both a and b

If $8,500 is borrowed on a discount basis and the rate is 6 percent, the actual annual percentage interest rate on this loan would be: (Pick the closest answer.)
a. 6.04%
b. 6.4%
c. 5.9%
d. 6.0%

6.4%

If $6,800 is borrowed for one year at a standard interest rate of 5 percent per year, at the end of the year the borrower would repay a total of to the lender. (Pick the closest answer.)
a. $7,140
b. $340
c. $6,460
d. $6,800

$7,140

If $6,800 is borrowed for one year and at the end of the year the borrower repays $7,140 to the lender, the standard annual interest rate paid was: (Pick the closest answer.)
a. 7.1%
b. 4.8%
c. 3.4%
d. 5.0%

5.0% (7140 - 6800=340. 340 divided by 6800= 5%)

if $6800 is borrowed for one year at a standard interest rate of 5 percent per year, at the end of the year the borrower would repay _____ in interest to the lender
a. $7,140
b. $340
c. $6,460
d. $6,800

$340

When market interest rates decrease, debt instruments (bonds) in value.
a. decrease
b. increase
c. stay the same
d. there is no relationship between market interest rates and the value of debt instruments

increase

If $12,500 is borrowed for one year at a standard interest rate of 4.2 percent per year, at the end of the year
the borrower would repay a total of
a. $52.50
b. $12,552.50
c. $13,025.00
d. $17,750.00

$13,025.00

If $45,000 is borrowed for one year at a standard interest rate of 4.25 percent per year, at the end of the year the borrower would repay in interest to the lender. (Pick the closest answer.)
a. $1,800
b. $191.50
c. $1,912.50
d. $19,125

$1,912.50 (45000 x 0.0425 = 1912

If $5,200 is deposited today in a bank for one year at a standard interest rate of 3.15 percent per year, at the end of the year the depositor would receive in interest from the bank. (Pick the closest answer.)
a. $161.20
b. $166.40
c. $165.92
d. $163.80

$163.80 (5200 x 0,0315 = 163.80)

If you received $7,990 today on a discount loan and had to repay $8,500 one year later, the actual annual percentage interest rate on this loan would be: (Pick the closest answer.)
a. 6.04%
b. 6.4%
c. 5.9%
d. 6.0%

6.4% (8500-7990=510. 510 divided by 7990=6.4)

The risk associated with changing market interest rates on the value of underlying debt instruments is
a. interest rate risk
b. credit (default) risk
c. liquidity risk
d. capital adequacy risk
e. inflation risk

interest rate risk

The likelihood that a bank will be unable to meet its depositor withdrawal demands and/or other liabilities when they are due is
a. interest rate risk
b. credit (default) risk
c. liquidity risk
d. capital adequacy risk
e. inflation risk

liquidity risk

A depository institution that accepts deposits, issues checking-writing accounts, and makes loans to businesses and individuals is called a (n)
a. mutual fund
b. investment bank
c. commercial bank
d. pension fund

commercial bank

Under the authority of the Federal Reserve Act of 1913:
a. member banks were required to purchase capital stock in the Federal Reserve Banks of their district
b. member banks may not borrow from the Fed
c. a formal open-market committee arrangement was es

member banks were required to purchase capital stock in the Federal Reserve Banks of their district

The primary responsibility of the Federal Reserve System is to:
a. issue currency to member banks
b. regulate the growth of the money supply
c. serve as a fiscal agent for the U.S. government
d. regulate and conduct bank examinations

regulate the growth of the money supply

Each member of the Fed Board of Governors is appointed for a term of:
a. 8 years
b. 12 years
c. 14 years
d. none of the above

14 years

One of the major weaknesses of the banking system before the Federal Reserve System was set up was:
a. the arrangement for holding reserves
b. the lack of a deposit insurance system
c. a lack of currency and coin
d. an inadequate supply of government bond

the arrangement for holding reserves

Before the Federal Reserve System was created, a large part of the reserves of commercial banks was:
a. in the form of state and federal government bonds
b. deposited with the United States Treasury
c. held as deposits with large city banks
d. held as cas

held as deposits with large city banks

The United States created its system of central banking:
a. earlier than such banks were established in other industrial nations
b. later than such banks were established in other industrial nations
c. to facilitate branch banking
d. to facilitate interna

later than such banks were established in other industrial nations

Member banks of the Federal Reserve System:
a. must maintain all reserves with their Federal Reserve Bank
b. may include deposits held at large city banks as legal reserves
c. maintain levels of reserves based on the size of the city in which they are loc

are permitted to count vault cash as part of their reserves

Under the Federal Reserve Act of 1913, the number of Federal Reserve districts established is: a. 8
b. 10
c. 12
d. 25

12

Which of the following statements is false? The discount rate is
a. an instrument of monetary policy
b. frequently used as a tool of fiscal policy
c. regarded as a fine-tuning mechanism
d. all the above are true

frequently used as a tool of fiscal policy

For which of the following are member banks prohibited from borrowing at the Fed's discount window?
a. funds to meet reserve requirements
b. funds to meet depositor withdrawal demands
c. to meet business loan demands
d. all the above are permitted
e. none

all the above are permitted

The discount rate is:
a. the rate charged a bank's best customers
b. the rate paid by large business with good credit
c. the rate a bank must pay to borrow from the Fed
d. none of the above

the rate a bank must pay to borrow from the Fed

The Fed Board of Governors:
a. is elected by the member banks
b. is appointed by the Senate
c. has seven members appointed for 14-year terms
d. has seven members appointed for a term of 12 years

has seven members appointed for 14-year terms

The Federal Reserve Banks are owned by:
a. commercial banks
b. the U.S. Treasury
c. investment banks
d. member banks of the Federal Reserve System

member banks of the Federal Reserve System

The Federal Reserve System's primary method for carrying out monetary policies is:
a. by the issuance of Federal Reserve notes
b. through reserve requirements
c. by setting the discount rates on loans to depository institutions
d. through open market oper

through open market operations

All Federal Reserve Banks have:
a. check clearance facilities
b. branch banks
c. directors who are elected for 14-year terms 3 year terms
d. directors who are appointed by the President of the United States

check clearance facilities

Bank holding companies are examined by:
a. the Comptroller of the Currency
b. the FDIC
c. the Federal Reserve
d. internal auditors only

the Federal Reserve

The Federal Open Market Committee:
a. is comprised of members of the Federal Reserve board and representatives of all Federal Reserve Banks
b. came into being at the time the Federal Reserve System was created
c. is made up of the presidents of the 12 Fed

was created under a provision of the Banking Act of 1935

The accommodative activities of the Federal Reserve System are:
a. clearing checks
b. meeting the credit needs of individuals and institutions
c. supporting depository institutions
d. all of the above

all of the above

The purpose of Regulation Z is to:
a. make consumers aware of the costs of alternative forms of credit
b. prohibit garnishment
c. encourage depository institutions to help meet the credit needs of their communities for housing and other
purposes
d. regula

make consumers aware of the costs of alternative forms of credit

The Truth in Lending Act:
Truth in Lending
a. prohibits discrimination
in the granting of credit on the basis of sex, race, color, and religion
b. limits liability on lost or stolen credit cards
c. prohibits unfair or deceptive acts or practices on the pa

limits liability on lost or stolen credit cards

The dynamic actions of the Federal Reserve System:
a. contribute to the smooth everyday functioning of the economy
b. are designed to meet the credit needs of individuals and institutions
c. support depositories and other institutions
d. stimulate or repr

stimulate or repress the level of prices or economic activity

The Federal Open Market Committee:
a. is made up of the presidents of the 12 Federal Reserve Banks
b. consists of the seven members of the Board of Governors of the Fed, plus five presidents of Reserve Banks
c. is appointed by the Chairman of the Federal

consists of the seven members of the Board of Governors of the Fed, plus five presidents of Reserve Banks

The payment mechanism of the Reserve Bank includes:
a. processing and clearing checks
b. issuing currency and coins
c. electronic forms of payment
d. all the above

all the above

The National Banking Acts of 1863 and 1864 were:
a. totally eliminated under the Federal Reserve Act of 1913
b. were modified to permit greater flexibility of operations under the Federal Reserve Act of 1913
c. were unaffected by the Federal Reserve Act o

were modified to permit greater flexibility of operations under the Federal Reserve Act of 1913

The Board of Governors of the Federal Reserve System:
a. consists of 7 appointed members
b. sets reserve requirements
c. approves discount rates as part of monetary policy
d. all the above
e. none of the above

all the above

The seven-member board of the Federal Reserve that sets monetary policy is called
a. the Federal Reserve Open Market Committee
b. the Federal Reserve Board of Governors
c. the Federal Reserve Advisory Committee
d. none of the above

the Federal Reserve Board of Governors

State-chartered banks:
a. automatically receive membership in the Federal Reserve System
b. are prohibited from membership in the Federal Reserve System
c. may be permitted to join the Federal Reserve system, given a satisfactory financial condition
d. no

may be permitted to join the Federal Reserve system, given a satisfactory financial condition

Members of the Federal Reserve System may include:
a. commercial banks with a national charter
b. credit unions
c. savings and loan institutions
d. all the above
e. none of the above

commercial banks with a national charter

The chairman of the Federal Reserve System:
a. is appointed by the Secretary of the Treasury
b. serves a life term maximum 14 year term
c. is the president of the New York Federal Reserve Bank
d. none of the above

none of the above

Three essential needs of a well-operating financial system include all of the following EXCEPT:
a. an efficient national payments system
b. an elastic or flexible money supply
c. a bank insurance system
d. a lending/borrowing mechanism

a bank insurance system

Which of the following is not a tool used by the Fed to implement its monetary policy?
a. changing reserve requirements
b. changing the prime rate
c. open market operations
d. all of the above are tools the Fed uses

changing the prime rate

One significant feature of DIDMCA was that it:
a. expanded the ability of the Fed to influence unemployment rates
b. expanded Fed control over the reserve requirements of non-member banks
c. created the FDIC
d. none of the above

expanded Fed control over the reserve requirements of non-member banks

In recent years:
a. the discount rate was lower than the prime rate
b. the discount rate was higher than the prime rate
c. the discount rate was unrelated to the prime rate
d. none of the above

the discount rate was lower than the prime rate

Federal Reserve actions that offset unexpected monetary developments and contribute to the smooth everyday functioning of the economy are called
a. defensive actions
b. dynamic actions
c. accommodative actions
d. none of the above

defensive actions

The percentage of deposits that must be held as reserves is called
a. the bank reserve percentage
b. the required reserve ratio
c. the excess reserve ratio
d. the fractional reserve percentage

the required reserve ratio

The interest rate that a bank must pay to borrow from its regional federal reserve bank is called
a. the Secondary Rate
b. the Prime Rate
c. the Discount Rate
d. the Capital Rate

the Discount Rate

The most frequently used monetary policy instrument used by the Fed is
a. open market operations
b. changing the discount rate
c. changing the reserve requirement
d. none of the above

open market operations

________________ has become the most important and effective means of monetary and credit control.
a. Changing reserve requirements
b. Changing the discount rate
c. Open market operations
d. Changing the Treasury bill rate
e. none of the above

Open market operations

The least frequently used monetary policy instrument used by the Fed is
a. open market operations
b. changing the discount rate
c. changing the reserve requirement
d. none of the above

changing the reserve requirement

__________________________ sets up a procedure for the prompt correction of errors on a revolving charge account and prevents damage to credit ratings while a dispute is being settled.
a. Truth in Lending Act
b. Equal Credit Opportunity Act
c. Federal Tra

Fair Credit Billing Act

The ____________________________ conducts monetary policy for the European countries that adopted the euro as their common currency.
a. European Central Bank
b. Switzerland Central Bank
c. London Central Bank
d. British National Bank

Switzerland Central Bank

The ___________________ conducts monetary policy for the European countries that have adopted the euro as their common currency.
a. Bank of England
b. European Central Bank
c. Bank of Europe
d. Bank of Switzerland
e. none of the above

Bank of Switzerland

Currently, the Chairman of the Federal Reserve is ________________________.
a. Janet Yellen
b. Alan Greenspan
c. Ben Bernanke
d. Jerome Powell

Jerome Powell

The five components of the Federal Reserve System include:
a. Member banks, Federal Reserve District Banks, Board of Governors, Federal Open Market Committee, Monetary Committees.
b. Nonmember banks, Federal Reserve District Banks, Board of Governors, Fed

Member banks, Federal Reserve District Banks, Board of Governors, Federal Open Market Committee, Advisory committees.

Although it enjoys substantial independence in its operations, the appointive power of the president and the ability of Congress to alter its structure make the ______________ a dependent political structure while being one of the most powerful monetary o

Board of Governors (BOG)

The Board of Governors of the Federal Reserve establishes monetary policy by:
a. setting reserve requirements, altering the prime rate, and through federal open market operations.
b. setting reserve requirements, altering the discount rate, and through fe

setting reserve requirements, altering the discount rate, and through federal open market operations.

Which of the following is not a method by which the Federal Reserve establishes monetary policy?
a. setting reserve requirements
b. altering the discount rate
c. through federal open market operations
d. setting bank profitability ratios
e. none of the ab

setting bank profitability ratios

Which of the following is a method by which the Federal Reserve establishes monetary policy?
a. setting reserve requirements
b. altering the discount rate
c. through federal open market operations
d. all of the above methods are used
e. none of the above

all of the above methods are used

History generally supports the contention that under the guidance of Paul Volcker, a (n) ____________ Fed policy brought down the double-digit inflation of the 1970s and the early 1980s, and the Federal Open Market Committee consistently responded to his

restrictive

History generally supports the contention that under the guidance of Paul Volcker, a (n) ____________ Fed policy brought down the double-digit inflation of the 1970s and the early 1980s, and the Federal Open Market Committee consistently responded to his

none of the above

Today the responsibilities of the Fed may be described as:
a. those relating to monetary policy, to supervision and regulation, and to services provided for depository institutions and the government.
b. those relating to fiscal policy, to supervision and

those relating to monetary policy, to supervision and regulation, and to services provided for depository institutions and the government.

The banking system of the United States is a(n) ___________ reserve system because banks are required by the Fed to hold reserves equal to a specified percentage of their deposits.
a. required
b. fractional
c. excess
d. multiplicative
e. none of the above

fractional

The __________________, passed in 1968, requires the clear explanation of consumer credit costs and garnishment procedures (taking wages or property by legal means) and prohibits overly high-priced credit transactions.
a. Consumer Credit Expansion Act
b.

Consumer Credit Protection Act

Which of the following statements is correct?
a. Open-market operations always lead to an immediate increase in the volume of lending; this is especially true when bonds are sold to restrict deposit growth.
b. Open-market operations don't always lead to a

Open-market operations always lead to an immediate change in the volume of deposits; this is especially true deposit growth.

A (n) ____________________ is necessary for the monetary system to carry out the financial function of transferring money, which in turn is a requirement for an effective financial system.
a. internet banking system
b. electronic data transfer system
c. w

efficient payments mechanism

The two routes of check clearance include the _____________ settlement, in which the transaction takes place entirely within a single Federal Reserve district, and the _____________ settlement, in which there are relationships between banks of two Federal

intradistrict, interdistrict

Which of the following statements is correct about the Fed's open-market operations? To restrict deposit growth
a. the Fed should sell bonds which reduces the money supply and reduces lending.
b. the Fed should sell bonds which increases the money supply

the Fed should sell bonds which reduces the money supply and reduces lending.

A nontraditional monetary policy approach to stimulate economic activity when conventional monetary policy methods are ineffective is called
a. quality control
b. quantitative easing
c. quantitative tightening
d. open-market operations

quantitative easing

Which of the following statements is correct about the Fed's open-market operations? To encourage deposit growth
a. the Fed should sell bonds which the money supply and reduces lending.
b. the Fed should sell bonds which the money supply and increases len

the Fed should buy bonds which increases the money supply and increases lending.

The primary goal of the financial manager of a profit-seeking organization should be to:
a. maximize market share
b. maximize the owners' wealth
c. increase sales and profit
d. have healthy cash flow

maximize the owners wealth

Finance has its origins in:
a. economics and statistics
b. accounting and sociology
c. accounting and economics
d. psychology and mathematics

accounting and economics

Finance is:
a. the study of how individuals, institutions, governments, and businesses acquire, spend, and manage money and other financial assets
b. the study of how acquire, spend, and manage money and other financial assets
c. the study of how acquire,

the study of individuals, institutions, government, and businesses acquire, spend and manage money and other financial assets

Crucial elements of the three areas of finance include:
a. financial institutions
b. financial markets
c. investments and financial management
d. all of the above

all of the above

An area of finance that involves the sale or marketing of securities, the analysis of securities, and the management of investment risk through portfolio diversification is referred to as:
a. financial management
b. investments
c. financial institutions
d

Investments

The issuing of new securities, mortgages, and other claims to wealth takes place in the:
a. secondary market
b. money market
c. primary market
d. securities market

primary market

Multiple Answer Question: Select ALL of the following statements that an effective financial system must have:
a. several sets of policy makers who pass laws and make decisions relating to fiscal and monetary
policies
b. an efficient for creating and tran

A, B, and C

An area of finance that refers to the physical locations or electronic forums that facilitate the flow of funds among investors, businesses, and governments is called:
a. financial management
b. investments
c. financial institutions
d. financial markets
e

none of the above

An area of finance that involves financial planning, asset management and fund-raising decisions to enhance the value of businesses is called:
a. financial management
b. investments
c. financial institutions
d. financial markets
e. none of the above

financial management

An area of finance that involves the study of organizations or intermediaries that help the financial system operate efficiently and transfer funds from savers and investors to individuals, businesses, and governments that seek to spend or invest the fund

financial institutions

An area of finance that involves the study of government institutions and their involvement in rescuing private firms is called:
a. financial management
b. investments
c. financial institutions
d. financial markets
e. none of the above

none of the above- not an area of finance

The ______________ is a term used to describe the financial system, institutions, markets, businesses, individuals, and global interactions that help the economy operate efficiently
a. financial environment
b. regulatory environment
c. international envir

financial environment

The primary securities markets are
a. the markets for previously issued securities such as the New York Stock Exchange
b. the markets where financial assets such as stocks and bonds are initially issued
c. the three most important financial markets in any

the markets where financial assets such as stocks and bonds are initially issued

Economists use a ___________________ framework to explain how the prices and quantities of goods and services are determined in a free-market economic system.
a. opportunity
b. marginal cost
c. supply-and-demand
d. anti-monopoly
e. none of the above

supply and demand

____________________ provide the record-keeping mechanism for showing ownership of the financial instruments used in the flow of financial funds between savers and borrowers and record revenues, expenses, and profitability of organizations that produce an

Accountants (finance has its origins in economics and accounting)

______________________________________ are crucial elements of the three areas of finance.
a. Businesses and the federal government
b. International organizations such as the World Bank and International Monetary Fund
c. Well-developed barter systems
d. F

Financial institutions, financial markets, investments, and financial management

___________ are intermediaries, such as banks, insurance companies, and investment companies that engage in financial activities to aid the flow of funds from savers to borrowers or investors.
a. Financial Institutions
b. Financial market organizations
c.

Financial institutions

_______________ in business involves making decisions relating to the efficient use of financial resources in the production and sale of goods and services.
a. Financial management
b. Financial economics
c. Investment management
d. Asset allocation
e. non

financial management

Maximizing _____________________ is accomplished through effective financial planning and analysis, asset management, and the acquisition of financial capital.
a. the value of perquisites.
b. the owners' wealth.
c. the firm's profits
d. the firm's earning

the owners wealth

Successful businesses typically progress through a series of life-cycle stages�from the idea stage to exiting the business; these five stages include the:
a. development stage, startup stage, survival stage, rapid growth stage, and maturity stage.
b. idea

development, startup, survival, rapid growth, and maturity

_______________ is the study of how growth-driven, performance-focused, early-stage (from development through early rapid growth) firms raise financial capital and manage their operations and assets.
a. Personal finance
b. Corporate finance
c. Entrepreneu

Entrepreneurial finance

______________ is the study of how individuals prepare for financial emergencies, protect against premature death and the loss of property, and accumulate wealth over time.
a. Personal finance
b. Corporate finance
c. Entrepreneurial finance
d. Investment

personal finance

Reasons we study finance include all of the following except:
a. To make informed economic decisions
b. To make informed personal and business investment decisions
c. To make informed career decisions based on a basic understanding of business finance
d.

to make informed medical decisions

Multiple Answer Question: Select ALL of the following are among the six principles of finance:
a. Money has a time value.
b. Higher returns are expected for taking on more risk.
c. Diversification of investments most of the time increases risk.
d. Financi

A, B and D

Multiple Answer Question: Select ALL of the following are not among the six principles of finance:
a. All decisions are ultimately financial decisions.
b. Higher returns are expected for taking on more risk.
c. Diversification of investments can reduce ri

A and E

Which statement best describes the six principles of finance?
a. Money has a time value; Higher returns are expected for taking on more risk; Diversification of investments does not impact risk; Financial markets are efficient in pricing securities; Manag

Money has a time value; Higher returns are expected for taking on more risk; Diversification of investments can reduce risk; Financial markets are efficient in pricing securities; Manager and stockholder objectives may differ; Reputation doesn't matter.

Multiple Answer Question: Select ALL of the following that an effective financial system needs:
a. an efficient monetary system
b. to be able to create capital by channeling savings into investment
c. markets in which to buy and sell claims to wealth
d. c

An efficient monetary system, to be able to create capital by channeling savings into investment, and markets in which to buy and sell claims to wealth

Crucial elements of well-developed financial systems include all of the following except:
a. government control of the economy not in capitalism
b. financial intermediaries (institutions)
c. financial markets
d. all of the above

government control of the economy not in capitalism

Financial functions in the U.S. financial system include:
a. transferring financial assets
b. creating money
c. accumulating savings
d. all of the above

all of the above

$1,000 invested today at 6% interest would be worth ________ one year from now. (Choose the closest answer.)
a. $1,600
b. $1,060
c. $1,160
d. $1,006

$1,060 (1000 x 1.06)= 1060

If the interest rate is greater than 0%, then a dollar today is worth
a. more than a dollar tomorrow
b. the same as a dollar tomorrow
c. less than a dollar tomorrow
d. there is not sufficient information to tell

more than a dollar tomorrow

If the interest rate is equal to 0%, then a dollar today is worth
a. more than a dollar tomorrow
b. the same as a dollar tomorrow
c. less than a dollar tomorrow
d. there is not sufficient information to tell

the same as a dollar tomorrow

A basic financial function of an effective financial system is a monetary system that performs which of the following?
a. transferring money
b. storing gold and silver to back up money
c. creating jobs
d. transferring real assets

transferring money

Rational investors would consider an investment in a risky business venture only if they feel the expected the return is high enough to justify the
a. greater risk
b. higher cost.
c. longer useful life.
d. more complex designs.
e. none of the above.

greater risk

Two risky assets can be combined to lower overall risk. This principle is commonly referred to as
a. blending
b. asset allocation
c. diversification
d. portfolio segmentation
e. none of the above

Diversification

In the United States, most money is created by:
a. depository institutions
b. the United States Treasury
c. capital markets
d. None of the above

depository institutions

Basic financial functions of an effective financial system include:
a. creating money
b. transferring money
c. accumulating savings
d. all of the above
e. none of the above

all of the above

The theory of ___________________ implies that information is quickly embedded in prices making it difficult for investors to "beat the market."
a. stock investing
b. efficient markets
c. portfolio management
d. asset allocation
e. none of the above

Efficient markets

The basic components of an effective financial system in a developed economy include:
a. a monetary system
b. a savings-investment process
c. markets for the transfer of financial assets
d. all of the above

all of the above

The possible conflict between managers and owners is sometimes called the
a. principal-subordinate problem
b. principal-agent problem
c. boss-subordinate problem
d. boss-agent problem
e. none of the above

principal-agent problem

_____________ behavior refers to how an individual or organization treats others legally, fairly, and honestly.
a. Principal-agent
b. Stakeholder
c. Responsible
d. Ethical
e. none of the above

Ethical

Career opportunities in finance involving both treasury and control functions are generally associated with:
a. business financial management
b. financial intermediaries
c. securities markets
d. government organizations

business financial management

Intermediaries that help the financial system operate efficiently and transfer funds from savers and investors to individuals, businesses, and governments that seek to spend or invest the funds are known as:
a. financial markets
b. financial institutions

financial institutions

An economy's _____________________ is the interaction of policy makers, a monetary system, financial institutions, and financial markets to expedite the flow of financial capital from savings into investment:
a. banking system
b. stock market
c. capital m

financial system

An efficient ______________ that is comprised of a central bank and a banking system that is able to create and transfer a stable medium of exchange called money.
a. allocation system
b. banking system
c. monetary system
d. market system
e. none of the ab

monetary system

An effective financial system must have
a. financial markets that facilitate the transfer of financial assets among individuals, institutions, businesses, and governments.
b. financial institutions or intermediaries that support capital formation either b

all of the above are required

________________ facilitate the transfer of financial assets among individuals, institutions, businesses, and governments.
a. Financial markets
b. Government institutions
c. Regulatory authorities
d. none of the above

financial markets

The _________________ is primarily responsible for the amount of money that is created, although most of the money is actually created by depository institutions.
a. Securities Exchange Commission
b. Federal Treasury
c. Federal Reserve System
d. Financial

Federal reserve system

Functions of the monetary system include all of the following except
a. creating money
b. transferring money
c. accumulating savings
d. all of the above are included as functions of a monetary system

accumulating savings

_________ markets are where debt securities with maturities of one year or less are issued and traded.
a. Money
b. Capital
c. Primary
d. Secondary

Money (one year or less)

_________ markets are where debt instruments or securities with maturities longer than one year and corporate stocks or equity securities are issued and traded.
a. Money
b. Capital
c. Primary
d. Secondary

Capital (longer than one year)

______ markets are where the initial offering or origination of debt and equity securities takes place
a. Money
b. Capital
c. Primary
d. Secondary

Primary (initial)

_________markets are physical locations or electronic forums where debt (bonds and mortgages) and equity securities are traded
a. Money
b. Capital
c. Primary
d. Secondary

Secondary

True or False- Finance is the study of how individuals, institutions, and businesses acquire, spend and manage money and other financial resources.

True

True or False- Money markets are the markets where debt securities with maturities of one year or less are issued and traded.

True (one year or less)

True or False- Personal finance is the study of how growth-driven performance-focused, early-stage firms raise financial capital and manage operations and assets.

False (Entrepreneurial finance)

True or False- Capital markets are markets where debt securities with maturities of greater than one year and equity securities are issued and traded.

True

True or False- The six principles of finance include (1) Money has a time value, (2) Higher returns are expected for taking on more risk, (3) Diversification of investments can reduce risk, (4) Financial markets are efficient in pricing securities, (5) Ma

True

True or False- The U.S. Treasury Department is primarily responsible for the amount of money that is created in the U.S. economy.

False (the Federal Reserve System is)

True or False- The six principles of finance include (1) Money has a time value, (2) Higher returns are expected for taking on less risk, (3) Diversification of investments can increase risk, (4) Financial markets are inefficient in pricing securities, (5

False

Paper money fully backed by a precious metal and issued by the government is called:
a. fiat money
b. representative full-bodied money
c. full-bodied money
d. credit money

representative full bodied money

Fiat money is:
a. representative full-bodied money
b. full-bodied money
c. legal tender proclaimed to be money by law
d. all of the above

legal tender proclaimed to be money by law

With a mint ratio of 15 ounces of silver to 1 ounce of gold and a market ration of 15.5 ounces of silver to 1 ounce of gold:
a. gold coins should go out of circulation
b. silver coins should go out of circulation
c. paper money will predominate
d. the bim

gold coins should go out o circulation

The U.S. bimetallic standard was based on:
a. gold and platinum
b. silver and gold
c. gold and copper
d. silver and copper

Silver and gold

Which of the following would not be considered liquid?
a. money in savings accounts
b. coins
c. currency
d. all the above are liquid
e. none of the above are liquid

all of the above are liquid

When it is a means of paying for goods and services and discharging debts, money is referred to as a:
a. store of purchasing power
b. medium of exchange
c. standard of value
d. liquid asset

liquid asset

Which of the following statements are correct?
a. debit cards provide for the immediate direct transfer of deposit accounts
b. debit cards may be used for cash advances, even when there is not sufficient money in the account
c. debit cards may not be used

debit cards provide for the immediate direct transfer of deposit accounts

Under the Bretton Woods agreement, a fixed exchange rate system tied to gold and the U.S. dollar dominated international trade during:
a. World War II
b. 1880-1914
c. 1944-1973
d. 1914-1932

1944-1973

The only paper money of significance in the economy today is:
a. silver certificates
b. demand deposits
c. greenbacks
d. Federal Reserve notes

federal reserve notes

Token coins are:
a. full-bodied coins
b. coins containing metal of less value than their stated value
c. coins containing gold or silver
d. representative full-bodied money

coins containing metal of less value than their stated value

Which of the following describes the basic function of money?
a. store of purchasing power
b. standard of value
c. medium of exchange
d. liquidity

Medium of exchange

The M1 definition of the money supply includes which of the following items?
a. currency
b. demand deposits and other checkable deposits at depository institutions
c. travelers' checks
d. all of the above

all of the above

Which of the following statements is false?
a. The Bretton Wood System of fixed exchange rates was maintained until 1975.
b. Under the Bretton Wood System, one ounce of gold was set equal to $35.
c. Under the Bretton Wood System, each participating countr

The Bretton Wood System of fixed exchange rates was maintained until 1975.

Which of the following are not included in M1?
a. negotiable orders of withdrawal
b. automatic transfer service accounts
c. money market deposit accounts
d. credit union share draft accounts

money market deposit accounts

Money market mutual funds do which of the following?
a. issue shares to customers
b. invest in liquid instruments
c. invest in interest-bearing debt instruments
d. all the above

all of the above

Which of the following statements is correct?
a. Both gold and silver have now been completely removed from any monetary role in the U.S. economy.
b. Savings deposits and small time deposits at depository institutions constitute part of the M1 money suppl

Both gold and silver have now been completely removed from any monetary role in the U.S. economy.

Fiat money is:
a. paper money issued by central banks with full metallic backing
b. government notes representing a specific amount of gold in storage
c. full bodied money
d. none of the above

none of the above (fiat money- legal tender proclaimed to be money by law)

Any circulating money which has little real value relative to its monetary value is called:
a. credit money
b. representative full-bodied money
c. full-bodied money
d. all of the above

credit money

Inflation is:
a. an increase in the purchasing power of money
b. a decrease in the quality of goods and services
c. an increase in the prices of goods and services not offset by increases in the quality of those goods and
services
d. a measure of the mone

an increase in the prices of goods and services not offset by increases in the quality of those goods and
services

The function of money that expresses prices and contracts for deferred payments in terms of the monetary unit is referred to as:
a. store of purchasing power
b. standard of value
c. medium of exchange
d. credit money

standard of value

Increased credit card usage:
a. may expand money supply
b. may contract the money supply
c. neither expands nor contracts money supply
d. none of the above

may expand money supply

Which are included in the money supply?
a. outstanding balances on credit cards
b. credit card limits
c. both the above
d. neither the above

neither of the above

The supply of a currency in international markets depends largely on the:
a. Federal Reserve System
b. imports of the issuing country
c. amount of exports that currency will buy from the issuing country
d. confidence of market participants in the restrain

imports of the issuing country

The advantages claimed for a bimetallic standard were not gained in actual practice because:
a. one of the metals disappeared from circulation because the mint and market ratios were not the same
b. the supply of gold was inadequate
c. the supply of silve

one of the metals disappeared from circulation because the mint and market ratios were not the same

Barter involves the exchange of:
a. goods for gold
b. goods for silver
c. gold for silver
d. goods and services

goods and services

When coins have a stated value equal to the value of the metal they contain, they are referred to as:
a. full-bodied money
b. representative full-bodied money
c. token coins
d. all of the above

full bodied money

Which of the following are not depository institutions?
a. The Federal Reserve
b. credit unions
c. savings banks
d. commercial banks

the federal reserve

Continentals" were backed by:
a. gold
b. silver
c. possible future tax revenues
d. none of the above

possible future tax revenues

Today's Federal Reserve notes are:
a. backed by gold
b. backed by silver
c. fiat money Nothing backs Federal Reserve notes
d. none of the above

fiat money

Credit money is backed by:
a. gold
b. silver
c. creditworthiness of the issuer
d. creditworthiness of the depository institution
e. none of the above

creditworthiness of the issuer

Deposit money is backed by:
a. gold
b. silver
c. creditworthiness of the issuer
d. creditworthiness of the depository institution
e. none of the above

creditworthiness of the depository institution

All money should perform the following functions EXCEPT:
a. guarantee of validity
b. medium of exchange
c. standard of value
d. store of value

Guarantee of validity

The velocity of money measures:
a. the quantity of money in an economy
b. the rate of circulation of the money supply
c. the level of inflation caused by the money supply
d. none of the above

the rate of circulation of the money supply

Three of the functions of money are:
a. medium of exchange, store of value, and measure of liquidity
b. conduit for international trade, store of value, and standard of value
c. medium of exchange, store of value, and standard of value
d. inflation hedge,

medium of exchange, store of value, and standard of value

An increase in the general overall prices of goods and services that is not offset by increases in the quality of those goods and services is the definition for:
a. liquidity
b. inflation
c. full-bodied goods and services d. store of purchasing power

inflation

A monetary standard based on two metals, usually silver and gold is called:
a. full-bodied money
b. a bimetallic standard
c. Fiat money
d. none of the above

a bimetallic standard

Paper money backed by a precious metal is called:
a. full-bodied money
b. a bimetallic standard
c. representative full-bodied money
d. none of the above

representative full bodied money

Legal tender proclaimed to be money by law is called:
a. representative money
b. fiat money
c. representative full-bodied money
d. none of the above

fiat money

A measure of the output of goods and services in an economy is called:
a. output
b. money supply
c. gross domestic product
d. velocity

gross domestic product

If the money supply for an economy is $3 trillion and the velocity of money is 4.5, then GDP is: (Chose the closest answer.)
a. $0.67 trillion
b. $1.5 trillion
c. $7.5 trillion
d. $13.5 trillion

$13.5 trillion (4.5 x 3 trillion)

If the money supply for an economy is $3 trillion and GDP is $10 trillion, then the velocity of money is: (Chose the closest answer.)
a. 3.33
b. 13.0
c. 7.0
d. 30

3.33 (10 trillion divided by 3 trillion)

A rise in prices not offset by increases in quality is called:
a. deflation
b. inflation
c. stagflation
d. none of the above

inflation

A rise in prices that is fully offset by increases in quality is called:
a. deflation
b. inflation
c. stagflation
d. none of the above

none of the above

A major factor in the severity of the 2007-09 financial crisis was the massive amounts of debt taken on by:
a. individuals
b. business
c. financial institutions
d. all of the above
e. none of the above

all of the above

Historically speaking, ___________ taken as a group has/have generally been a surplus economic unit in the past:
a. individuals
b. business
c. government
d. a and c
e. none of the above

individuals

___________ include the direct ownership of land, buildings or homes, equipment, inventories, durable goods, and even precious metals.
a. financial assets
b. real assets
c. government investments
d. all three (A, B, and C) are included
e. none of three (A

real assets

__________ accounts are increasingly used to make direct deposits to, and payments from, checkable deposit accounts.
a. single balance
b. money market
c. automatic transfer service (ATS)
d. capital market
e. none of the above

automatic transfer service

________ is anything generally accepted as a means of paying for goods and services and for paying off debts. It must be easily divisible, so that exchanges can take place in small or large quantities; relatively inexpensive to store and transfer; and rea

money

_________ is a short-term unsecured promissory note issued by a high credit-quality corporation with maturities generally of one to three months in length with an active secondary market.
a. A negotiable certificate of deposit (NCD)
b. A repurchase agreem

Commercial paper

59. _____________ is a promise of future payment issued by a firm and guaranteed by a bank that is used to finance international trade with typical maturities ranging from one to six months.
a. A negotiable certificate of deposit (NCD)
b. A repurchase agr

a bankers acceptance

_________ is a short-term debt security sold by a business firm or financial institution to another business or institution where the seller agrees to buy back the security at a specified price and date.
a. A negotiable certificate of deposit (NCD)
b. A r

A repurchase agreement

________ are very short-term loans, usually with maturities of one day to one week made between depository institutions.
a. Overnight loans
b. Commercial paper
c. Federal funds
d. A banker's acceptance
e. none of the above

Federal funds

The velocity of money measures the rate of circulation of the money supply and can be expressed by the following equation (note: GDP = gross domestic product and MS = money supply):
a. VM = GDP/MS
b. VM = MS/GDP
c. VM = MS x GDP
d. all of the above

VM= GDP/MS

If annual GDP is $100 billion and the MS is $20 billion, the velocity of money (VM) is ________.
a. 2
b. 5
c. 20
d. 50

5 (100 divided by 20)

_____________ believe that when the money supply exceeds the amount of money demanded, the public will spend more rapidly, causing real economic activity or prices to rise. They also believe that a too-rapid rate of growth in the money supply will ultimat

Monetarists

_______ believe that a change in the money supply first causes a change in interest rate levels, which, in turn, alters the demand for goods and services.
a. Monetarists
b. Keynesians
c. Neo Classicalists
d. none of the above

Keynesians

A major international development occurred on January 1, 1999, when eleven European countries gave up their individual currencies and adopted a unified currency called the _____________.
a. Dollar
b. Pound
c. Euro
d. none of the above

Euro

The of goods and services may be expressed as the ratio of _____________.
price level
a. GDP to real output
b. real output to GDP
c. Velocity to GDP
d. real output to velocity

GDP to real output

Real output in an economy may be expressed as the ratio of _____________.
a. GDP to real output
b. real output to GDP
c. price level to GDP
d. GDP to price level

GDP to price level

__________ provide predetermined credit limits to consumers at the time the cards are issued.
a. debit cards
b. ATM cards
c. credit cards
d. none of the above

credit cards

___________________issue shares to customers and invest the proceeds in highly liquid, very-short- maturity, interest-bearing debt instruments called money market investments.
a. Money market mutual funds (MMMFs)
b. Corporations
c. Insurance companies
d.

money market mutual funds

_______________________ is the sum of an individual's money, real assets, and financial assets or claims against others less the individual's debt obligations.
a. Portfolio value
b. Individual net worth
c. Personal wealth
d. Investment value
e. None of th

Individuals net worth

Paper money that is issued by the government and is proclaimed to be legal tender by law is called:
a. representative full-bodied money
b. full-bodied money
c. fiat money
d. credit money
e. token coins

Credit money

Which of the following statements is true?
a. If the demand for a particular currency falls relative to supply, then the exchange rate will rise.
b. The velocity of money is greater than zero and less than plus one.
c. The output of goods and services in

The output of goods and services in an economy is referred to as the gross domestic product.

If the velocity of money is 2.5 and GDP is $19 trillion, then the money supply for an economy is: (Chose the closest answer.)
a. $21.5 trillion
b. $7.6 trillion
c. $66.5 trillion
d. $16.5 trillion

19 divided by 2.5 = 7.6

Multiple Answer Question: Select ALL of the following statements that are true about bitcoins:
a. It is a decentralized currency system.
b. They are a bimetallic currency.
c. In the U.S. they are controlled by the Fed.
d. They are a digital currency.
e. T

A and D

True or False- Depository institutions include commercial banks, savings and loans, savings banks, and credit unions.

True

Multiple Answer Question: Select ALL of the following that are not depository institutions:
a. credit unions
b. savings and loan associations
c. mutual funds a type of securities firm, not a depository institution
d. savings banks
e. brokerage firms

C and E

The Bank of North America:
a. was the first incorporated bank in the United States
b. was patterned after the Central Bank of England
c. was established to assist in financing the Civil War
d. all the above
e. none of the above

was the first incorporated bank in the United States

The National Banking Act of 1864 provided for:
a. federally chartered banks
b. the establishment of a system of central banks
c. deregulation and monetary control
d. the establishment of deposit insurance

federally chartered banks

The Depository Institutions Deregulation and Monetary Control Act:
a. established a system of central banks
b. has resulted in more competition among depository institutions
c. increased federal deposit insurance from $40,000 to $80,000 for each account
d

has resulted in more competition among depository institutions

The most basic functions of depository institutions are:
a. safekeeping for depositors
b. record keeping for depositors
c. efficient and economical transfer of payments
d. accepting deposits and granting loans

accepting deposits and granting loans

Multiple Answer Question: Select ALL of the following that are an asset of commercial banks: a. cash asset
b. loans to individuals asset
c. time deposits liability
d. U.S. government securities asset e. demand deposits liability

A, B, and D

The principal assets of savings banks are:
a. securities
b. vault cash and deposits at other banks
c. mortgage loans
d. all the above

Mortgage loans

Credit unions are:
a. for profit organizations
b. made up of individuals who possess common bonds of association
c. institutions that derive funds from investment activities
d. all the above

made up of individuals who possess common bonds of association

NOW accounts:
a. are not subject to ceilidh rates under regulation Q
b. enable depository institutions to complete effectively for funds that were flowing in marge amounts to the money market funds
c. typically pay interest rates equal t that paid by mone

enable depository institutions to complete effectively for funds that were flowing in marge amounts to the money market funds

The adequacy of capital for commercial banks as measured by regulatory authorities is:
a. a composite of equity capital and total assets
b. a measure of investment success
c. based on the total amount of deposits of a bank
d. based on the ratio of federal

a composite of equity capital and total assets

The interest rate charged by banks for short-term unsecured loans to their highest quality business customers is referred to as the:
a. discount rate
b. federal funds rate
c. prime rate
d. all the above

Prime rate

The Resolution Trust Corporation was brought into existence to:
a. help savings and loan institutions invest funds in a wide range of higher yielding instruments
b. authorize savings and loan institutions to issue a new money market account
with no regula

take over and liquidate the assets of failed savings and loan institutions

The First Bank of the United States ceased operations because:
a. the need to provide financing for the Civil War was not supported by Congress
b. of the opposition of state banking interests
c. its charter had expired and there was no provision for its r

both a and c

During the colonial period in the nation's history, banks depended on:
a. their own issue of paper money
b. foreign sources for their loanable funds
c. deposits of foreign currency such as the Spanish dollar
d. the investment of their own stockholders

their own issue of paper money

The holding-company device to control two or more commercial banks:
a. has diminished in importance in recent years
b. has increased in importance in recent years
c. is limited to state chartered banks
d. is sometimes described as chain banking

has increased in importance in recent years

One of the advantages claimed by branch banking is:
a. lower interest rates are usually available from branch banks
b. convenience for customers
c. banking operations are easier to regulate
d. all the above

convenience for customers

The function of adequate bank capital for a commercial bank is to:
a. meet bank reserve requirements
b. provide funds for real estate loans
c. provide a cushion against credit risk and interest rate risk
d. support the purchase of bank buildings and equip

provide a cushion against credit risk and interest rate risk

Unit banking means:
a. a bank may have only one full-service office
b. the bank is owned by a unit trust
c. all branch offices are controlled by a central unit
d. none of the above

a bank may have only one full-service office

Limited branch banking:
a. permits banks to locate offices within a geographically defined distance of the main office
b. is controlled by the Federal Reserve system
c. means that banks may only engage in certain limited activities
d. none of the above

permits banks to locate offices within a geographically defined distance of the main office

Statewide branch banking:
a. is prohibited in all 50 states
b. means that branch systems are less likely to fail than independent systems
c. permits banks to be located within a geographically defined distance of the main office
d. none of the above

means that branch systems are less likely to fail than independent systems

The principal assets of banks do not include:
a. cash
b. loans
c. time deposits liability
d. securities owned

time deposits liability

Foreign banks in the United States:
a. are prohibited in all 50 states
b. need the approval of the Federal Reserve
c. are not subject to federal examination
d. none of the above

need the approval of the Federal Reserve

Which of the following would not be part of a bank's Stockholders' Equity?
a. bank premises asset
b. common stock of the bank
c. retained earnings
d. all of the above are part of a bank's Stockholders' Equity

bank premises asset

Legislation that provided for the separation of commercial banking and investment banking activities in the United States is called
a. Garn-St. Germain Depository Institutions Act
b. Glass-Steagall Act
c. Hunt Commission legislation
d. Depository Institut

Glass-Steagall Act

The National Banking Act of 1864:
a. established minimum capital requirements for federally chartered banks
b. regulated loans with respect to safety and liquidity
c. established minimum reserve requirements
d. all of the above

all the above

The Monetary Control Act:
a. extended the Fed's control to thrift institutions and non-member commercial banks
b. has resulted in more competition among depository institutions
c. increased federal deposit insurance from $40,000 to $80,000 for each accoun

extended the Fed's control to thrift institutions and non-member commercial banks

The primary purpose of this Act was to aid the savings and loan industry
a. Garn-St. Germain Depository Institutions Act
b. Glass-Steagall Act
c. Hunt Commission legislation
d. Depository Institutions Deregulation and Monetary Control Act

Garn-St. Germain Depository Institutions Act

In general, the effective rate of interest on a discount loan
a. is lower than that on standard loan
b. is higher than that on a standard loan
c. is identical to that on a standard loan
d. none of the above

is higher than that on a standard loan

Primary reserves
a. include the cash assets of the bank.
b. are short term securities held by banks that are quickly converted into cash at little cost to the banks.
c. include securities sold in primary markets.
d. include securities sold in secondary ma

include the cash assets of the bank.

Reasons that banks become insolvent include all of the following EXCEPT:
a. excessive credit risk
b. interest rate risk
c. a bank's assets exceeding its liabilities
d. all of the above are reasons that banks become insolvent

a bank's assets exceeding its liabilities

Commercial banks obtain the bulk of their loanable funds from:
a. depositors
b. the issue of certificates of deposit
c. sale of bank stock
d. sale of subordinated debenture bonds

Depositors

The likelihood that borrowers are ill and would not be able to make interest and principal payments is an example of:
a. interest rate risk
b. credit (default) risk
c. liquidity risk
d. capital adequacy risk

credit (default) risk

Financial institutions include:
a. banks
b. pension funds
c. insurance companies
d. all of the above

all of the above

Another name for an open-end investment company is a:
a. brokerage firm
b. finance company
c. mutual fund
d. investment bank

mutual fund

Types of financial institutions include all of the following EXCEPT:
a. commercial banks
b. pension funds
c. insurance companies
d. brokerage firms
e. all of the above are types of financial institutions

all of the above are types of financial institutions

Types of financial institutions include all of the following EXCEPT:
a. commercial banks
b. pension funds
c. insurance companies
d. all of the above are types of financial institutions

all of the above are types of financial institutions

An open-end investment company that can issue an unlimited number of its shares to investors and use the pooled proceeds to purchase corporate and government securities is called a (n)
a. mutual fund
b. pension fund
c. insurance company d. brokerage firm

mutual fund

An organization that sells or markets new securities issued by businesses to individuals and institutional investors is called a (n)
a. mutual fund
b. investment bank
c. insurance company
d. brokerage firm

investment bank

An organization that receives contributions from employees and/or their employers and invests the proceeds on behalf of the employees for use during their retirement years is called a (n)
a. mutual fund
b. savings bank
c. pension fund
d. retirement fund

pension fund

An organization that sells shares in their firms to individuals and others and invests the proceeds in corporate and government securities is called a (n)
a. investment company
b. investment bank
c. insurance company
d. brokerage firm

investment company

An organization that provides loans directly to consumers and businesses or aid individuals in obtaining financing for durable goods is called a (n)
a. commercial bank
b. investment bank
c. savings and loan
d. finance company

finance company

The _______________________ provided for separation of commercial banking and investment banking activities in the United States.
a. Glass Steagall Act
b. Gramm-Leach-Bliley Act
c. Garn-Saint Germain Act
d. Depository Institutions Deregulation and Monetar

Glass Steagall Act

The _______________________ was designed to reduce or eliminate interest rate limitations and increase access to various sources of funds available to banks and thrifts and expand the uses of the funds of S&Ls.
a. Glass Steagall Act
b. Gramm-Leach-Bliley

Depository Institutions Deregulation and Monetary Control Act

The _______________________ was designed mainly to assist the savings and loan industry.
a. Glass Steagall Act
b. Gramm-Leach-Bliley Act
c. Garn-Saint Germain Act
d. Depository Institutions Deregulation and Monetary Control Act

Garn-Saint Germain Act

Multiple Answer Question: Select ALL of the following that are ways to clear a check through the U.S. banking system:
a. through a Federal Reserve Bank
b. through the U.S. Treasury Bank
c. through a bank clearinghouse
d. bank to bank

A, C, and D

The _______________________ made it possible for banks to receive federal charters and provided a basis for national banking laws.
a. Glass Steagall Act
b. National Banking Act
c. Garn-Saint Germain Act
d. Federal Reserve Act

National Banking Act

The _______________________ established the U.S. central banking system and increased the effectiveness of commercial banking in general.
a. Glass Steagall Act
b. National Banking Act
c. Garn-Saint Germain Act
d. Federal Reserve Act

Federal Reserve Act

The item on the liabilities and equity section of a bank's balance sheet that represents the largest proportion of a typical bank's liabilities and stockholders' equity is:
a. deposits
b. stockholders' equity
c. securities
d. federal funds

deposits

The item on the assets side of a bank's balance sheet that represents the largest proportion of bank assets is:
a. deposits
b. stockholders' equity
c. securities
d. loans

loans

__________________ is the process by which individual savings are accumulated in depository institutions and, in turn, lent or invested.
a. Investing
b. Financial intermediation
c. The multiplier effect
d. Lending
e. none of the above

Financial intermediation

__________________ accept savings from individuals and then lend these pooled savings to businesses, governments, and individuals.
a. Insurance companies
b. Commercial finance companies
c. Depository institutions
d. Investment banks
e. none of the above

Depository institutions

______________ accept savings from individuals and then lend these pooled savings to businesses, governments, and individuals.
a. Insurance companies
b. Commercial finance companies
c. Government institutions
d. Investment banks
e. none of the above

none of the above

______________ collect premiums on insurance policies and employee/employer contributions from pension fund participants and provide retirement benefits and insurance against major financial losses.
a. Banks
b. Contractual savings organizations
c. Investm

Contractual savings organizations

________________ collect premiums on insurance policies and employee/employer contributions from pension fund participants and provide retirement benefits and insurance against major financial losses.
a. Banks
b. Finance companies
c. Investment banking fi

None of the above

______________ are the two important forms of contractual savings organizations.
a. Insurance companies and pension funds
b. Banks and insurance companies
c. Investment banks and pension funds
d. Pension funds and brokerage firms
e. none of the above

Insurance companies and pension funds

_________________ are the two important forms of contractual savings organizations.
a. Insurance companies and brokerage firms
b. Banks and insurance companies
c. Investment banks and pension funds
d. Pension funds and brokerage firms
e. none of the above

none of the above

_____________ accept and invest individual savings and also facilitate the sale and transfer of securities between investors.
a. Securities firms
b. Pension funds
c. Asset management companies
d. none of the above

Securities firms

Investment companies (mutual funds), investment banking firms, and brokerage firms are the primary types of ____________.
a. banks
b. securities firms
c. pension funds
d. finance companies
e. none of the above

securities firms

____________ provide loans directly to consumers and businesses and help borrowers obtain mortgage loans on real property.
a. Banks
b. Securities firms
c. Pension funds
d. Finance firms
e. none of the above

Finance firms

____________ are non-commercial bank depository institutions that include savings banks and credit unions, which accumulate individual savings and lend primarily to other individuals.
a. Thrift institutions
b. Securities firms
c. Pension funds
d. Finance

Thrift institutions

_____________ are non-commercial bank depository institutions that include savings banks and credit unions, which accumulate individual savings and lend primarily to other individuals.
a. Banks
b. Securities firms
c. Pension funds
d. Finance companies
e.

none of the above

____________ accept the savings of individuals and lend pooled savings to individuals primarily in the form of mortgage loans and operate almost entirely in New England , New York, and New Jersey, with most of their assets continuing to be invested in mor

Savings banks

____________ are cooperative nonprofit organizations that exist primarily to provide member depositors with consumer credit, including the financing of automobiles and the purchase of homes, and derive their funds almost entirely from the savings of their

Credit unions

. If $5,000 is borrowed on a discount basis and the rate is 10 percent, the actual annual percentage interest rate on this loan would be: (Pick the closest answer.)
a. 10%
b. 10.1%
c. 11%
d. 11.1%

11.1%

______________ provide loans directly to consumers and businesses or aid individuals in obtaining financing of durable goods and homes, whereas ______________ help individuals obtain mortgage loans on homes and other real property by bringing together bor

finance companies, mortgage banking firms

The Equity Capital Ratio for a bank with equity capital of $3 million and total assets of $50 million would be: (Pick the closest answer.)
a. 3%
b. 6%
c. 2.83%
d. 5.66%

6%

Checks may be cleared by:
a. the Federal Reserve
b. banks in the banking system
c. both a and b
d. neither a nor b

both a and b

If $8,500 is borrowed on a discount basis and the rate is 6 percent, the actual annual percentage interest rate on this loan would be: (Pick the closest answer.)
a. 6.04%
b. 6.4%
c. 5.9%
d. 6.0%

6.4%

If $6,800 is borrowed for one year at a standard interest rate of 5 percent per year, at the end of the year the borrower would repay a total of to the lender. (Pick the closest answer.)
a. $7,140
b. $340
c. $6,460
d. $6,800

$7,140

If $6,800 is borrowed for one year and at the end of the year the borrower repays $7,140 to the lender, the standard annual interest rate paid was: (Pick the closest answer.)
a. 7.1%
b. 4.8%
c. 3.4%
d. 5.0%

5.0% (7140 - 6800=340. 340 divided by 6800= 5%)

if $6800 is borrowed for one year at a standard interest rate of 5 percent per year, at the end of the year the borrower would repay _____ in interest to the lender
a. $7,140
b. $340
c. $6,460
d. $6,800

$340

When market interest rates decrease, debt instruments (bonds) in value.
a. decrease
b. increase
c. stay the same
d. there is no relationship between market interest rates and the value of debt instruments

increase

If $12,500 is borrowed for one year at a standard interest rate of 4.2 percent per year, at the end of the year
the borrower would repay a total of
a. $52.50
b. $12,552.50
c. $13,025.00
d. $17,750.00

$13,025.00

If $45,000 is borrowed for one year at a standard interest rate of 4.25 percent per year, at the end of the year the borrower would repay in interest to the lender. (Pick the closest answer.)
a. $1,800
b. $191.50
c. $1,912.50
d. $19,125

$1,912.50 (45000 x 0.0425 = 1912

If $5,200 is deposited today in a bank for one year at a standard interest rate of 3.15 percent per year, at the end of the year the depositor would receive in interest from the bank. (Pick the closest answer.)
a. $161.20
b. $166.40
c. $165.92
d. $163.80

$163.80 (5200 x 0,0315 = 163.80)

If you received $7,990 today on a discount loan and had to repay $8,500 one year later, the actual annual percentage interest rate on this loan would be: (Pick the closest answer.)
a. 6.04%
b. 6.4%
c. 5.9%
d. 6.0%

6.4% (8500-7990=510. 510 divided by 7990=6.4)

The risk associated with changing market interest rates on the value of underlying debt instruments is
a. interest rate risk
b. credit (default) risk
c. liquidity risk
d. capital adequacy risk
e. inflation risk

interest rate risk

The likelihood that a bank will be unable to meet its depositor withdrawal demands and/or other liabilities when they are due is
a. interest rate risk
b. credit (default) risk
c. liquidity risk
d. capital adequacy risk
e. inflation risk

liquidity risk

A depository institution that accepts deposits, issues checking-writing accounts, and makes loans to businesses and individuals is called a (n)
a. mutual fund
b. investment bank
c. commercial bank
d. pension fund

commercial bank

Under the authority of the Federal Reserve Act of 1913:
a. member banks were required to purchase capital stock in the Federal Reserve Banks of their district
b. member banks may not borrow from the Fed
c. a formal open-market committee arrangement was es

member banks were required to purchase capital stock in the Federal Reserve Banks of their district

The primary responsibility of the Federal Reserve System is to:
a. issue currency to member banks
b. regulate the growth of the money supply
c. serve as a fiscal agent for the U.S. government
d. regulate and conduct bank examinations

regulate the growth of the money supply

Each member of the Fed Board of Governors is appointed for a term of:
a. 8 years
b. 12 years
c. 14 years
d. none of the above

14 years

One of the major weaknesses of the banking system before the Federal Reserve System was set up was:
a. the arrangement for holding reserves
b. the lack of a deposit insurance system
c. a lack of currency and coin
d. an inadequate supply of government bond

the arrangement for holding reserves

Before the Federal Reserve System was created, a large part of the reserves of commercial banks was:
a. in the form of state and federal government bonds
b. deposited with the United States Treasury
c. held as deposits with large city banks
d. held as cas

held as deposits with large city banks

The United States created its system of central banking:
a. earlier than such banks were established in other industrial nations
b. later than such banks were established in other industrial nations
c. to facilitate branch banking
d. to facilitate interna

later than such banks were established in other industrial nations

Member banks of the Federal Reserve System:
a. must maintain all reserves with their Federal Reserve Bank
b. may include deposits held at large city banks as legal reserves
c. maintain levels of reserves based on the size of the city in which they are loc

are permitted to count vault cash as part of their reserves

Under the Federal Reserve Act of 1913, the number of Federal Reserve districts established is: a. 8
b. 10
c. 12
d. 25

12

Which of the following statements is false? The discount rate is
a. an instrument of monetary policy
b. frequently used as a tool of fiscal policy
c. regarded as a fine-tuning mechanism
d. all the above are true

frequently used as a tool of fiscal policy

For which of the following are member banks prohibited from borrowing at the Fed's discount window?
a. funds to meet reserve requirements
b. funds to meet depositor withdrawal demands
c. to meet business loan demands
d. all the above are permitted
e. none

all the above are permitted

The discount rate is:
a. the rate charged a bank's best customers
b. the rate paid by large business with good credit
c. the rate a bank must pay to borrow from the Fed
d. none of the above

the rate a bank must pay to borrow from the Fed

The Fed Board of Governors:
a. is elected by the member banks
b. is appointed by the Senate
c. has seven members appointed for 14-year terms
d. has seven members appointed for a term of 12 years

has seven members appointed for 14-year terms

The Federal Reserve Banks are owned by:
a. commercial banks
b. the U.S. Treasury
c. investment banks
d. member banks of the Federal Reserve System

member banks of the Federal Reserve System

The Federal Reserve System's primary method for carrying out monetary policies is:
a. by the issuance of Federal Reserve notes
b. through reserve requirements
c. by setting the discount rates on loans to depository institutions
d. through open market oper

through open market operations

All Federal Reserve Banks have:
a. check clearance facilities
b. branch banks
c. directors who are elected for 14-year terms 3 year terms
d. directors who are appointed by the President of the United States

check clearance facilities

Bank holding companies are examined by:
a. the Comptroller of the Currency
b. the FDIC
c. the Federal Reserve
d. internal auditors only

the Federal Reserve

The Federal Open Market Committee:
a. is comprised of members of the Federal Reserve board and representatives of all Federal Reserve Banks
b. came into being at the time the Federal Reserve System was created
c. is made up of the presidents of the 12 Fed

was created under a provision of the Banking Act of 1935

The accommodative activities of the Federal Reserve System are:
a. clearing checks
b. meeting the credit needs of individuals and institutions
c. supporting depository institutions
d. all of the above

all of the above

The purpose of Regulation Z is to:
a. make consumers aware of the costs of alternative forms of credit
b. prohibit garnishment
c. encourage depository institutions to help meet the credit needs of their communities for housing and other
purposes
d. regula

make consumers aware of the costs of alternative forms of credit

The Truth in Lending Act:
Truth in Lending
a. prohibits discrimination
in the granting of credit on the basis of sex, race, color, and religion
b. limits liability on lost or stolen credit cards
c. prohibits unfair or deceptive acts or practices on the pa

limits liability on lost or stolen credit cards

The dynamic actions of the Federal Reserve System:
a. contribute to the smooth everyday functioning of the economy
b. are designed to meet the credit needs of individuals and institutions
c. support depositories and other institutions
d. stimulate or repr

stimulate or repress the level of prices or economic activity

The Federal Open Market Committee:
a. is made up of the presidents of the 12 Federal Reserve Banks
b. consists of the seven members of the Board of Governors of the Fed, plus five presidents of Reserve Banks
c. is appointed by the Chairman of the Federal

consists of the seven members of the Board of Governors of the Fed, plus five presidents of Reserve Banks

The payment mechanism of the Reserve Bank includes:
a. processing and clearing checks
b. issuing currency and coins
c. electronic forms of payment
d. all the above

all the above

The National Banking Acts of 1863 and 1864 were:
a. totally eliminated under the Federal Reserve Act of 1913
b. were modified to permit greater flexibility of operations under the Federal Reserve Act of 1913
c. were unaffected by the Federal Reserve Act o

were modified to permit greater flexibility of operations under the Federal Reserve Act of 1913

The Board of Governors of the Federal Reserve System:
a. consists of 7 appointed members
b. sets reserve requirements
c. approves discount rates as part of monetary policy
d. all the above
e. none of the above

all the above

The seven-member board of the Federal Reserve that sets monetary policy is called
a. the Federal Reserve Open Market Committee
b. the Federal Reserve Board of Governors
c. the Federal Reserve Advisory Committee
d. none of the above

the Federal Reserve Board of Governors

State-chartered banks:
a. automatically receive membership in the Federal Reserve System
b. are prohibited from membership in the Federal Reserve System
c. may be permitted to join the Federal Reserve system, given a satisfactory financial condition
d. no

may be permitted to join the Federal Reserve system, given a satisfactory financial condition

Members of the Federal Reserve System may include:
a. commercial banks with a national charter
b. credit unions
c. savings and loan institutions
d. all the above
e. none of the above

commercial banks with a national charter

The chairman of the Federal Reserve System:
a. is appointed by the Secretary of the Treasury
b. serves a life term maximum 14 year term
c. is the president of the New York Federal Reserve Bank
d. none of the above

none of the above

Three essential needs of a well-operating financial system include all of the following EXCEPT:
a. an efficient national payments system
b. an elastic or flexible money supply
c. a bank insurance system
d. a lending/borrowing mechanism

a bank insurance system

Which of the following is not a tool used by the Fed to implement its monetary policy?
a. changing reserve requirements
b. changing the prime rate
c. open market operations
d. all of the above are tools the Fed uses

changing the prime rate

One significant feature of DIDMCA was that it:
a. expanded the ability of the Fed to influence unemployment rates
b. expanded Fed control over the reserve requirements of non-member banks
c. created the FDIC
d. none of the above

expanded Fed control over the reserve requirements of non-member banks

In recent years:
a. the discount rate was lower than the prime rate
b. the discount rate was higher than the prime rate
c. the discount rate was unrelated to the prime rate
d. none of the above

the discount rate was lower than the prime rate

Federal Reserve actions that offset unexpected monetary developments and contribute to the smooth everyday functioning of the economy are called
a. defensive actions
b. dynamic actions
c. accommodative actions
d. none of the above

defensive actions

The percentage of deposits that must be held as reserves is called
a. the bank reserve percentage
b. the required reserve ratio
c. the excess reserve ratio
d. the fractional reserve percentage

the required reserve ratio

The interest rate that a bank must pay to borrow from its regional federal reserve bank is called
a. the Secondary Rate
b. the Prime Rate
c. the Discount Rate
d. the Capital Rate

the Discount Rate

The most frequently used monetary policy instrument used by the Fed is
a. open market operations
b. changing the discount rate
c. changing the reserve requirement
d. none of the above

open market operations

________________ has become the most important and effective means of monetary and credit control.
a. Changing reserve requirements
b. Changing the discount rate
c. Open market operations
d. Changing the Treasury bill rate
e. none of the above

Open market operations

The least frequently used monetary policy instrument used by the Fed is
a. open market operations
b. changing the discount rate
c. changing the reserve requirement
d. none of the above

changing the reserve requirement

__________________________ sets up a procedure for the prompt correction of errors on a revolving charge account and prevents damage to credit ratings while a dispute is being settled.
a. Truth in Lending Act
b. Equal Credit Opportunity Act
c. Federal Tra

Fair Credit Billing Act

The ____________________________ conducts monetary policy for the European countries that adopted the euro as their common currency.
a. European Central Bank
b. Switzerland Central Bank
c. London Central Bank
d. British National Bank

Switzerland Central Bank

The ___________________ conducts monetary policy for the European countries that have adopted the euro as their common currency.
a. Bank of England
b. European Central Bank
c. Bank of Europe
d. Bank of Switzerland
e. none of the above

Bank of Switzerland

Currently, the Chairman of the Federal Reserve is ________________________.
a. Janet Yellen
b. Alan Greenspan
c. Ben Bernanke
d. Jerome Powell

Jerome Powell

The five components of the Federal Reserve System include:
a. Member banks, Federal Reserve District Banks, Board of Governors, Federal Open Market Committee, Monetary Committees.
b. Nonmember banks, Federal Reserve District Banks, Board of Governors, Fed

Member banks, Federal Reserve District Banks, Board of Governors, Federal Open Market Committee, Advisory committees.

Although it enjoys substantial independence in its operations, the appointive power of the president and the ability of Congress to alter its structure make the ______________ a dependent political structure while being one of the most powerful monetary o

Board of Governors (BOG)

The Board of Governors of the Federal Reserve establishes monetary policy by:
a. setting reserve requirements, altering the prime rate, and through federal open market operations.
b. setting reserve requirements, altering the discount rate, and through fe

setting reserve requirements, altering the discount rate, and through federal open market operations.

Which of the following is not a method by which the Federal Reserve establishes monetary policy?
a. setting reserve requirements
b. altering the discount rate
c. through federal open market operations
d. setting bank profitability ratios
e. none of the ab

setting bank profitability ratios

Which of the following is a method by which the Federal Reserve establishes monetary policy?
a. setting reserve requirements
b. altering the discount rate
c. through federal open market operations
d. all of the above methods are used
e. none of the above

all of the above methods are used

History generally supports the contention that under the guidance of Paul Volcker, a (n) ____________ Fed policy brought down the double-digit inflation of the 1970s and the early 1980s, and the Federal Open Market Committee consistently responded to his

restrictive

History generally supports the contention that under the guidance of Paul Volcker, a (n) ____________ Fed policy brought down the double-digit inflation of the 1970s and the early 1980s, and the Federal Open Market Committee consistently responded to his

none of the above

Today the responsibilities of the Fed may be described as:
a. those relating to monetary policy, to supervision and regulation, and to services provided for depository institutions and the government.
b. those relating to fiscal policy, to supervision and

those relating to monetary policy, to supervision and regulation, and to services provided for depository institutions and the government.

The banking system of the United States is a(n) ___________ reserve system because banks are required by the Fed to hold reserves equal to a specified percentage of their deposits.
a. required
b. fractional
c. excess
d. multiplicative
e. none of the above

fractional

The __________________, passed in 1968, requires the clear explanation of consumer credit costs and garnishment procedures (taking wages or property by legal means) and prohibits overly high-priced credit transactions.
a. Consumer Credit Expansion Act
b.

Consumer Credit Protection Act

Which of the following statements is correct?
a. Open-market operations always lead to an immediate increase in the volume of lending; this is especially true when bonds are sold to restrict deposit growth.
b. Open-market operations don't always lead to a

Open-market operations always lead to an immediate change in the volume of deposits; this is especially true deposit growth.

A (n) ____________________ is necessary for the monetary system to carry out the financial function of transferring money, which in turn is a requirement for an effective financial system.
a. internet banking system
b. electronic data transfer system
c. w

efficient payments mechanism

The two routes of check clearance include the _____________ settlement, in which the transaction takes place entirely within a single Federal Reserve district, and the _____________ settlement, in which there are relationships between banks of two Federal

intradistrict, interdistrict

Which of the following statements is correct about the Fed's open-market operations? To restrict deposit growth
a. the Fed should sell bonds which reduces the money supply and reduces lending.
b. the Fed should sell bonds which increases the money supply

the Fed should sell bonds which reduces the money supply and reduces lending.

A nontraditional monetary policy approach to stimulate economic activity when conventional monetary policy methods are ineffective is called
a. quality control
b. quantitative easing
c. quantitative tightening
d. open-market operations

quantitative easing

Which of the following statements is correct about the Fed's open-market operations? To encourage deposit growth
a. the Fed should sell bonds which the money supply and reduces lending.
b. the Fed should sell bonds which the money supply and increases len

the Fed should buy bonds which increases the money supply and increases lending.