A Financial Intermediary:
A) Is an agency that guarantees a loan.
B) Is involved in direct finance.
C) Would be used in indirect finance
D) None of the above.
2
John obtains a home improvement loan from New Town Bank:
A) The loan is John's asset and the bank's liability.
B) The loan is John's asset, but the liability belongs to the bank's depositors.
C) The loan is John's liability and an asset for New Town Bank.
D) The loan is John's liability and a liability of the bank until Tom pays it off.
3
The U.S. Government finances its budget deficits:
A) Using indirect finance.
B) By using a financial intermediary.
C) Using direct finance.
D) By printing money.
4
Economic research shows:
A) There is a strong inverse correlation between financial market development and economic growth.
B) There is positive correlation between financial market development and economic growth, but it is weak, around 0.25.
C) There is a relatively strong positive correlation between financial market development and economic growth.
D) There isn't any correlation between financial market development and economic growth.
5
The loans made between borrowers and lenders:
A) Are liabilities to the lenders and assets to the borrowers since the borrower obtains the funds.
B) Are assets to the lenders and liabilities of the borrowers since the promises are made to the lenders.
C) Are not part of either's assets or liabilities until the loans are repaid.
D) None of the above.
6
The process of financial intermediation:
A) Creates a net cost to an economy but is unavoidable.
B) Is used primarily in underdeveloped countries.
C) Is always used when a borrower needs to obtain funds.
D) Increases the economy's ability to produce.
7
Which of the following statements is incorrect:
A) Banks are financial intermediaries.
B) A savings and loan is a financial intermediary.
C) All financial intermediaries are insurance companies.
D) Financial intermediaries increase the efficiency of the economy..
8
Which of the following is NOT a financial instrument:
A) A share of General Motors stock.
B) A tuition bill.
C) A U.S. Treasury Bond.
D) A home insurance policy.
E) A life insurance policy.
9
Tom purchases automobile insurance; the insurance contract is:
A) A form of money.
B) A financial instrument.
C) A transfer of risk from the insurance company to Tom.
D) None of the above.
10
Which of the following statements is incorrect:
A) When a risk is easy to predict, are created to transfer these risks.
B) are created to transfer risks that are relatively difficult to predict.
C) do not require certainty of an event to be able to transfer risk.
D) do not eliminate the risk from uncertainty, they transfer it.
11
The shares of McDonald Corporation stock are examples of:
A) A standardized financial instrument.
B) A standardized financial liability instrument.
C) A non-standardized financial instrument since their prices can differ over time.
D) A means of payment.
12
Asymmetric Information in financial markets is a potential problem usually resulting from:
A) People basically being dishonest.
B) The lenders having more information than borrower.
C) The borrowers having more information than the lenders, and not disclosing this information.
D) The uncertainty of Federal Reserve monetary policy.
13
Financial markets enable the transfer of risk by:
A) Not allowing risk averse investors access to U.S. Treasury bond markets.
B) Making sure that higher default risk is offset by greater liquidity.
C) Allowing individuals and firms less willing to bear risk to transfer risk to other individuals and firms more willing to bear risk.
D) Enabling even unsophisticated investors to purchase highly complex
14
A derivative instrument:
A) Gets its value and payoff from the performance of the underlying instrument.
B) Is a high risk financial instrument used by highly risk averse savers.
C) Comes into existence after the underlying instrument is in default.
D) Should be purchased prior to purchasing the underlying security.
15
Considering the value of a financial instrument, the longer the time until the promised payment is made:
A) The less valuable is the promise to make it since time is valuable.
B) The greater the risk, therefore the promise has greater value.
C) The more valuable is the promise to make it.
D) None of the above.
16
Commissions paid to an insurance broker are an example of:
A) Risk transfer.
B) Information asymmetry.
C) Transaction costs.
D) All of the above.
17
Small savers would use financial intermediaries rather than lend directly to borrowers because:
A) Financial Intermediaries will offer the savers higher interest rates than the savers could obtain directly from borrowers.
B) Savers prefer to share risk.
C) Borrowers don't want to deal with small savers
D) The liquidity is lower with financial intermediaries but the return is higher.
18
A Market Order:
A) Is an order placed requiring the broker to buy only at a price specified by the buyer.
B) Places a minimum on the price a buyer will have to pay.
C) Executes an exchange at the most favorable price available.
D) Puts a maximum on the order a seller will accept
ANSWER
C.C.C.C.B.C.B.B.A.C.A.A.C.B.C.
Saturday, November 14, 2009
Chapter 2
Which of the following would be considered a characteristic of money:
A) It is a store of value.
B) It pays a higher return than most assets.
C) It is in fixed supply.
D) It is legal tender everywhere in the world.
2
A society without any money:
A) Would likely find people specializing more than they do now.
B) Would find people doing everything for themselves.
C) Would have to rely strictly on barter.
D) Would be more productive since people would be more self-sufficient.
3
Which best describes money as a means of payment:
A) Money requires at least two transactions to obtain the double coincidence of wants.
B) A double coincidence of wants with money never occurs
C) Money provides an immediate double coincidence of wants.
D) To obtain a double coincidence of wants without money is impossible.
4
How many prices would there be in a barter economy with 8 goods?
A) 40
B) 56
C) 64
D) 28
E) None of the above
5
While money is an asset not all assets are money because:
A) Money works as a means of payment.
B) Only money stores value.
C) Only money is a good asset to hold during times of inflation.
D) For something to be money it must be legal tender.
6
In comparing money to a share of Microsoft stock held by an individual we can say:
A) The stock is an asset but money is not.
B) Both are stores of value.
C) Money is an asset but the stock is a liability of the individual
D) The stock is a store of value but the money isn't.
7
Which of the following could be used as commodity money:
A) $20 dollar bills.
B) Gold coins.
C) Checking deposits.
D) All of the above.
8
Checks are:
A) A means of payment.
B) Money.
C) Not a promise of any kind.
D) Not acceptable by the U.S. Government for payment of taxes.
9
Money aggregates can best be defined as:
A) The amount of money the Federal Reserve is targeting for the economy.
B) The amount of money measured at a particular point in time.
C) The average amount of money available to the economy over a year.
D) The amount of U.S. currency the Bureau of Printing and Engraving has produced.
10
The money aggregate M1 does not include:
A) Currency in the hands of the public.
B) Traveler's checks that have been issued.
C) Currency in the vaults of commercial banks.
D) Demand deposits at commercial banks.
11
The money aggregate M2 includes each of the following EXCEPT:
A) Small denomination time deposits.
B) Retail Money Market Mutual fund shares
C) U.S. Treasury bills..
D) M1
12
Recently M2 and M3 have become:
A) A less useful measure of the relationship between the money supply and inflation.
B) The money supply the Federal Reserve pays the most attention to in conducting monetary policy.
C) Less useful than M1 due to new substitutes for standard checking account.
D) The slowest growing of all of the money aggregates.
13
The Consumer Price Index (CPI):
A) Tends to overstate inflation due to substitution bias.
B) Tends to understate actual inflation.
C) Is more accurate than the GDP deflator.
D) Is based on basket of goods that changes monthly with consumer expenditures.
14
Economists study the link between money and inflation because:
A) Research shows that there is some inverse correlation between the supply of money and inflation.
B) Economists believe that inflation in the 3-5% range is healthy for an economy.
C) As prices increase money becomes more valuable.
D) Research shows that there is some direct correlation between the supply of money and inflation.
15
Which of the following statements is correct:
A) If you can buy the same goods this year as you bought last year with less money the money supply decreased.
B) To purchase the same goods today that were purchased one year ago requires more money, there must have been inflation
C) To purchase the same goods today as one year ago requires less money, the money supply must have increased.
D) To purchase the same goods today that were purchased one year ago requires the same amount of money, there must have been inflation.
16
An individual who stores their wealth in stamps rather than money will find:
A) They will suffer larger real losses during periods of high inflation.
B) They have far more liquidity than most savers.
C) Will incur higher transaction costs when they ultimately make purchases.
D) All of the above.
17
An decrease in the number of credit cards issued:
A) Has the same impact on the economy as the Federal Reserve supplying less money.
B) Reduces the money supply since credit cards act like money.
C) Would probably lower the amount in M3 but likely not M1.
D) Decreases the overall wealth of the country.
E) None of the above.
18
Tom uses a credit card to purchase a new pair of jeans, Tom is:
A) Using money to buy his jeans since credit cards are money.
B) Using a form of money included in M3.
C) Is using an electronic payment form of money that is in the category of checking deposits.
D) Creating a liability that he will ultimately have to pay with money.
Answer
A.C.C.D.A.B.B.A.B.C.B.A.D.B.C.E.D
A) It is a store of value.
B) It pays a higher return than most assets.
C) It is in fixed supply.
D) It is legal tender everywhere in the world.
2
A society without any money:
A) Would likely find people specializing more than they do now.
B) Would find people doing everything for themselves.
C) Would have to rely strictly on barter.
D) Would be more productive since people would be more self-sufficient.
3
Which best describes money as a means of payment:
A) Money requires at least two transactions to obtain the double coincidence of wants.
B) A double coincidence of wants with money never occurs
C) Money provides an immediate double coincidence of wants.
D) To obtain a double coincidence of wants without money is impossible.
4
How many prices would there be in a barter economy with 8 goods?
A) 40
B) 56
C) 64
D) 28
E) None of the above
5
While money is an asset not all assets are money because:
A) Money works as a means of payment.
B) Only money stores value.
C) Only money is a good asset to hold during times of inflation.
D) For something to be money it must be legal tender.
6
In comparing money to a share of Microsoft stock held by an individual we can say:
A) The stock is an asset but money is not.
B) Both are stores of value.
C) Money is an asset but the stock is a liability of the individual
D) The stock is a store of value but the money isn't.
7
Which of the following could be used as commodity money:
A) $20 dollar bills.
B) Gold coins.
C) Checking deposits.
D) All of the above.
8
Checks are:
A) A means of payment.
B) Money.
C) Not a promise of any kind.
D) Not acceptable by the U.S. Government for payment of taxes.
9
Money aggregates can best be defined as:
A) The amount of money the Federal Reserve is targeting for the economy.
B) The amount of money measured at a particular point in time.
C) The average amount of money available to the economy over a year.
D) The amount of U.S. currency the Bureau of Printing and Engraving has produced.
10
The money aggregate M1 does not include:
A) Currency in the hands of the public.
B) Traveler's checks that have been issued.
C) Currency in the vaults of commercial banks.
D) Demand deposits at commercial banks.
11
The money aggregate M2 includes each of the following EXCEPT:
A) Small denomination time deposits.
B) Retail Money Market Mutual fund shares
C) U.S. Treasury bills..
D) M1
12
Recently M2 and M3 have become:
A) A less useful measure of the relationship between the money supply and inflation.
B) The money supply the Federal Reserve pays the most attention to in conducting monetary policy.
C) Less useful than M1 due to new substitutes for standard checking account.
D) The slowest growing of all of the money aggregates.
13
The Consumer Price Index (CPI):
A) Tends to overstate inflation due to substitution bias.
B) Tends to understate actual inflation.
C) Is more accurate than the GDP deflator.
D) Is based on basket of goods that changes monthly with consumer expenditures.
14
Economists study the link between money and inflation because:
A) Research shows that there is some inverse correlation between the supply of money and inflation.
B) Economists believe that inflation in the 3-5% range is healthy for an economy.
C) As prices increase money becomes more valuable.
D) Research shows that there is some direct correlation between the supply of money and inflation.
15
Which of the following statements is correct:
A) If you can buy the same goods this year as you bought last year with less money the money supply decreased.
B) To purchase the same goods today that were purchased one year ago requires more money, there must have been inflation
C) To purchase the same goods today as one year ago requires less money, the money supply must have increased.
D) To purchase the same goods today that were purchased one year ago requires the same amount of money, there must have been inflation.
16
An individual who stores their wealth in stamps rather than money will find:
A) They will suffer larger real losses during periods of high inflation.
B) They have far more liquidity than most savers.
C) Will incur higher transaction costs when they ultimately make purchases.
D) All of the above.
17
An decrease in the number of credit cards issued:
A) Has the same impact on the economy as the Federal Reserve supplying less money.
B) Reduces the money supply since credit cards act like money.
C) Would probably lower the amount in M3 but likely not M1.
D) Decreases the overall wealth of the country.
E) None of the above.
18
Tom uses a credit card to purchase a new pair of jeans, Tom is:
A) Using money to buy his jeans since credit cards are money.
B) Using a form of money included in M3.
C) Is using an electronic payment form of money that is in the category of checking deposits.
D) Creating a liability that he will ultimately have to pay with money.
Answer
A.C.C.D.A.B.B.A.B.C.B.A.D.B.C.E.D
MGT411 Money and Banking
Which item below is not one of the five parts of the Financial System?
A) Money.
B) Central banks.
C) Financial Markets
D) Financial Institutions.
E) Credit cards.
2
The five core principles of Money and Banking include each of the following except?
A) All people act rationally.
B) Time has value.
C) Information is the basis for decisions.
D) Risk requires compensation.
E) Markets set prices and allocate resources.
3
The statement "risk requires compensation" implies:
A) People only accept risk when they absolutely have to.
B) People will only accept risk when they are rewarded for doing so.
C) People do not take risk.
D) People will pay to avoid risk.
E) b and d
4
Banks usually offer lower rates of interest to people willing to keep their funds in the bank for a short time because:
A) The banks really do not want these people as customers.
B) Banks really do not want a lot of people coming into the bank.
C) Bankers realize time has value and people need to be compensated if they are to keep their money in the bank longer.
D) All of the above
5
In the United States control of the money supply is given to:
A) The President.
B) Congress.
C) The Secretary of the Treasury.
D) The Federal Reserve.
E) None of the above
6
Which of the following statements best describes financial markets?
A) Financial markets raise the cost and increase the speed of buying and selling financial instruments since people are earning fees for these transactions.
B) Financial markets increase the speed of buying and selling, and they also decrease the cost.
C) Financial markets are a good example of unregulated markets.
D) b and c
7
The New York Stock Exchange is an example of:
A) A financial instrument.
B) A central bank.
C) A financial market
D) All of the above
8
When an individual obtains a student loan and makes all of the regular monthly payments, the sum of the payments made will exceed the initial amount of the loan. This is due primarily to the core principle:
A) Most people do not pay back student loans.
B) Time has value
C) Markets are sometimes inefficient at allocating resources.
D) Information is the basis for decisions.
E) Stability improves welfare.
9
Monetary policy is best described as:
A) Attempts to keep inflation constant.
B) Determining the denominations and supply of a country's currency.
C) One of the most important functions of Congress.
D) Attempts to keep inflation low and stable and growth high and stable.
10
The core principles of money and banking would imply that if more students didn't pay back their student loans:
A) Student loans may become more difficult to obtain.
B) The interest rate on student loans would increase.
C) Fewer people may attend college.
D) All of the above.
Answer
E.A.E.C.D.B.C.B.D.D
A) Money.
B) Central banks.
C) Financial Markets
D) Financial Institutions.
E) Credit cards.
2
The five core principles of Money and Banking include each of the following except?
A) All people act rationally.
B) Time has value.
C) Information is the basis for decisions.
D) Risk requires compensation.
E) Markets set prices and allocate resources.
3
The statement "risk requires compensation" implies:
A) People only accept risk when they absolutely have to.
B) People will only accept risk when they are rewarded for doing so.
C) People do not take risk.
D) People will pay to avoid risk.
E) b and d
4
Banks usually offer lower rates of interest to people willing to keep their funds in the bank for a short time because:
A) The banks really do not want these people as customers.
B) Banks really do not want a lot of people coming into the bank.
C) Bankers realize time has value and people need to be compensated if they are to keep their money in the bank longer.
D) All of the above
5
In the United States control of the money supply is given to:
A) The President.
B) Congress.
C) The Secretary of the Treasury.
D) The Federal Reserve.
E) None of the above
6
Which of the following statements best describes financial markets?
A) Financial markets raise the cost and increase the speed of buying and selling financial instruments since people are earning fees for these transactions.
B) Financial markets increase the speed of buying and selling, and they also decrease the cost.
C) Financial markets are a good example of unregulated markets.
D) b and c
7
The New York Stock Exchange is an example of:
A) A financial instrument.
B) A central bank.
C) A financial market
D) All of the above
8
When an individual obtains a student loan and makes all of the regular monthly payments, the sum of the payments made will exceed the initial amount of the loan. This is due primarily to the core principle:
A) Most people do not pay back student loans.
B) Time has value
C) Markets are sometimes inefficient at allocating resources.
D) Information is the basis for decisions.
E) Stability improves welfare.
9
Monetary policy is best described as:
A) Attempts to keep inflation constant.
B) Determining the denominations and supply of a country's currency.
C) One of the most important functions of Congress.
D) Attempts to keep inflation low and stable and growth high and stable.
10
The core principles of money and banking would imply that if more students didn't pay back their student loans:
A) Student loans may become more difficult to obtain.
B) The interest rate on student loans would increase.
C) Fewer people may attend college.
D) All of the above.
Answer
E.A.E.C.D.B.C.B.D.D
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