Deck 16: The Financial System

Question 1

Funds can be transferred between savers and users in two ways:

A)individually and collectively
B)in person and electronically
C)directly and indirectly
D)free and with user charges

Answer 1

C

Question 2

_____ are short-term debt securities issued by governments,financial institutions,and corporations.

A)Stock
B)Bonds
C)Checks
D)Money market instruments

Answer 2

D

Question 3

A ______ is a time deposit at a financial institution,such as a commercial bank,savings bank,or credit union.

A)commercial paper
B)treasury bill
C)certificate of deposit
D)bond

Answer 3

C

Question 4

The process by which money flows from savers to users is called the

A)net worth
B)gross worth
C)financial system
D)debt factor

Question 5

Two types of municipal bonds exist.What are they?

A)Government bonds and mortgage pass-through security bonds
B)Corporate bonds and general obligation bonds
C)Revenue bonds and government bonds
D)Revenue bonds and general obligation bonds

Question 6

The Roxy Bank of Englewood pools customer deposits and uses the funds to make loans to businesses and households.These businesses and households,now known as the borrowers,pay the bank interest,and the bank,in turn,pays depositors interest for the use of their money.Which of the following would best describe the process used by the bank?

A)Foreign exchange
B)Direct transfer
C)Indirect transfer
D)Barter system

Question 7

Which of these are short-term securities issued by the U.S.Treasury and backed by the full faith and credit of the U.S.government?

A)Treasury bills
B)CDs
C)Commercial paper
D)Bonds

Question 8

Amanda buys a money market instrument.It will mature within,at most,

A)10 years
B)2 years
C)1 year
D)6 months

Question 9

The U.S.Department of Treasury sells what type of bonds?

A)Corporate bonds
B)Government bonds
C)Certificate of deposits bonds
D)Municipal bonds

Question 10

One of the most important variables that determine how much a person saves is

A)what country he or she is from
B)the person's gender
C)the person's race
D)the person's age

Question 11

_______,also called financial instruments,represent obligations on the part of the issuers-businesses and governments-to provide the purchasers with expected or stated returns on the funds invested or loaned.

A)FDIC
B)Exchanges
C)The Fed
D)Securities

Question 12

Which of these are creditors (an entity to whom a debt is owed)of a corporation or government body?

A)Commercial paper holders
B)Bondholders
C)Treasury bills holders
D)Certificate of deposit holders

Question 13

All of the following are types of securities EXCEPT

A)money market instruments
B)stock
C)bonds
D)cash

Question 14

If an individual owns 10% of the assets in a particular company,he or she becomes a(n)

A)auditor
B)lender
C)borrower
D)shareholder

Question 15

Which of the following is a net saver in the U.S.financial system?

A)Household
B)Business
C)The government
D)Financial institution

Question 16

Which of these are units of ownership held by shareholders in corporations?

A)Money market instruments
B)Stock
C)Bonds
D)Cash

Question 17

Which of the following is a form of short-term financing sold by corporations,such as Raytheon,that mature from 1 to 270 days from the date of issue?

A)Bonds
B)CDs
C)Treasury bills
D)Commercial paper

Question 18

Treasury bills have a minimum denomination of

A)$100,000
B)$10,000
C)$1,000
D)$100

Question 19

The difference between the value of what you own and what you currently owe is called

A)net worth
B)gross worth
C)net value
D)debt factor

Question 20

A ______ bond is a bond issue whose proceeds will be used to pay for a project that will produce income.

A)government bond
B)corporate bond
C)revenue bond
D)general obligation bonds

Question 21

Which form of stock owner would receive dividend payments first?

A)Convertible securities
B)Common stock
C)Preferred stock
D)Standard stock

Question 22

What feature gives the bondholder or preferred stockholder the right to exchange the bond or preferred stock for a fixed number of shares of common stock?

A)Bond rating
B)Convertible securities
C)Pass-through securities
D)Standard stock

Question 23

Daily trading on the AMEX market is _____ shares.

A)over 10 billion
B)over 2 billion
C)about 500 million
D)less than 100 million

Question 24

Which are the two largest stock markets in the world?

A)New York Stock Exchange; SP 500
B)Tokyo Stock Exchange; New York Stock Exchange
C)Tokyo Stock Exchange; London Stock Exchange
D)New York Stock Exchange; NASDAQ stock market

Question 25

Which of these connect major brokerages and individual traders virtually using the Internet,so that trades can be made directly without going through an intermediary?

A)Open market operations
B)Electronic communications networks
C)Nondepository financial institutions
D)Traditional brick-and-mortar online transactions

Question 26

When a company needs capital to purchase inventory,expand a plant,make major investments,acquire another firm,or pursue other business goals,it may sell a bond or stock issue to the investing public.This is done in the ______ market.

A)primary
B)secondary
C)government
D)labor

Question 27

Other things being equal,as interest rate rises,the price of a bond

A)stays the same
B)will also rise
C)cannot be determined
D)decreases

Question 28

Which of the following is a depository financial institution?

A)Life insurance companies
B)Credit unions
C)Pension funds
D)Mutual funds

Question 29

Which of these is a collection of financial markets in which previously issued securities are traded among investors?

A)The primary market
B)The secondary market
C)The government market
D)The super market

Question 30

Veronica just bought a bond from United Pet Group.This bond is only backed by the financial reputation of the company.What type of bond did Veronica buy?

A)Debenture
B)Secured bond
C)Certificate of deposit
D)Commercial paper

Question 31

Corporate bonds are a diverse group and often vary based on the _____ that backs it.

A)market
B)value
C)collateral
D)company

Question 32

Two factors determine the price of a bond: _____ and _____.

A)risk; interest rate
B)market; risk
C)interest rate; call provision
D)price of other bonds; the company selling the bond

Question 33

Which securities are backed by a pool of mortgage loans purchased from lenders,such as savings banks?

A)Mortgage pass-through
B)Mortgage bond
C)Commercial paper
D)Corporate bond

Question 34

A ______ bond is a bond whose proceeds are to be used to pay for a project that will not produce any income.

A)government bond
B)corporate bond
C)revenue bond
D)general obligation bonds

Question 35

For which type of bonds,interest is exempt from state income taxes?

A)Corporate bonds
B)U)S.Treasury bonds
C)Junk bonds
D)Financial institution bonds

Question 36

______ are loans made to borrowers with poor credit ratings.

A)Low value mortgages
B)Prime mortgages
C)Corporate mortgages
D)Subprime mortgages

Question 37

What provision allows the issuer to redeem the bond before its maturity at a specified price?

A)Bond provision
B)Convertible provision
C)Call provision
D)Redeem provision

Question 38

Bonds with ratings of BBB and above are classified as

A)speculative bonds
B)investment-grade bonds
C)junk bonds
D)convertible bonds

Question 39

The _____ involves the direct trading of exchange-listed stocks off the floor of the exchange (in the case of NYSE-listed stocks)or outside the network (in the case of NASDAQ-listed stocks).

A)American Stock Exchange
B)fourth market
C)secondary market
D)primary market

Question 40

The basic form of corporate ownership is embodied in

A)preferred stock
B)standard stock
C)convertible securities
D)common stock

Question 41

_____ is organized as a not-for-profit cooperative.

A)Commercial bank
B)Credit union
C)Life insurance company
D)Savings bank

Question 42

Which of the following statements concerning the Fed is incorrect?

A)The Fed is the nation's central bank.
B)The Fed acts as the banker's bank.
C)Credit unions and savings banks must belong to the Fed.
D)Virtually,all large commercial banks are Fed members.

Question 43

Francisco made a purchase at his local Walmart.Instead of writing a check,Francisco used a card issued by his bank with a Visa logo on the front.He entered his PIN and the purchase was automatically deducted from his checking account.Francisco used his __________ card.

A)credit
B)debit
C)mortgage
D)point-of-sale

Question 44

A ______ is a nondepository financial institution that has the ability to provide higher returns,albeit with greater risk.

A)yearling
B)blue chip
C)hedge fund
D)mutual fund

Question 45

The ______ order instructs the broker to obtain the best possible price-the highest price when selling and the lowest price when buying.

A)fast
B)stock
C)market
D)limit

Question 46

There are __________ Federal Reserve districts.

A)5
B)8
C)12
D)15

Question 47

M2 includes __________ M1.

A)all of
B)none of
C)some of
D)half of

Question 48

_______ is a nondepository financial institution.

A)Insurance company
B)Savings bank
C)Commercial bank
D)Credit union

Question 49

_________ would invest the greatest percentage of its assets in common stocks and other long-term investments.

A)Commercial bank
B)Pension fund
C)Credit union
D)Property and liability insurance company

Question 50

The rate the Fed charges member banks for short-term loans is called the

A)discount rate
B)margin rate
C)federal funds rate
D)reserve requirement

Question 51

The process used by an insurance company to determine whom to insure and how much to charge is called

A)a premium
B)underwriting
C)an insuring agreement
D)indemnity

Question 52

Savings banks were originally established to make __________ loans.

A)home mortgage
B)business
C)agricultural
D)automobile

Question 53

All of the following are included in M1 EXCEPT

A)money market mutual funds
B)total value of coins
C)checking accounts
D)currency in circulation

Question 54

Which of the following statements is incorrect?

A)The number of commercial banks is declining each year.
B)Commercial banks are the most important financial institution.
C)Commercial banks are prohibited from selling securities or insurance.
D)Banks offer the widest range of services of any financial institution.

Question 55

What type of financial institution raises money from investors by selling shares?

A)Credit union
B)Property and liability insurance company
C)Mutual fund
D)Pension fund

Question 56

Which of the following interest rates does the Federal Reserve actually set?

A)Federal funds rate
B)Discount rate
C)Government bond rate
D)Commercial paper rate

Question 57

If the Fed reduced reserve requirements,

A)banks would have less money to lend businesses and consumers
B)economic growth would decline
C)inflation would decline
D)banks would have more money to lend out

Question 58

Deposit insurance shifts most of the financial risk of bank failures from the depositors to

A)the bank's creditors
B)the bank's stockholders
C)the borrowers
D)the federal agency.

Question 59

Which of the following is not one of the four major policy tools the Fed has for controlling the growth in the supply of money and credit?

A)Reserve requirements
B)Check clearing
C)The discount rate
D)Open market operations

Question 60

A(n)_____ helps underwrite equity and debt (bond)offerings and helps devise and implement financial strategies.

A)investment banker
B)public accountant
C)auditor
D)management accountant

Question 61

When the Fed sells government securities,banks have __________ money to lend and economic growth

A)less; will slow
B)less; will accelerate
C)more; will slow
D)more; will accelerate

Question 62

A local government in Montana issued bonds to the general public to build a community park in the locality.The primary objective of the proposed community park is to enhance the green cover in the locality.Which of the following best describes the bonds issued in this scenario?

A)General obligation bond
B)Secured bond
C)Revenue bond
D)Pass-through bond

Question 63

The vast majority of funds flow through direct transfers.

Question 64

Households are net users of funds,while businesses are net savers.

Question 65

All market participants must keep detailed records of every aspect of every trade.What is this called?

A)Paper trail
B)Audit trail
C)Trade record
D)Prospectus

Question 66

Securities represent obligations on the part of issuers-businesses and governments-to provide purchasers with expected or stated returns on the funds invested or loaned.

Question 67

The Securities and Exchange Commission requires virtually all new public issues of corporate securities to be registered.As part of the registration process for a new security issue,the issuer must prepare a(n)

A)essay
B)prospectus
C)application
D)financial report

Question 68

Operating under severe recessionary conditions,the Federal Reserve System decides to reduce its reserve requirements from the current level of 9% to 7.5%.Which of the following is likely to happen following the Fed's move?

A)The rate of unemployment will double.
B)The rate of growth in the economy will fall drastically.
C)It increases the availability of credit with the commercial banks.
D)Businesses will find it difficult to borrow at cheaper rates of interest.

Question 69

The chairman of the Federal Reserve Board can accelerate economic activity by lowering interest rates.What primary method does the Federal Reserve use to accomplish this?

A)Selling margin requirements
B)Increasing the discount rate
C)Increasing reserve requirements
D)Buying Treasury securities

Question 70

The ___ establishes and updates rules to ensure that member brokers perform their basic functions honestly and fairly.

A)NASD
B)NASDAQ
C)NYSE
D)FDIC

Question 71

Households,businesses,government,financial institutions,and financial markets together form what is known as the financial system.

Question 72

______ regulates both state and federally chartered commercial banks.

A)The Federal Reserve
B)Federal comptroller
C)State banking agencies
D)The FDIC

Question 73

A local government agency of Minnesota issued municipal securities for the purpose of building a community hospital.Austin Hunter Corp)a financial services company,decides to purchase these securities from the government and resell them to the investing public.Which of the following describes the process undertaken by Austin Hunter Corp.?

A)Tombstone
B)Underwriting
C)Limit order
D)Check clearing

Question 74

Federico works as a senior accountant at Martinez Inc.,a multinational technology giant.As a senior accountant at the company,Federico had exclusive access to some of the sensitive financial information of Martinez.It was later found that Federico had sold some of the sensitive information to a rival company for an undisclosed amount.Which of the following describes Federico's activity?

A)Underwriting
B)Insider trading
C)Limit order
D)Check clearing

Question 75

Which of the following actions would have the effect of increasing the supply of money and credit and lowering interest rates?

A)The Fed buys government securities.
B)The Fed raises the margin requirement.
C)The Fed raises the reserve requirement.
D)The Fed raises the discount rate.

Question 76

Remote Inc.,an automobile company,decides to expand its operation abroad by setting up three new manufacturing plants.Since enough funds were not available for this expansion process,Remote decides to list its company on its national stock exchange and issue securities for raising additional capital.The market for Remote's securities can be described as a(n)______ market.

A)secondary
B)insider
C)primary
D)limit order

Question 77

Which of the following U.S.institutions is among the world's 20 largest banks?

A)Citizens Financial Group
B)HSBC North America Holdings
C)JPMorgan Chase
D)Ally Financial

Question 78

Which of the following is defined as the use of material nonpublic information about a company to make investment profits?

A)Underwriting
B)Insider trading
C)Thrift supervision
D)Self-regulation

Question 79

The financial system describes the process by which funds flow from savers to users.

Question 80

Which of the following policy tools does the Fed use most frequently?

A)Open market operations
B)Reserve requirement
C)Margin requirements
D)The discount rate