Deck 15: Understanding Money and Financial Institutions

Question 1

The nation's insurance companies are major suppliers of funds to the U.S.financial system.

Answer 1

True

Question 2

The Federal Deposit Insurance Corporation (FDIC) monitors the banking practices of the institutions that it insures.

Answer 2

True

Question 3

U.S.banks provide better customer service and have access to more sources of funding than local banks in many countries.

Answer 3

True

Question 4

Depository financial institutions include commercial banks, thrift institutions, and credit unions.

Question 5

Durability and simplicity are two important characteristics of money.

Question 6

The Federal Deposit Insurance Corporation (FDIC) is an independent, quasi-public corporation backed by the full faith and credit of the United States government.

Question 7

Consumer finance companies make loans to individuals; commercial finance companies make loans to businesses.

Question 8

Margin requirements tell the minimum amount of cash an investor must put up when borrowing from a bank or brokerage firm to purchase stock.

Question 9

A brokerage firm is an example of a depository financial institution.

Question 10

Money is anything that is acceptable as payment for goods and services.

Question 11

Examples of time deposits are savings accounts, money market deposit accounts, and certificates of deposit.

Question 12

The Federal Deposit Insurance Corporation (FDIC) only insures deposits at commercial banks.

Question 13

The Federal Deposit Insurance Corporation (FDIC) charges the same insurance premiums to all member banks.

Question 14

National banks must belong to the Federal Reserve System and must carry FDIC insurance.

Question 15

U.S.banks have had no trouble competing successfully against foreign banks.

Question 16

The prime rate is the interest rate that the Federal Reserve charges member banks for loans.

Question 17

Another term for a checking account is a time deposit.

Question 18

The three tools used by the Federal Reserve to manage monetary policy are reserve requirements, the prime rate, and the discount rate.

Question 19

By lowering the reserve requirement, the Federal Reserve tries to make more money available for loans and stimulate the economy.

Question 20

Credit unions are state-chartered banks that operate much like savings and loan associations.

Question 21

Money market deposit accounts and certificates of deposit are officially called ______ deposits.

A)demand
B)time
C)investor
D)income
E)diversified

Question 22

A checking account is also commonly referred to as a:

A)time deposit
B)treasury account
C)federal deposit
D)certificate of deposit
E)demand deposit

Question 23

For a college student who needs to buy an $80 textbook, the money she received from her parents for the purchase of school supplies would be used as a:

A)store of value
B)medium of exchange
C)measure of wealth
D)commodity of exchange
E)measure of value

Question 24

Cupcakes, hamburgers, and cut flowers would not make good mediums of exchange because they lack the key characteristic of:

A)exchangeability
B)divisibility
C)profitability
D)durability
E)compatibility

Question 25

Ruth Hu recently inherited $200,000.She has invested the inherited money in real estate and government securities.Hu is using her money as a:

A)store of value
B)medium of exchange
C)measure of wealth
D)commodity of exchange
E)measure of value

Question 26

Items that groups of people use as money must be _____ to be acceptable mediums of exchange.

A)scarce, divisible, portable, and durable
B)portable, sortable, profitable, and divisible
C)compatible, durable, universal, sortable
D)distributable, durable, comparable and valuable
E)valuable, durable, compatible and scarce

Question 27

_____ are deposits at a bank or other financial institution that pay interest but cannot be withdrawn on demand without penalty.

A)Marketable securities
B)Commercial deposits
C)Time deposits
D)Demand deposits
E)Checking accounts

Question 28

Boulders, building trusses, and lead ingots would not make good mediums of exchange because they lack the key characteristic of:

A)portability
B)durability
C)divisibility
D)scarcity
E)compatibility

Question 29

Hal Silverstein has a savings account, also called a _____, at his local credit union.

A)marketable securities
B)time deposit
C)demand deposit
D)storage deposit
E)credit deposit

Question 30

Which of the following is NOT one of the key characteristics required in order for money to be an acceptable medium of exchange?

A)scarcity
B)durability
C)divisibility
D)profitability
E)portability

Question 31

Weeds, sand, and paper clips would not make good mediums of exchange because they lack the key characteristic of:

A)portability
B)durability
C)divisibility
D)scarcity
E)compatibility

Question 32

U.S.banks provide loans to foreign governments.

Question 33

Bo Riley pays his rent and utility bills each month by writing checks.Riley is using a _____ account.

A)time deposit
B)demand deposit
C)federal deposit
D)certificate of deposit
E)currency

Question 34

______ is anything (regardless of form) that is acceptable as payment for goods and services.

A)Shareholders' equity
B)Capital
C)Money
D)A fixed asset
E)Revenue

Question 35

Money is used as:

A)a medium of exchange
B)a standard of value
C)a store of value
D)a means of payment
E)all of the above

Question 36

_____ is cash held in the form of coins and paper money.

A)A time deposit
B)Capital
C)Revenue
D)An account receivable
E)Currency

Question 37

Any object or objects that a group of people use to buy and sell goods and services is called:

A)a countertrade
B)capital
C)money
D)revenue
E)an earned deposit

Question 38

Credit cards:

A)are sometimes referred to as plastic money
B)do not replace money
C)are used as a substitute for cash and checks
D)defer payment to a later point in time
E)are accurately described by all of the above

Question 39

The _____ characteristic of money is revealed by the fact that a dollar can be converted into four quarters or ten times.

A)portability
B)durability
C)divisibility
D)scarcity
E)compatibility

Question 40

The U.S.money supply is composed of:

A)coins, paper money, and treasury bills
B)currency, demand deposits, and checking accounts
C)checking accounts, bonds, and savings accounts
D)currency, demand deposits, and time deposits
E)stocks, demand deposits, and checking accounts

Question 41

When The Bank of Bank County borrows funds from the Federal Reserve; the rate the Fed charges the commercial bank is called the _____ rate.

A)prime
B)discount
C)commercial bank
D)going
E)reserve

Question 42

The purchase or sale of U.S.government bonds by the Federal Reserve to stimulate or slow down the economy is called:

A)a base market operation
B)an open market operation
C)a prime transaction
D)manipulating the discount rate
E)making a general fund deposit/withdrawal

Question 43

The power the Federal Reserve has to control credit terms on some loans made by banks and other lending institutions is called ______ controls.

A)selective credit
B)selective debit
C)secure credit
D)demand credit
E)interbank feedback

Question 44

Dakota Mining Company pays its bills and employees with checks drawn on a bank from another part of the country.Checks usually take about three days to clear the firm's account._____ is the advantage gained during the check-clearing time.

A)Interest accrual
B)Transfer financing
C)Float
D)Process financing
E)Delayed funding

Question 45

A bank is engaged in _____ when it accepts the farmer's deposit of $127,000, and then makes a business loan of $50,000 to a small business owner.

A)financial intermediation
B)financial coordination
C)financial equilibrium
D)depository intermediaries
E)intermediary banking

Question 46

Financial institutions act as intermediaries between suppliers and demanders of funds.They accept savers' deposits and invest them in such things as business loans or mortgages.This process is called:

A)financial intermediation
B)financial coordination
C)financial equilibrium
D)depository intermediaries
E)intermediary banking

Question 47

The three principal tools of the Federal Reserve System are:

A)discount rate, prime rate, and open market operations
B)tax rate, margin requirements, and discount rate
C)open market operations, discount rate, and tax rate
D)reserve requirements, consumer rate, and prime rate
E)reserve requirements, discount rate, and open market operations

Question 48

Which of the following is an activity performed by the Federal Reserve System as it carries out its monetary policy?

A)insuring credit card balances
B)providing tax refunds
C)distributing currency
D)loaning money to consumers
E)controlling the stock exchange

Question 49

Financial intermediation is the process in which:

A)the Federal Reserve establishes the prime rate
B)discount rates are interpreted
C)savings are automatically deducted from checking accounts
D)financial institutions act as intermediaries between the suppliers and demanders of funds
E)the Financial Reserve controls the supply of money

Question 50

The most frequently used and the most flexible tool that the Federal Reserve has that it can use to change the economic environment is:

A)reserve requirement
B)open market operations
C)prime rate
D)discount rate
E)general fund deposits

Question 51

_____ benefits the check writer by allowing it to retain the funds until the funds are actually withdrawn from its account.

A)Interest accrual
B)Transfer financing
C)Float
D)Process financing
E)Delayed funding

Question 52

In the process of financial intermediation, households, businesses, and governments can all be are categorized as:

A)monetary partners
B)channels of exchange
C)monetary conduits
D)demanders of funds
E)transaction patrons

Question 53

In its role as lender to member banks, the Federal Reserve is called the:

A)national bank
B)customized bank
C)national creditor
D)banker's bank
E)government exchange

Question 54

To stimulate the economy, the Federal Reserve can:

A)lower the reserve requirement
B)raise the prime rate
C)raise the discount rate
D)sell government bonds on the open market
E)buy stocks listed on the New York Stock Exchange

Question 55

Federal Reserve banks must hold a certain portion of their deposits in reserve.This percentage is called the:

A)reserve requirement
B)prime monetary percentage
C)discount requirement
D)interest rate average
E)margin requirement

Question 56

Financial institutions can be divided into two broad categories.These are ______ institutions.

A)depository and fiduciary
B)currency and loan
C)depository and nondepository
D)credit and debt
E)consumer and business

Question 57

In terms of financial intermediation, the couple who went to a bank and took out a $200,000 loan to buy a new house is an example of a:

A)channel of exchange
B)demander of funds
C)transaction partner
D)monetary conduit
E)fiscal activist

Question 58

The most important function of the Federal Reserve System is carrying out ______ policy.

A)fiscal
B)tax
C)monetary
D)spending
E)inflationary

Question 59

Which federal agency is responsible for processing and clearing checks between financial institutions?

A)Financial Clearing House
B)U.S.Treasury Department
C)Federal Reserve
D)U.S.Comptroller of Currency
E)U.S.National Bank

Question 60

The Federal Reserve controls the minimum amount that a purchaser of securities must deposit with a stock brokerage firm in order to purchase stock.This minimum amount is called the _____ requirement.

A)stakeholder
B)discount
C)margin
D)security
E)reserve

Question 61

Which of the following services would you expect a depository institution to offer?

A)pension fund management
B)electronic funds transfer
C)accounting transfer management (ATM)
D)inventory control of revenues
E)all of the above

Question 62

Insurance policyholders make premium payments to buy financial protection.Insurance companies invest the premiums in:

A)stocks
B)bonds
C)real estate
D)business loans
E)all of the above

Question 63

Which of the following services would you NOT expect a depository institution to offer?

A)online banking
B)electronic funds transfer
C)loans to individuals with poor credit
D)certificates of deposit
E)debit cards

Question 64

_____ are large pools of money set aside by corporations, unions, and governments for later use in paying retirement benefits to their employees or members.

A)Pension funds
B)Slush funds
C)Unemployment benefits
D)Workers' compensation funds
E)Floats

Question 65

About two-thirds of all U.S.commercial banks are chartered by the state in which they are based.The banks are called _____ banks.

A)fiscal
B)federated
C)decentralized
D)autonomous
E)state

Question 66

A bank chartered by the Comptroller of Currency, a branch of the U.S.Treasury Department, is called a _____ bank.

A)federal
B)national
C)state
D)fiscal
E)central

Question 67

ATMs let customers of banks make deposits and withdrawals while in a shopping center or supermarket 24 hours a day.The letters ATM stand for:

A)automatic transfer machine
B)accounting transfer machine
C)automated teller machine
D)accounting transfer management
E)advanced teller mechanization

Question 68

Thrift institutions were formed specifically to make home mortgage loans and to:

A)make commercial loans
B)manage investment portfolios
C)meet reserve requirements
D)encourage household savings
E)provide time and demand deposits

Question 69

National banks:

A)are chartered by the Comptroller of the Currency
B)must belong to the Federal Reserve System
C)must carry insurance on their deposits from the Federal Deposit Insurance Corporation
D)are more closely regulated than state chartered banks
E)are accurately described by all of the above

Question 70

State banks are:

A)required by law to belong to the Federal Reserve System
B)chartered by the state in which they are based
C)more closely regulated than national banks
D)either the same or larger than national banks
E)are accurately described by all of the above

Question 71

What are the broad categories of commercial banks in the United States?

A)centralized and decentralized banks
B)rural and urban banks
C)national and federal banks
D)state and national banks
E)depository and nondepository banks

Question 72

Which of the following financial institutions is a not-for-profit institution?

A)savings bank
B)savings and loan association
C)commercial bank
D)credit union
E)finance company

Question 73

Which of the following is an example of nondepository financial institutions?

A)credit unions
B)consulting firms
C)commercial finance companies
D)savings banks
E)all of the above

Question 74

Which of the following is an example of a depository financial institution?

A)consumer finance company
B)pension fund
C)commercial finance company
D)credit union
E)brokerage firm

Question 75

Which of the following statements about credit unions is true?

A)Credit union members typically have nothing in common with each other.
B)The major responsibility of credit unions is to manage investments for their members.
C)There are fewer than 500 credit unions in the entire United States.
D)Credit unions are for-profit institutions.
E)None of the above statements about credit unions is true.

Question 76

One of the major financial burdens for many companies is the need to provide and maintain funds to provide benefits needed by former employees.One of the ways that Delta Airline tried to avoid bankruptcy was by reducing the payout from this fund because returns on investments were not keeping pace with the number of retirees and their benefit demands.This example reflects a problem with:

A)pension funds
B)slush funds
C)unemployment benefits
D)workers' compensation funds
E)floats

Question 77

Thrift institutions:

A)deal primarily with business-to-business transactions
B)are a form of nondepository institution
C)were formed specifically to encourage household savings
D)are a form of finance company
E)are member-owned institutions

Question 78

A _____ is a nonprofit, member-owned financial cooperative.

A)savings bank
B)credit union
C)savings and loan association
D)commercial bank
E)thrift institution

Question 79

_____ are profit-oriented depository financial institutions that accept deposits, make business and consumer loans, invest in government and corporate securities, and provide other financial services.

A)Commercial banks
B)Thrift institutions
C)Finance companies
D)Credit unions
E)Investment banks

Question 80

Thrift institutions were formed specifically to encourage household savings and to:

A)make business loans
B)manage investment portfolios
C)make consumer loans
D)make home mortgage loans
E)provide time and demand deposits