Question 1

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

Accepted Answer

When the Federal Reserve sells government securities, it effectively removes money from the banking system because banks purchase these securities with cash. This reduces the amount of money banks have available to lend, which can lead to a slowing of economic growth as borrowing costs increase and less capital is available for investment.

Question 2

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?

Accepted Answer

General obligation bonds are issued by municipalities and are backed by the credit and taxing power of the issuing jurisdiction rather than the revenue from a given project, such as a community park. This makes option A the correct choice, as the bonds are likely issued with the promise to use general tax revenues to repay the bondholders, rather than relying on revenue generated from the park itself.

Question 3

The vast majority of funds flow through direct transfers.

Accepted Answer

The vast majority of funds flow through financial markets, where funds are allocated among various types of securities such as stocks and bonds, rather than through direct transfers.

Question 4

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

Accepted Answer

Households are typically net savers, as they save a portion of their income, while businesses are net users of funds, as they often borrow money to invest in operations and expansion.

Question 5

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

Accepted Answer

An audit trail is a step-by-step record by which accounting or trade data can be traced to its source. It is used to ensure all transactions are recorded accurately and are legitimate, facilitating financial audits and compliance with regulations.

Question 6

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.

Accepted Answer

Securities are financial instruments that represent an ownership position in a publicly-traded corporation (stock), a creditor relationship with a governmental body or a corporation (bond), or rights to ownership as represented by an option. They are issued by businesses and governments as a means of raising funds by promising to provide returns to investors.

Question 7

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)

Accepted Answer

The issuer must prepare a prospectus as part of the registration process for a new security issue. A prospectus is a formal legal document that provides details about the investment offering for sale to the public.

Question 8

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?

Accepted Answer

Reducing the reserve requirements from 9% to 7.5% means banks are required to hold less money in reserve and can lend out more of their deposits. This action increases the availability of credit, making it easier for businesses and consumers to borrow money, potentially stimulating economic activity.

Question 9

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?

Accepted Answer

The Federal Reserve can accelerate economic activity by lowering interest rates primarily through the purchase of Treasury securities. This action increases the money supply by injecting more funds into the banking system, which in turn lowers interest rates and encourages borrowing and investment.

Question 10

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

Accepted Answer

The NASD (National Association of Securities Dealers) is responsible for establishing and updating rules to ensure that member brokers perform their basic functions honestly and fairly.

Question 11

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

Accepted Answer

The financial system consists of households, businesses, government, financial institutions, and financial markets, all of which interact to facilitate the flow of funds and the production, distribution, and consumption of goods and services.

Question 12

______ regulates both state and federally chartered commercial banks.

Accepted Answer

The answer of ______ regulates both state and federally chartered...

Question 13

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.?

Accepted Answer

Underwriting is the process by which investment bankers (in this case, Austin Hunter Corp.) purchase securities from the issuer (the local government agency) and resell them to the investing public. This process involves the investment bank assuming the risk of distributing the securities in the market.

Question 14

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?

Accepted Answer

Federico's activity is considered insider trading because he used exclusive, sensitive financial information not available to the public to benefit financially by selling it to a rival company. Insider trading involves trading a public company's stock or other securities based on material, non-public information about the company.

Question 15

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

Accepted Answer

When the Fed buys government securities, it injects money into the banking system, increasing the supply of money and credit. This action typically leads to lower interest rates as there is more money available for lending.

Question 16

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.

Accepted Answer

When a company issues new securities to the public for the first time to raise capital, it does so in the primary market. This is where new stock or bond issues are sold directly from the company to investors.

Question 17

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

Accepted Answer

JPMorgan Chase is among the world's 20 largest banks by various metrics, including assets, market capitalization, and international presence. It is a leading global financial services firm with a significant footprint in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing, and asset management.

Question 18

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

Accepted Answer

Insider trading is the illegal practice of trading on the stock exchange to one's own advantage through having access to confidential information.

Question 19

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

Accepted Answer

The financial system facilitates the flow of funds from savers, who have excess funds, to users or borrowers, who need funds for various purposes such as investment, consumption, or business expansion.

Question 20

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

Accepted Answer

Open market operations are the most frequently used tool by the Federal Reserve to control the money supply and influence interest rates. This involves the buying and selling of government securities in the open market to expand or contract the amount of money in the banking system.

Quiz 16: The Financial System