Question 1

Which of the following is a checkable and debitable account?

Accepted Answer

A checking account is the only account that is specifically designed for frequent check writing and debiting of funds. A brokerage account and savings account may allow for some debiting, but are not primarily meant for this purpose.

Question 2

In a fiduciary monetary system, the value of the money issued by a government is based on

Accepted Answer

In a fiduciary monetary system, the value of the money issued by a government is not based on the physical value of the material used to create the currency (as in option D) or the ability to convert it to some asset of value (as in option C). Rather, it is based on public confidence in that currency's acceptability and predictability of value. Therefore, option B is the correct answer. Option A is also not correct, as fiduciary systems are not based on the gold standard.

Question 3

Checkable and debitable accounts in commercial banks and other financial institutions are classified as money because

Accepted Answer

Checkable and debitable accounts are classified as money because they are generally acceptable in the payment of debts, which means they can be used as a medium of exchange. The fact that they may or may not earn interest income for the depositor or that banks hold currency in their vaults equal to the value of demand deposits does not necessarily make them money.

Question 4

The reason we are willing to accept money with no intrinsic value is that

Accepted Answer

A fiduciary monetary system is based on trust in the currency and the stability of its value. In this system, currency is not backed by gold or any other physical commodity, but rather its value is determined by the supply and demand for it in the economy. As long as people continue to accept the currency as a means of exchange and have confidence in its future value, it can continue to be used as money. This is why we are willing to accept money with no intrinsic value.

Question 5

When an asset is described as being highly liquid, which one of the following characteristics does it possess?

Accepted Answer

An asset that is highly liquid can be easily and quickly converted into cash without any loss in its value or purchasing power. This means that the asset can be sold quickly without any significant impact on the price or value of the asset. Assets that are highly liquid are often prized by investors because they offer flexibility and ease of use in managing their financial affairs.

Question 6

An individual who desires the most liquid asset possible will hold

Accepted Answer

Currency is the most liquid asset as it can be easily used for transactions without any delays or transaction costs. Savings accounts and checkable deposits may also be considered liquid, but they may have limitations on the number of withdrawals and may require some processing time for transactions. U.S. government bonds are not very liquid as they cannot be easily converted into cash without incurring some costs or potential losses.

Question 7

The most liquid asset is

Accepted Answer

Liquidity refers to the ease with which an asset can be converted into cash. Money is the most liquid asset as it can be readily used to make purchases or pay bills without any delay or additional transaction costs. Gold, a house, and stocks of a highly profitable company can be sold for cash, but the process may take time and involve additional costs.

Question 8

The cost of holding money is best described as

Accepted Answer

The cost of holding money refers to the yield that could have been earned had the asset been invested in another form. Holding money in cash or other liquid forms earns little to no interest, whereas investing in other assets could generate a higher yield. This opportunity cost is considered the cost of holding money.

Question 9

A corporate bond is not as liquid as cash because the bond

Accepted Answer

A corporate bond cannot be easily converted into cash until it has reached maturity or if it is sold to another investor. This lack of quick liquidity is the main reason why corporate bonds carry a higher risk than cash or cash equivalents. Choice B and D are incorrect because a bond is not exchanged for goods or services, nor is it linked to gold. Choice C is also incorrect because a bond does not need to be exchanged for a stock certificate before it can be converted to cash.

Question 10

Liquidity refers to

Accepted Answer

Liquidity is a measure of how easily an asset can be bought or sold in the market without incurring significant transaction costs. It reflects the ease with which an investor can convert the asset into cash. Higher liquidity can also be an indication of market depth and efficiency.

Question 11

A system in which the value of currency issued by the government is based entirely on public faith that the currency will be acceptable in trade is

Accepted Answer

A fiduciary system is one where the value of currency is based on public trust rather than any underlying asset, such as gold or silver. In this system, the government issues currency and the public accepts it because they have faith that it will be accepted by others in trade. This is the system used by most modern economies today.

Question 12

A highly liquid asset

Accepted Answer

A highly liquid asset can be readily converted into cash without a significant loss of value or transaction cost. It is easy to sell in the market, which increases its demand, and as a result, its resale value.

Question 13

A fiduciary monetary standard exists when the value of a currency

Accepted Answer

A fiduciary monetary standard exists when the value of a currency depends upon the public's confidence that the currency can be exchanged for goods and services. In other words, there is no underlying commodity (such as gold) that the currency can be converted to, but rather the value is based on trust in the issuing government and its ability to maintain the currency's value.

Question 14

If an asset can be obtained or disposed of without much risk of losing its nominal value, it is said to be

Accepted Answer

A liquid asset can be easily converted into cash without losing its nominal value or with minimum risk of loss. Fiduciary relates to trust or confidence, wealth is a measure of the value of assets owned, and valuable refers to an asset having worth or utility. Therefore, the best choice for this scenario is option B.

Question 15

A checkable account

Accepted Answer

A checkable account is a type of bank account that allows the account holder to write checks or make electronic transactions to withdraw funds. It is used for day-to-day transactions and is considered a very liquid asset as funds can be easily accessed. It is not traded on the stock exchange, and while it may not be the best long-term store of value, it can still hold value in the short term.

Question 16

Which of the following is a correct reason for stating that the United States has a fiduciary monetary system?
I. Our money is convertible to a fixed amount of silver or gold.
II. Our money has a predictable value.

Accepted Answer

The United States has a fiduciary monetary system because its money is not backed by a physical commodity like gold or silver (making I incorrect), but it does have a predictable value based on trust and government backing (making II correct).

Question 17

A fiduciary monetary system is

Accepted Answer

A fiduciary monetary system is one in which the value of money is dependent on the public's faith and confidence in the currency. It is not fully backed by a physical commodity like gold or silver, and therefore may be subject to inflation. It also allows for the use of credit and other financial instruments which would not be possible in a purely barter-based system.

Question 18

Which of the following is the most liquid asset?

Accepted Answer

Currency is the most liquid asset as it can be readily used to make transactions without the need for conversion or waiting for maturity. Small denomination time deposits and short-term treasury bonds may also be considered liquid, but they have a maturity date and cannot be easily converted into cash without penalty or loss of interest. Shares of stock are not considered very liquid as they may take time to sell and may fluctuate in value.

Question 19

The ability to quickly convert an asset into cash is

Accepted Answer

Liquidity refers to the ease and speed with which an asset can be converted into cash. It is an important measure of financial health and stability, as it indicates the ability to quickly access funds in case of emergencies or unexpected expenses. Disintermediation refers to the process of bypassing traditional intermediaries in financial transactions, while the standard of deferred payment refers to the use of credit and debt to defer payment for goods and services. Financial intermediation refers to the role of banks and other financial institutions in facilitating transactions between savers and borrowers.

Question 20

The opportunity cost of holding money is measured by

Accepted Answer

Opportunity cost is the cost of the next best alternative that must be forgone in order to pursue a certain action. In the case of holding money, the opportunity cost is the interest yield that could have been earned by holding some other asset, such as a government bond or a savings account. Therefore, choice C is the correct answer.

Quiz 14: Money Banking and Central Banking