Deck 15: Money and the Financial System

Question 1

A credit union is owned and controlled by the government.

Answer 1

False

Question 2

_____ is best described as a paper money that is not readily convertible to a precious metal such as gold.

A)A bitcoin
B)A credit card
C)A debit card
D)Plastic money
E)Fiat money

Answer 2

E

Question 3

Money is a medium of exchange.

Answer 3

True

Question 4

When the Federal Reserve Board (the Fed)buys securities,it decreases the money in circulation.

Question 5

Ryan traded his tablet PC for a cellphone.Since both were of the same value,there was no exchange of money.Which of the following concepts does this scenario illustrate?

A)Discounting
B)Checking
C)Bartering
D)Accruing
E)Devaluing

Question 6

A person swaps a bag of fruits for some meat.In this case,money functions as a:

A)standard of value.
B)store of value.
C)measure of value.
D)medium of exchange.
E)counterfeit deterrent.

Question 7

Finance companies buy and sell stocks and bonds for their customers.

Question 8

For money to serve effectively as a measure of value,all items must be valued in terms of comparable units.Which of the following characteristics of money does this statement reflect?

A)Divisibility
B)Durability
C)Acceptability
D)Stability
E)Portability

Question 9

Certificates of deposit are accounts with funds that usually cannot be withdrawn without advance notice and/or have limits on the number of withdrawals per period.

Question 10

For money to function as a medium of exchange,it must be easily moved from one location to the next.Which of the following characteristics of money does this statement reflect?

A)Divisibility
B)Durability
C)Acceptability
D)Stability
E)Portability

Question 11

The life expectancy of a $20 bill is estimated to be 7.7 years.Which of the following characteristics of money does this statement illustrate?

A)Divisibility
B)Durability
C)Acceptability
D)Stability
E)Portability

Question 12

When money serves as a way to accumulate wealth,money primarily functions as a:

A)yardstick of value.
B)store of value.
C)measure of value.
D)medium of exchange.
E)counterfeit deterrent.

Question 13

As a measure of value,money primarily serves as a(n):

A)varying denominator that allows people to compare the different goods and services that can be consumed at various income levels.
B)common standard or yardstick of the worth of goods and services.
C)way to accumulate wealth.
D)agent contributing to inflation.
E)agent contributing to deflation.

Question 14

To be used as a medium of exchange,money must be:

A)non-portable.
B)durable.
C)imitable.
D)indivisible.
E)flexible.

Question 15

As a medium of exchange,money:

A)makes it harder to trade.
B)creates a complicated service structure.
C)reduces the need for bartering.
D)is indivisible.
E)can easily be counterfeited.

Question 16

When a person pays $23,000 to buy a car,money primarily functions as a:

A)means of savings.
B)store of value.
C)measure of value.
D)treasury bill.
E)counterfeit deterrent.

Question 17

To be effective,money must be readily received for the purchase of goods and services and for the settlement of debts.Which of the following characteristics of money does this statement reflect?

A)Divisibility
B)Durability
C)Acceptability
D)Stability
E)Portability

Question 18

U.S.money includes subtle colors in addition to the traditional green,as well as enhanced security features,such as a watermark,security thread,and color-shifting ink.Which of the following characteristics of money is being protected by these measures?

A)Acceptability
B)Inimitability
C)Divisibility
D)Stability
E)Portability

Question 19

Which of the following statements is true of money?

A)It is not a gold-backed currency.
B)It is not readily convertible to precious metal.
C)It is anything accepted in exchange for goods and services.
D)It is exclusively dispatched through automated teller machines.
E)It needs to be accompanied by a government "note" or promise to be considered valid.

Question 20

Which of the following characteristics of money allows people to postpone purchases and save their money to do so?

A)Divisibility
B)Imitability
C)Acceptability
D)Stability
E)Portability

Question 21

_____ charge a penalty for withdrawing money prematurely.

A)Negotiable Order of Withdrawal accounts
B)Checking accounts
C)Money market accounts
D)Demand deposits
E)Certificates of deposit

Question 22

In general,the longer the term of a certificate of deposit,the:

A)higher is its liquidity.
B)higher is its interest rate.
C)lower is its value.
D)lower is its interest rate.
E)higher is its inflation rate.

Question 23

_____ are preferred over currency for many transactions due to their lower risk of loss.

A)Bitcoins
B)Coins
C)Checks
D)Gold bars
E)Real assets

Question 24

Savings accounts are also known as:

A)interest deposits.
B)term deposits.
C)demand deposits.
D)time deposits.
E)certificates of deposit.

Question 25

In some countries with very high inflation rates,citizens tend to spend their money as fast as they receive it in order to keep it from losing any more of its value.Under these conditions,money is said to lack:

A)portability.
B)divisibility.
C)durability.
D)stability.
E)inimitability.

Question 26

Which of the following characteristics of money refers to the ability of a dollar bill to be handled a hundred times without significant wear and tear?

A)Portability
B)Divisibility
C)Durability
D)Stability
E)Exchangeability

Question 27

A check:

A)has a higher risk of loss than currency for transactions.
B)has a time limit of 30 days.
C)cannot be canceled by means of a stop payment once it is signed.
D)is not a substitute for currency and coins.
E)can be rendered worthless in case of suspected forgery.

Question 28

_____ are savings accounts that guarantee a depositor a set interest rate over a specified interval of time as long as the funds are not withdrawn prematurely.

A)Certificates of deposits
B)Checking accounts
C)Money market accounts
D)Demand deposits
E)Negotiable Order of Withdrawal accounts

Question 29

Why is the life span of a $1 note likely to be lesser than that of a $100 note?

A)A $100 note rates higher on divisibility.
B)A $100 note rates lower on portability.
C)A $100 note is more stable.
D)A $100 note is less frequently passed between users.
E)A $100 note can easily be imitated.

Question 30

The acronym NOW,when used by financial institutions,stands for _____ and is a type of interest-bearing checking account.

A)Near Order Withdrawal
B)Negotiable Order of Waiver
C)Near Order of Waiver
D)Negotiable Order of Withdrawal
E)Negative Order of Withdrawal

Question 31

Coins are used primarily to provide:

A)acceptability.
B)inimitability.
C)divisibility.
D)stability.
E)portability.

Question 32

Stan's sister tells Stan that the number of toffees she could buy for a dollar when she was his age was greater.Stan's sister is referring to the _____ of money.

A)acceptability
B)inimitability
C)divisibility
D)stability
E)portability

Question 33

According to the Federal Reserve Board,what is the estimated life span of $1 notes?

A)3.7 years
B)1.3 years
C)4.9 years
D)5.9 years
E)7.7 years

Question 34

When inflation is very high,money loses its _____.

A)stability
B)portability
C)durability
D)divisibility
E)acceptability

Question 35

Money must be very difficult to counterfeit; it means that it should be hard to:

A)convert into another form of currency.
B)divide into smaller units.
C)store as assets.
D)duplicate illegally.
E)use for cumbersome bartering.

Question 36

A money market account differs from an interest-bearing checking account in that the owners of a money market account:

A)can write only a limited number of checks each month.
B)can take out their funds whenever they want in specific denominations.
C)can withdraw funds only at the time of their retirement.
D)cannot convert the funds into cash.
E)cannot withdraw the funds without an advance notice of six months.

Question 37

_____ are similar to interest-bearing checking accounts,but with more restrictions.

A)Current accounts
B)Checking accounts
C)Money market accounts
D)Savings account
E)Negotiable Order of Withdrawal accounts

Question 38

_____ or time deposits are accounts with funds that can be withdrawn only with advance notice.

A)Current accounts
B)Checking accounts
C)Money market accounts
D)Savings accounts
E)Negotiable Order of Withdrawal accounts

Question 39

If consumers do not pay off their entire credit card balance,they:

A)have to pay interest on the total paid and unpaid amount.
B)will receive interest on the paid amount.
C)have to pay interest on the unpaid amount.
D)will get a rebate from the card issuer.
E)have their purchased goods repossessed by the creditors.

Question 40

Credit cards:

A)work like checks.
B)allow cardholders to pay for transactions at a later date.
C)offer no purchase "grace period."
D)do not charge any interest on a cardholder's unpaid balance.
E)are the same as debit cards.

Question 41

When the Federal Reserve Board sells government securities,the:

A)money supply in the economy decreases.
B)money supply in the economy increases.
C)property taxes increase.
D)property taxes decrease.
E)money supply in the market becomes stable.

Question 42

The _____ is the guardian of the American financial system.

A)Federal Savings and Loan Insurance Corporation
B)Federal Deposit Insurance Corporation
C)New York Federal Reserve Bank
D)Federal Reserve Board
E)National Credit Union Administration

Question 43

The Federal Reserve Board controls the amount of money available in the economy:

A)by issuing credit cards.
B)through monetary policy.
C)by printing new currency notes.
D)by levying heavy taxes.
E)through certificates of deposit.

Question 44

Which of the following effects is seen on the money supply and the economy when the Federal Reserve Board restricts credit controls?

A)More people are encouraged to make major purchases,increasing economic activity.
B)Banks make fewer loans; the money supply declines; economic activity slows down.
C)Banks make more loans; the money supply increases; economic activity increases.
D)Interest rates increase; the money supply decreases; economic activity slows down.
E)People are discouraged from making major purchases,decreasing economic activity.

Question 45

Commercial banks:

A)rely on checking and savings accounts for funds.
B)invest exclusively in residential mortgages.
C)use all their funds to make loans to businesses.
D)are the most recently established of all financial institutions.
E)do not provide loans for vacations.

Question 46

Which of the following acts limited the ability of credit card issuers to raise rates,limited credit to young adults,and gave people more time to pay bills?

A)The Dodd-Frank Act
B)The Gramm-Leach-Bliley Act
C)The Troubled Asset Relief Program Act
D)The Financial Services Modification Act
E)The Credit CARD Act

Question 47

The Federal Reserve Board was established by Congress in 1913 to:

A)provide benefits to retirees and the unemployed.
B)regulate corporate money laundering.
C)collect taxes and enforce the Internal Revenue Code.
D)regulate the banking industry.
E)facilitate global monetary cooperation.

Question 48

What is an outcome of the Federal Reserve Board decreasing the reserve requirements?

A)Interest rates increase; the money supply decreases; economic activity increases.
B)Banks make fewer loans; the money supply declines; economic activity slows down.
C)Banks make more loans; the money supply increases; economic activity increases.
D)Interest rates increase; the money supply decreases; economic activity slows down.
E)The money supply decreases; economic activity slows down.

Question 49

Open market operations refer to decisions to:

A)buy or sell U.S.Treasury bills and other investments in the open market.
B)issue savings accounts and certificates of deposit in the open market.
C)regulate and charter credit unions in the open market.
D)set a credit limit for the credit cards.
E)regulate income tax rates for the open market.

Question 50

There is an increase in economic activity when the Federal Reserve Board:

A)sells government securities.
B)raises the discount rate.
C)increases reserve requirements.
D)relaxes credit controls.
E)sells government securities.

Question 51

When the Federal Reserve Board increases the reserve requirements,the:

A)money supply declines.
B)amount of money in circulation increases.
C)amount of insurance for accounts increases.
D)checks in the system are declared invalid.
E)percentage of deposits that banks must hold in reserve declines.

Question 52

The oldest and largest of all financial institutions are:

A)thrift institutions.
B)credit unions.
C)savings & loans associations.
D)insurance companies.
E)commercial banks.

Question 53

The actual purchase or sale of investments in the open market is performed by the:

A)Federal Savings and Loan Insurance Corporation.
B)Federal Deposit Insurance Corporation.
C)National Credit Union Administration.
D)Federal Reserve Board.
E)New York Federal Reserve Bank.

Question 54

Which of the following effects is seen on the money supply and the economy when the Federal Reserve Board raises the discount rate?

A)Interest rates decrease; the money supply increases; economic activity increases.
B)Interest rates increase; the money supply decreases; economic activity slows down.
C)Banks make more loans; the money supply increases; economic activity increases.
D)People are encouraged to make major purchases,increasing economic activity.
E)The money supply increases; economic activity increases.

Question 55

The _____ prohibited commercial banks from being in the insurance and investment banking business.

A)Celler-Kefauver Act
B)Sarbanes-Oxley Act
C)Gramm-Leach-Bliley Act
D)Glass-Steagall Act
E)Dodd-Frank Act

Question 56

There is an increase in economic activity when the Federal Reserve Board:

A)sells government securities.
B)lowers the discount rate.
C)increases reserve requirements.
D)restricts credit controls.
E)sells investments.

Question 57

A debit card:

A)provides a hard "paper trail."
B)allows cardholders to pay for transactions at a later date.
C)offers a purchase "grace period."
D)looks like a credit card but works like a check.
E)has credit features.

Question 58

The Federal Reserve Board is primarily responsible for:

A)providing short-term loans to businesses.
B)creating a stable environment for economic growth.
C)issuing savings accounts and certificates of deposit.
D)regulating and chartering credit unions.
E)imposing trade embargoes in appropriate situations.

Question 59

Why are credit cards a popular substitute for cash payments?

A)They provide tax benefits.
B)They exempt users from paying transaction fees to merchants.
C)They allow users to avail interest-free credit.
D)They allow merchants to avail unlimited credit.
E)They are accepted by merchants around the world.

Question 60

Which of the following actions is the Federal Reserve Board most likely to take in an attempt to increase the money supply in the economy?

A)Raise reserve requirements
B)Buy government securities
C)Print more money
D)Raise discount rates
E)Restrict credit controls

Question 61

A money market fund is a special type of mutual fund that:

A)invests in short-term debt securities issued by large corporations.
B)dispenses cash and allows balance inquiries.
C)offers slightly lower rates of interest than bank money market accounts.
D)is set aside by corporations to provide retirement income.
E)represents specialized individual checking accounts.

Question 62

Which of the following acts restricted commercial banks from engaging in certain high-risk trading activities and also raised the required capital that banks must hold on their balance sheets?

A)The Federal Deposit Insurance Act
B)The Financial Services Modernization Act
C)The Gramm-Leach-Bliley Act
D)The Glass-Steagall Act
E)The Dodd-Frank Act

Question 63

If a person invests in a firm that pools funds from a large number of people and buys and professionally manages stock from a number of diversified companies,that person is investing in a(n):

A)certificate of deposit.
B)individual retirement account.
C)mutual fund.
D)banker's acceptance.
E)time deposit.

Question 64

_____,often called "thrifts," are financial institutions that primarily offer savings accounts and make long-term loans for residential mortgages.

A)Commercial banks
B)Credit unions
C)Savings and loan associations
D)Mutual savings banks
E)Insurance companies

Question 65

The major difference between banks and credit unions is that:

A)credit unions have higher default rates than banks.
B)banks distribute their profits to depositors.
C)credit unions have higher loan rates and lower interest rates than banks.
D)bank depositors get to vote for the bank directors.
E)credit unions are owned and controlled by their depositors.

Question 66

Insurance companies protect their clients against financial losses from certain specified risks in exchange for a fee,called a(n)_____.

A)interest
B)dividend
C)fiat
D)contingency fee
E)premium

Question 67

_____ are businesses that protect their clients against financial losses from certain specified risks in exchange for a fee,called a premium.

A)Insurance companies
B)Investment banks
C)Finance companies
D)Mutual savings banks
E)Commercial banks

Question 68

Which of the following is a type of mutual fund?

A)Individual retirement account
B)Corporate insurance plan
C)Money market fund
D)Social Security
E)Roth individual retirement account

Question 69

Employees of a local school conduct their financial transactions through a financial institution,which is also owned by them.This financial institution is most likely to be a(n):

A)commercial bank.
B)credit union.
C)savings and loan association.
D)insurance company.
E)federal bank.

Question 70

A money market fund differs from the money market account offered by banks primarily in that the former:

A)offers lower rates of interest than a bank money market account.
B)represents a pool of funds,not a specialized,individual checking account.
C)does not invest in government bonds,only securities issued by private companies.
D)does not offer services such as check-writing privileges and reinvestment of interest income.
E)invests exclusively in long-term debt securities issued by large corporations.

Question 71

A money market fund differs from a bank money market account in that the former:

A)offers slightly higher rates of interest than a bank money market account.
B)represents a specialized,individual checking account.
C)does not invest in government bonds,only securities issued by private companies.
D)does not offer services such as check-writing privileges and reinvestment of interest income.
E)invests exclusively in long-term debt securities issued by large corporations.

Question 72

A savings account at a credit union is commonly referred to as a(n)_____.

A)current account
B)checking account
C)share account
D)negotiable order of withdrawal account
E)individual retirement account

Question 73

Which of the following is the largest pension fund?

A)Individual retirement account
B)Corporate insurance plan
C)Individual retirement account
D)Social Security
E)Roth individual retirement account

Question 74

The primary business of savings and loan associations (S&Ls)is to:

A)offer short-term loans to large corporations.
B)offer savings accounts.
C)offer tax savings.
D)insure deposits.
E)sell life insurance.

Question 75

Which of the following institutions is similar to a savings and loan association but is owned by its depositors?

A)Commercial bank
B)Thrift institution
C)Mutual savings bank
D)Federal bank
E)Investment bank

Question 76

The _____ repealed the Glass-Stegall Act,putting U.S.commercial banks on the same competitive footing as European banks.

A)Sarbanes-Oxley Act
B)Celler-Kefauver Act
C)Dodd-Frank Act
D)Credit CARD Act
E)Gramm-Leach-Bliley Act

Question 77

The _____ insures individual bank accounts.

A)Federal Savings and Loan Insurance Corporation
B)Federal Deposit Insurance Corporation
C)National Credit Union Administration
D)Federal Reserve Board
E)New York Federal Reserve Bank

Question 78

A(n)_____ is a loan made so that a business or individual can purchase real estate,typically a home.

A)credit
B)mortgage
C)insurance
D)thrift
E)debit

Question 79

Nonbanking institutions differ from banking institutions in that they:

A)offer long-term loans.
B)offer investment products.
C)include credit unions.
D)do not accept deposits.
E)do not offer short-term loans.

Question 80

A checking account at a credit union is commonly referred to as a(n)_____.

A)share draft account
B)savings account
C)share account
D)negotiable order of withdrawal account
E)individual retirement account