Deck 2: The Role of Financial Markets and Financial Intermediaries

Question 1

​In general, banks prefer loans that stress liquidity and safety.

Answer 1

True

Question 2

When individuals deposit cash in a demand deposit, the money supply is reduced.​

Answer 2

False

Question 3

When individuals withdraw cash from checking accounts, the money supply is unaffected.​

Answer 3

True

Question 4

During most historical periods, the yield curve has been positively sloped.​

Question 5

The U.S. Treasury creates most of the nation's money supply.​

Question 6

A pension plan that invests in the stock of IBM or Verizon does not perform the function of a financial intermediary.​

Question 7

The yield curve relates risk and interest rates.​

Question 8

When cash is deposited in a checking account, the reserves of commercial banks are increased.​

Question 9

​Since M‑2 excludes time deposits, M-2 is a less comprehensive measure of the money supply than M‑1.

Question 10

M‑1 includes savings accounts in commercial banks.​

Question 11

What serves for money in France may not be money in another country.​

Question 12

Insurance companies are a major source of loans to individuals.​

Question 13

An increase in interest rates tends to reduce the earnings of money market mutual funds.​

Question 14

The power to create money is given by the Constitution to the Federal Reserve.​

Question 15

Large certificates of deposit in units of $500,000 are insured by FDIC.​

Question 16

​A financial intermediary transfers funds from borrowers to lenders by creating claims on itself.

Question 17

A financial intermediary creates claims on itself, when it accepts depositors' funds.​

Question 18

Investments in money market mutual funds are insured up to $100,000 by the federal government.​

Question 19

When funds are deposited in a savings account, the excess reserves of banks are unaffected.​

Question 20

​Money market mutual funds invest in short-term securities like U.S. Treasury bills.

Question 21

Which of the following is not a financial intermediary?

A) ​New York Stock Exchange
B) ​Washington Savings and Loan
C) ​First National City Bank
D) ​Merchants Savings Bank

Question 22

M‑1 includes coins, currency, and .​

A) ​demand deposits
B) ​savings accounts
C) ​certificates of deposit
D) ​time deposits

Question 23

​A pension plan that grants mortgage loans

A) ​is an example of a financial intermediary
B) ​cannot suffer losses
C) ​is called a savings and loan association
D) ​is not a financial intermediary

Question 24

​Treasury bills are

A) ​long-term securities issued by the federal government
B) ​short-term securities issued by the federal government
C) ​long-term securities issued by money market mutual funds
D) ​short-term securities issued by money market mutual funds

Question 25

The term structure of interest rates relates​

A) ​risk and yields
B) ​yields and credit ratings
C) ​term and yields
D) ​stock and bond yields

Question 26

Money serves as​

A) ​a substitute for equity
B) ​a precaution against inflation
C) ​a medium of exchange
D) ​a risk-free liability

Question 27

The power to create money is given by the Constitution to​

A) ​state governments
B) ​Congress
C) ​the Federal Reserve
D) ​commercial banks

Question 28

M‑2 includes​
1) demand deposits
2) savings accounts
3) small certificates of deposit

A)​1 and 2
B)​2 and 3
C)​1 and 3
D)​all three

Question 29

​Money market mutual funds invest in

A) ​corporate bonds
B) ​corporate stock
C) ​federal government Treasury bills
D) ​federal government Treasury bonds

Question 30

The primary assets of life insurance companies include​

A) ​life insurance
B) ​corporate securities
C) ​municipal securities
D) ​insurance policies

Question 31

The term structure of interest rates indicates the​

A) ​relationship between risk and yields
B) ​relationship between the time and yields
C) ​the difference between borrowing and lending
D) ​the difference between the yield (interest rate) on government and corporate debt

Question 32

Federally insured investments include​

A) ​savings accounts in national commercial banks
B) ​certificates of deposit in excess of $500,000
C) ​life insurance policies
D) ​commercial bank assets

Question 33

The assets of a typical commercial bank include

A) ​commercial loans
B) ​demand deposits
C) ​common stock
D) ​equity

Question 34

​A financial intermediary transfers

A) savings to households​
B) ​savings to borrowers
C) ​stocks to brokers
D) ​new stock issues to buyers