Question 1

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

Accepted Answer

The rate the Federal Reserve charges commercial banks for borrowing funds is called the discount rate.

Question 2

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

Accepted Answer

The correct term for the purchase or sale of U.S. government bonds by the Federal Reserve to influence the economy is an open market operation. This is a key tool used by the Federal Reserve to control the money supply, which in turn affects interest rates and the pace of economic activity.

Question 3

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

Accepted Answer

Selective credit controls are tools used by the Federal Reserve to regulate the terms under which credit is extended for specific purposes or sectors, influencing the flow of credit to particular areas of the economy.

Question 4

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.

Accepted Answer

The advantage gained during the check-clearing time is known as "Float." This refers to the time period between when a check is issued and when it is cleared and the funds are deducted from the issuer's account, allowing the issuer to earn interest or benefit from the use of those funds during the interim.

Question 5

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.

Accepted Answer

Financial intermediation is the process where financial institutions (like banks) accept deposits from savers and then lend those funds to borrowers. In this scenario, the bank is acting as an intermediary between the farmer (saver) and the small business owner (borrower).

Question 6

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:

Accepted Answer

Financial intermediation is the process where financial institutions act as intermediaries between savers and borrowers, channeling funds from those who have surplus capital (savers) to those who are in need of capital (borrowers).

Question 7

The three principal tools of the Federal Reserve System are:

Accepted Answer

The Federal Reserve System primarily uses three tools to conduct monetary policy: reserve requirements (which dictate how much banks need to hold in reserve), the discount rate (the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility), and open market operations (buying and selling of government securities to influence the supply of money).

Question 8

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

Accepted Answer

Distributing currency is a key activity of the Federal Reserve System as part of its role in managing the nation's money supply and monetary policy.

Question 9

Financial intermediation is the process in which:

Accepted Answer

Financial intermediation refers to the process where financial institutions (like banks) serve as intermediaries between those who supply funds (savers) and those who demand funds (borrowers). This involves accepting deposits, providing loans, and facilitating financial transactions.

Question 10

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

Accepted Answer

Open market operations are the most frequently used and most flexible tool of the Federal Reserve. They involve the buying and selling of government securities in the open market to influence the level of reserves in the banking system, which in turn affects interest rates and the overall economy.

Question 11

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

Accepted Answer

Float benefits the check writer by allowing it to retain the funds until the funds are actually withdrawn from its account. This period between when a check is written and when it is cleared provides the writer the opportunity to earn interest on the funds.

Question 12

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

Accepted Answer

In the process of financial intermediation, households, businesses, and governments are typically categorized as demanders of funds because they often need to borrow money to finance various activities, such as investments, expenditures, or operations.

Question 13

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

Accepted Answer

The Federal Reserve acts as a "banker's bank" by providing banking services to member banks, such as holding reserves and offering loans to stabilize the banking system.

Question 14

To stimulate the economy, the Federal Reserve can:

Accepted Answer

Lowering the reserve requirement increases the amount of money banks can lend, stimulating economic activity by making more funds available for businesses and consumers.

Question 15

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

Accepted Answer

The reserve requirement is the portion of depositors' balances that banks must have on hand as cash. This is a regulation set by the Federal Reserve to ensure banks have enough liquidity to meet demand for withdrawals.

Question 16

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

Accepted Answer

Financial institutions are broadly categorized into depository institutions, like banks and credit unions, which accept and manage deposits and provide loans, and nondepository institutions, such as insurance companies and brokerage firms, which do not take deposits but may provide other financial services.

Question 17

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:

Accepted Answer

The couple taking out a loan to buy a house is an example of a demander of funds. They are borrowing money, which means they are demanding funds from the financial market, in this case, through a bank. Financial intermediaries like banks match savers (suppliers of funds) with borrowers (demanders of funds).

Question 18

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

Accepted Answer

The Federal Reserve System's most important function is carrying out monetary policy, which involves managing the nation's money supply and interest rates to achieve macroeconomic objectives like controlling inflation, maximizing employment, and stabilizing the financial system.

Question 19

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

Accepted Answer

The Federal Reserve is responsible for processing and clearing checks between financial institutions as part of its role in overseeing the nation's payment systems.

Question 20

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.

Accepted Answer

The minimum amount that a purchaser of securities must deposit with a stock brokerage firm to purchase stock is called the margin requirement. This is a part of the Federal Reserve's regulation to ensure financial stability and manage the amount of credit that is available in the economy.

Quiz 15: Understanding Money and Financial Institutions