Question 1

When the Fed uses open market operations,it employs the so-called ________,or the rate at which banks lend money to each other overnight,as its benchmark.

Accepted Answer

The benchmark that the Fed uses when employing open market operations is the federal funds rate. This rate is the rate at which banks lend money to one another overnight to meet their reserve requirements. The Fed uses this rate as a tool to influence the overall level of interest rates in the economy. The discount rate is the rate at which banks can borrow money directly from the Fed, reserve requirements are the percentage of deposits that banks must hold in reserve, and municipal bonds are debt securities issued by municipalities or other local governments.

Question 2

If the Fed reduced reserve requirements,________.

Accepted Answer

If the Fed reduces reserve requirements, banks would have more money available to lend, leading to an increase in the supply of money in circulation. This increased supply of money would lead to a decrease in interest rates as banks compete to lend money. As a result, borrowing becomes cheaper and consumers and businesses have more access to credit, which could stimulate economic growth. Additionally, lower interest rates could increase inflation, which may prompt the Fed to increase interest rates again in order to control inflation.

Question 3

Which of the following interest rates does the Federal Reserve actually set?

Accepted Answer

The answer of Which of the following interest rates does...

Question 4

The process used by an insurance company to determine whom to insure and how much to charge is called ________.

Accepted Answer

Underwriting is the process used by insurance companies to assess the risk of insuring a potential policyholder and determine the premiums that will be charged. This involves evaluating the individual or entity's likelihood of making a claim, as well as the potential cost of such a claim. A premium is the amount paid by the policyholder to the insurance company for coverage. An insuring agreement outlines the terms and conditions of the insurance policy, while indemnity refers to the principle of compensation for loss or damage.

Question 5

Deposit insurance shifts most of the financial risk of bank failures from depositors to ________.

Accepted Answer

Deposit insurance is typically provided by the federal government and is designed to protect depositors in the event that a bank fails. By shifting the risk of bank failures from depositors to the federal government, deposit insurance helps to ensure that depositors do not lose their savings due to the failure of a bank. This also provides an incentive for depositors to continue having confidence in the banking system and to continue making deposits, which helps to maintain the stability of the financial system as a whole.

Question 6

Which of the following financial institutions is organized as a not-for-profit cooperative?

Accepted Answer

Credit unions are organized as not-for-profit cooperatives, with the goal of providing financial services to members at lower costs than traditional banks. They are owned and controlled by their members, who share a common bond such as membership in a particular community or workplace. Commercial banks, savings banks, and life insurance companies are all for-profit institutions.

Question 7

Which of the following statements concerning the Fed is incorrect?

Accepted Answer

Credit unions and savings banks are not required to belong to the Fed. Only member banks are required to belong to the Fed.

Question 8

Which of the following is a depository financial institution?

Accepted Answer

A depository financial institution is an organization that accepts deposits from customers and holds them in accounts such as savings accounts, checking accounts, and certificates of deposit. Credit unions are examples of depository financial institutions as they are member-owned cooperatives that provide banking services such as savings and checking accounts, loans, and credit cards. Life insurance companies, pension funds, and mutual funds are not depository financial institutions as they do not accept deposits from customers.

Question 9

Which of the following statements is incorrect?

Accepted Answer

Commercial banks are not prohibited from selling securities or insurance. In fact, many commercial banks offer these services through their subsidiaries or affiliates.

Question 10

Which of the following financial institutions would invest the greatest percentage of its assets in common stocks and other long-term investments?

Accepted Answer

Pension funds typically invest a large percentage of their assets in common stocks and other long-term investments to meet future liabilities and achieve growth over time.

Question 11

Savings banks were originally established to make ________ loans.

Accepted Answer

Savings banks were originally established to make home mortgage loans, providing a means for individuals to purchase homes by saving and borrowing.

Question 12

What type of financial institution raises money from investors by selling shares?

Accepted Answer

A mutual fund is a type of financial institution that raises money from investors by selling shares. The money collected is then invested in a portfolio of securities such as stocks and bonds, with the goal of achieving capital appreciation and income for the shareholders. Credit unions, property and liability insurance companies, and pension funds may raise money from investors or members, but they do not sell shares in the same way as mutual funds.

Question 13

Nina's financial institution has an office next to where she works.Everyone who uses the financial institution's services either works for Nina's employer or is related to someone who does.Nina's financial institution is a ________.

Accepted Answer

A credit union is a financial institution that is owned and controlled by its members, who must have a common bond such as working for the same employer or belonging to the same organization. In this case, everyone who uses the financial institution's services works for Nina's employer or is related to someone who does, making it likely that it is a credit union. A state chartered bank or commercial bank would not necessarily have such a specific membership requirement, while a savings bank is also less likely to have this kind of restriction.

Question 14

________ are financial intermediaries that raise money from investors by selling shares.

Accepted Answer

Mutual funds are financial intermediaries that raise money from investors by selling shares. These investors' money is pooled to make investments in various stocks, bonds, and other securities. The investments are managed by professional portfolio managers who charge a fee for their services. The returns on investments are distributed among the shareholders. Credit unions, pension funds, and insurance companies are other types of financial intermediaries, but they do not sell shares to raise money from investors.

Question 15

All of the following are included in M1 EXCEPT ________.

Accepted Answer

Money market mutual funds are not included in M1 because they are considered to be too liquid and easily converted to cash. M1 includes only the most liquid forms of money such as checking accounts, currency in circulation, and the total value of coins.

Question 16

Which of the following is a benefit of direct banks?

Accepted Answer

Direct banks offer all of these benefits, making them a convenient and cost-effective option for many customers.

Question 17

Which of the following is NOT one of the three major policy tools the Fed has for controlling growth in the supply of money and credit?

Accepted Answer

Check clearing is not a policy tool used by the Fed to control the growth of money and credit. The three major policy tools that the Fed uses are reserve requirements, discount rate, and open market operations.

Question 18

Which of the following financial institutions would typically invest the largest portions of its funds in home mortgage loans?

Accepted Answer

Savings banks are financial institutions that traditionally focus on accepting savings deposits and making mortgage loans, thus they typically invest a large portion of their funds in home mortgage loans.

Question 19

The rate the Fed charges member banks for short-term loans is called the ________.

Accepted Answer

The rate the Fed charges member banks for short-term loans is called the discount rate.

Question 20

Which of the following is a non-depository financial institution?

Accepted Answer

Non-depository financial institutions do not accept deposits from customers, unlike depository institutions such as savings banks, commercial banks, and credit unions. Life insurance companies operate by collecting premiums from policyholders and investing those premium funds to generate returns, making them a non-depository financial institution.

Quiz 16: The Financial System