Question 1

The most liquid asset is

Accepted Answer

Money is considered the most liquid asset because it can easily be converted into other assets, such as goods or services, and is widely accepted as a medium of exchange. Gold and silver also have some liquidity, but they are not as universally accepted as money. Blue-chip stocks are not as liquid as money, as their value can fluctuate and they cannot be easily converted into cash.

Question 2

Which of the following is the most liquid asset?

Accepted Answer

Liquidity refers to the ease with which an asset can be converted into cash without significant loss of value. Currency, being actual physical cash, is the most liquid asset as it can be easily spent or deposited into a bank account for immediate use. Small denomination time deposits, short-term treasury bonds, and shares of stock may all require more time and effort to convert into cash, making them less liquid.

Question 3

Given the list of assets below, which is the most liquid?

Accepted Answer

The most liquid asset is the one that can be easily and quickly converted into cash without losing much value. In this case, a travelers check can be cashed at banks or currency exchange centers without any difficulty or loss in value. The other options involve selling stocks or bonds, which can take time and may result in a loss if the market value has decreased. The gold coin also requires finding a buyer and negotiating a sale price.

Question 4

Liquidity refers to

Accepted Answer

Liquidity refers to the ease with which an asset can be acquired or disposed of without incurring high transaction costs. This means that a highly liquid asset can be quickly bought or sold without significant impact on its price.

Question 5

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

Accepted Answer

A corporate bond cannot be converted to spendable dollars until it matures or is sold to another investor, which makes it less liquid than cash.

Question 6

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

Accepted Answer

Checkable and debitable accounts in commercial banks and other financial institutions are classified as money because they are generally acceptable in the payment of debt. This means that they can be used to settle transactions and debts, making them a form of currency or money. While they may earn interest income for the depositor, this is not the primary reason they are classified as money. Additionally, they are liabilities of the banks and do not require an equal amount of currency held in vaults.

Question 7

The degree to which an asset can be acquired or disposed of without much loss of nominal value or transaction costs is known as

Accepted Answer

Liquidity refers to the ease with which an asset can be bought or sold without affecting its price significantly or incurring substantial transaction costs. Fiat money refers to currency that is not backed by a physical commodity, fiducia refers to trust in another person's ability to fulfill their obligations, and credit refers to borrowing or lending money.

Question 8

The opportunity cost of holding money is measured by

Accepted Answer

The opportunity cost of holding money is the interest yield that could have been earned by holding some other asset, such as bonds or stocks. By holding cash, an individual is sacrificing the potential earnings from these other assets.

Question 9

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 based on trust and faith in the currency, rather than being backed by a specific commodity or metal. The value of the currency is determined by the public's confidence that it will be accepted in trade.

Question 10

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

Accepted Answer

A highly liquid asset can be easily and quickly converted into cash without losing its value or purchasing power. This means that the asset can be sold or traded on short notice without any loss of value. Examples of highly liquid assets include cash, stocks, and government bonds.

Question 11

The cost of holding money is best described as

Accepted Answer

The cost of holding money refers to the opportunity cost of not earning interest or returns on an asset that could have been held instead of money. It is measured as the yield that could have been earned had the asset been held in another form. Choices A, B, and C are incorrect as they do not accurately describe the concept of the cost of holding money.

Question 12

A highly liquid asset

Accepted Answer

A highly liquid asset can be easily disposed of without loss of its value.

Question 13

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 a physical asset like gold or silver, but rather on the public's trust and confidence in the currency's acceptability and predictability of value. This means that the value of the currency is based on the perception of the government's ability to maintain the stability of the currency, control inflation, and perform other economic functions effectively.

Question 14

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. This means that the value of the currency is not tied to a fixed commodity like gold, but rather relies on trust in the government or central bank backing the currency.

Question 15

The ability to quickly convert an asset into cash is

Accepted Answer

The ability to quickly convert an asset into cash is known as liquidity. Disintermediation refers to the removal of intermediaries in a supply chain or financial transaction. The standard of deferred payment refers to the idea that payment for goods or services may be delayed until a later date. Financial intermediation refers to the process by which financial institutions facilitate transactions between borrowers and lenders.

Question 16

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

Accepted Answer

We have a fiduciary monetary system in which currency has both acceptability and predictability of value. This means that people accept the currency because they trust that it will be accepted by others in the future and maintain its value over time. There is no need for the money to have intrinsic value as long as it is widely accepted and trusted.

Question 17

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

Accepted Answer

If an asset is liquid, it can be easily converted to cash without losing its nominal value. Therefore, there is less risk involved in obtaining or disposing of the asset. Fiduciary refers to a legal relationship based on trust and confidence, wealth refers to the abundance of valuable possessions or resources, and valuable simply means the asset has worth or usefulness.

Question 18

What are the functions of money?

Accepted Answer

The answer of What are the functions of money?...

Question 19

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 answer of Which of the following is a correct...

Question 20

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 and does not require any conversion or transaction fees. Savings accounts and checkable deposits have some restrictions and may require time or a fee to withdraw. U.S. government bonds have a maturity date and cannot be easily converted to cash.

Quiz 15: Money, Banking, and Central Banking