Question 1

A financial intermediary that sells shares in itself to the public,and then uses the funds to buy a wide variety of financial assets is called a:

Accepted Answer

This describes a mutual fund, which pools money from many investors and uses that money to buy a diversified portfolio of stocks, bonds, or other securities. The shareholders in the mutual fund then earn returns based on the performance of the underlying assets.

Question 2

If you use $1,000 to purchase silver bullion,which you plan to keep in a safe,you are using money as:

Accepted Answer

In this case you use money to purchase a non-money asset, so the money is used as a medium of exchange. Note that the silver bullion is not a commonly accepted form of money.

Question 3

When a baker exchanges a pie for dollars,this is an example of dollars serving as:

Accepted Answer

Dollars are serving as a medium of exchange in this transaction, as they are being used to exchange for goods or services. Barter is the exchange of goods or services without using money, whereas a unit of account measures the value of goods and services in terms of money, and a store of value refers to the ability of money to hold its value over time.

Question 4

The ongoing search by savers for high returns leads the bond and stock markets to direct funds to the uses that appear:

Accepted Answer

Savers direct their funds to uses that are most likely to be productive in order to achieve high returns. This typically involves investing in companies or projects that have the potential for growth and profitability. Investing in options that are least likely to be productive or have no risk may result in low or no returns. Investing in options that have the least risk may not necessarily result in high returns. Therefore, the best choice is to direct funds to uses that are most likely to be productive.

Question 5

When your grandfather keeps a bundle of $100 dollar bills behind a brick in the basement,this is an example of dollars serving as:

Accepted Answer

Dollars are serving as a store of value, as they are being kept in a physical location for future use or investment. They are not being used as bank reserves, a medium of exchange, or a unit of account in this scenario.

Question 6

If you put a $20 bill in the pocket of your winter coat at the beginning of spring so that you will be surprised when you find it again next winter,you are using money as:

Accepted Answer

Money used as a store of value means that people can save it and use it to make purchases in the future. In this scenario, the $20 bill is being stored for future use, making it a store of value.

Question 7

If you post your car on eBay with a Buy-It-Now price of $1,800,you are using money as:

Accepted Answer

In this case you are use money to set the price of an asset. Thus, money is used as a unit of account.

Question 8

Stock prices increase when expected future dividends ____,interest rates _____,and/or the risk premium ______.

Accepted Answer

Higher future dividends increases the expected future value of a stock, which increases the stock price as it makes the stock more attractive compared to alternate assets. Similarly, when market interest rates fall, newly issued bonds become less attractive compared to stocks, so stock prices increase as savers choose to move funds to stocks from bonds. Finally, when a stock's riskiness falls, there is a smaller risk premium, which also causes a stock's price to rise.

Question 9

The direct trade of goods and services for other goods and services is called:

Accepted Answer

The direct trade of goods and services for other goods and services is called barter. Financial intermediation involves the use of a middleman, such as a bank or broker, to facilitate transactions. Diversification refers to spreading out investments to minimize risk. Using a medium of exchange involves the use of a common currency to exchange goods and services.

Question 10

Money is:

Accepted Answer

Money refers to any asset that can be used to make purchases. Income refers to the money that an individual or entity earns through working or investments. Financial assets are a subset of money, which includes stocks, bonds, and other tradable securities. The sum of assets minus debts refers to net worth, which is not the same as money.

Question 11

You own shares in a start-up internet company.If large swings in the stock market increase financial investors' concerns about market risk,then the price of your shares will _____,holding other factors constant.

Accepted Answer

Large swings in the stock market increase investors' concerns about market risk, which is reflected in the price of the shares. This would lead to a decrease in the price of your shares, holding other factors constant.

Question 12

Suppose you have $200 with which you can buy shares of stock from two companies: ABC Hot Chocolate Company and XYZ Lemonade.Each company's stock currently sells for $100 per share.If the temperature next year is lower than average,the stock price for ABC will increase by $20,and the stock price for XYZ will not change.If the temperature next year is higher than average,the stock price for XYZ will increase by $20,and the stock price for ABC will not change.There is a 50% chance that it will be colder than average next year,and a 25% chance that it will be warmer than average.If you purchase one share of ABC stock and one shares of XYZ stock,there is a ______ chance that your gain will be $20.Otherwise,your gain will be ______.

Accepted Answer

The answer of Suppose you have $200 with which you...

Question 13

Money serves as a medium of exchange when:

Accepted Answer

Money is considered a medium of exchange when it is used to purchase goods and services. In this role, money facilitates trade and makes it easier for people to exchange their resources and assets.

Question 14

Finding both parties to a trade who have something the other party wishes to trade for is called a:

Accepted Answer

Double coincidence of wants is the situation where two parties are willing to exchange their goods/services and also have something that the other party desires. It is a necessary condition for a barter system to function efficiently.

Question 15

Suppose you have $200 with which you can buy shares of stock from two companies: ABC Hot Chocolate Company and XYZ Lemonade.Each company's stock currently sells for $100 per share.If the temperature next year is lower than average,the stock price for ABC will increase by $20,and the stock price for XYZ will not change.If the temperature next year is higher than average,the stock price for XYZ will increase by $20,and the stock price for ABC will not change.There is a 50% chance that it will be colder than average next year,and a 25% chance that it will be warmer than average.If you purchase two shares of ABC stock and no shares of XYZ stock,there is a ______ chance that your gain will be $40.Otherwise,your gain will be ______.

Accepted Answer

The answer of Suppose you have $200 with which you...

Question 16

Double coincidence of wants is avoided if money is used as a:

Accepted Answer

Money as a medium of exchange allows individuals to buy and sell goods and services without needing to have a coincidence of wants. Instead of needing to find someone who has what you want and wants what you have, people can use money to buy and sell items with others, regardless of their individual wants and needs. The other options (B, C, and D) are important functions of money but do not directly address the issue of double coincidence of wants.

Question 17

You own shares in a well-managed and diversified company.If a booming economy decreases investors' concerns about market risk,then the price of your shares will _____,holding other factors constant.

Accepted Answer

A booming economy typically leads to increased optimism and confidence about the future of the market, which can lead to increased demand for shares of well-managed and diversified companies. As a result, the price of your shares is likely to increase.

Question 18

Suppose you have $200 with which you can buy shares of stock from two companies: ABC Hot Chocolate Company and XYZ Lemonade.Each company's stock currently sells for $100 per share.If the temperature next year is lower than average,the stock price for ABC will increase by $20,and the stock price for XYZ will not change.If the temperature next year is higher than average,the stock price for XYZ will increase by $20,and the stock price for ABC will not change.There is a 50% chance that it will be colder than average next year,and a 25% chance that it will be warmer than average.If you purchase two shares of XYZ stock and no shares of ABC stock,there is a ______ chance that your gain will be $40.Otherwise,your gain will be ______.

Accepted Answer

The answer of Suppose you have $200 with which you...

Question 19

The practice of spreading one's wealth over a variety of different financial investments in order to reduce overall risk is called:

Accepted Answer

Diversification involves spreading one's wealth over various financial investments, such as stocks, bonds, and real estate, in order to reduce the overall risk of losing money. By diversifying their portfolio, an investor can decrease the impact of any single investment on their overall portfolio, thereby reducing their exposure to risk. This is an effective way for investors to manage risk and potentially increase their returns.

Question 20

Your financial investments consist of U.S.government bonds maturing in twenty years and shares in a start-up internet company.If interest rates on newly issued government bonds increase,then the price of your bonds will ______ and the price of the shares you own will ____.

Accepted Answer

If the price of newly-issued bonds increases, then the price of current bonds will decrease. Similarly, the price of shares you own will also fall because those shares become less attractive when compared to newly-issued bonds.

Quiz 20: Money, Prices, and the Financial System

A financial intermediary that sells shares in itself to the public,and then uses the funds to buy a wide variety of financial assets is called a:

If you use $1,000 to purchase silver bullion,which you plan to keep in a safe,you are using money as:

When a baker exchanges a pie for dollars,this is an example of dollars serving as:

The ongoing search by savers for high returns leads the bond and stock markets to direct funds to the uses that appear:

When your grandfather keeps a bundle of $100 dollar bills behind a brick in the basement,this is an example of dollars serving as:

If you put a $20 bill in the pocket of your winter coat at the beginning of spring so that you will be surprised when you find it again next winter,you are using money as:

If you post your car on eBay with a Buy-It-Now price of $1,800,you are using money as:

Stock prices increase when expected future dividends __,interest rates _,and/or the risk premium ____.

The direct trade of goods and services for other goods and services is called:

Money is:

You own shares in a start-up internet company.If large swings in the stock market increase financial investors' concerns about market risk,then the price of your shares will _____,holding other factors constant.

Money serves as a medium of exchange when:

Finding both parties to a trade who have something the other party wishes to trade for is called a:

Double coincidence of wants is avoided if money is used as a:

You own shares in a well-managed and diversified company.If a booming economy decreases investors' concerns about market risk,then the price of your shares will _____,holding other factors constant.

The practice of spreading one's wealth over a variety of different financial investments in order to reduce overall risk is called:

Your financial investments consist of U.S.government bonds maturing in twenty years and shares in a start-up internet company.If interest rates on newly issued government bonds increase,then the price of your bonds will __ and the price of the shares you own will .