Question 1

Which of the following statements BEST explains how financial institutions create money?

Accepted Answer

A)   By opening new checking accounts and giving more people access to readily available cash, financial institutions expand the money supply.
B)   By issuing money through government contracts, financial institutions expand the money supply.
C)   By taking deposits and loaning out these funds, financial institutions expand the money supply.
D)   By paying interest on its accounts and investments, financial institutions expand the money supply.
E)   By giving interest from its accounts to its clients, financial institutions expand the money supply.

Question 2

What recourse is available to the FDIC when a bank fails?

Accepted Answer

A)   Funds can be taken from the insurance deposit fund to pay off creditors.
B)   Employee behavior is monitored and analyzed to ensure ethical behavior.
C)   Interest rates can be raised to offset the cost of payouts.
D)   Other banks are purchased to cover the cost of the failure.
E)   Bank assets can be disposed of in order to pay off debt.

Question 3

Banks are subject to prosecution when they fail to maintain systems for identifying and reporting suspicious activities.

Accepted Answer

A) True 
 B)False

Question 4

Individual retirement accounts can be opened only by self-employed people such as doctors, small business owners, and consultants.

Accepted Answer

A) True 
 B)False  False

Question 5

What types of firms lend to businesses needing capital or long-term funds?

Accepted Answer

A)   Insurance companies
B)   Pension and trust services
C)   Finance companies
D)   Pension funds
E)   Securities investment dealers

Question 6

Money frees society from a system of barter. In doing so, money is performing which of the following functions?

Accepted Answer

A)   Store of value
B)   Measure of worth
C)   Unit of account
D)   Determination factor
E)   Medium of exchange E

Question 7

What is a debit card?

Accepted Answer

Debit cards allow only the transfer of m...

Question 8

Which of the following is a consequence of the divisibility characteristic of money?

Accepted Answer

A)   Units of money do not expire after a certain time limit.
B)   Units of money can be accurately matched with the value of goods.
C)   Units of money are easily carried.
D)   Units of money have relatively stable value.
E)   Units of money of different nations are easily converted to other units of money.

Question 9

Which of the following allows a bank's customers to conduct account related activities any time they choose to?

Accepted Answer

A)   Bank acceptance notes
B)   Letters of credit
C)   Commercial banks
D)   Electronic funds transfers
E)   Automated teller machines

Question 10

What are the components of the M-2 money supply?

Accepted Answer

The M-2 money supply includes everything...

Question 11

Which of the following statements BEST describes why a decrease in reserve requirements often results in an increase in the money supply?

Accepted Answer

A)   A decrease in reserve requirements gives banks more money to better determine their interest rates.
B)   A decrease in reserve requirements gives banks more money to pay off their debts.
C)   A decrease in reserve requirements gives banks more money to lend out.
D)   A decrease in reserve requirements gives banks more money to offset lower interest rates.
E)   A decrease in reserve requirements gives banks more money to reward their employees for meritorious financial ventures. C

Question 12

Which of the following terms refers to the interest level at which member banks can borrow money from the Federal Reserve System?

Accepted Answer

A)   Discount rate
B)   Key rate
C)   Prime rate
D)   Federal insurance premium
E)   Reserve requirement

Question 13

Which of the following terms represents a promise by the bank to pay a firm on behalf of another firm, if specified conditions are met?

Accepted Answer

A)   Banker's acceptance
B)   Bank trust service
C)   Certified check
D)   Letter of credit
E)   Currency exchange agreement

Question 14

Which of the following use an embedded computer chip that is programed with electronic money for individual consumer purchases?

Accepted Answer

A)   Smart cards
B)   Blink cards
C)   Debit cards
D)   E-commerce cards
E)   Credit cards

Question 15

Which of the three functions of money does a time deposit account MOST exemplify?

Accepted Answer

By definition, a time deposit account ha...

Question 16

Savings and loan associations began primarily to loan money to small and medium-sized businesses.

Accepted Answer

A) True 
 B)False

Question 17

What is the role of the International Monetary Fund?

Accepted Answer

A)   To provide long-term loans to member countries
B)   To provide a system of rules and procedures for member countries who trade with each other
C)   To limit the amount of loans available to member nations who have negative trade balances
D)   To encourage the development of a system for international payments
E)   To determine the value of currency and exchange rates for member nations

Question 18

Which of the following terms refers to the interest level at which commercial banks lend reserves to each other, usually overnight?

Accepted Answer

A)   Discount rate
B)   Key rate
C)   Prime rate
D)   Federal insurance premium
E)   Reserve requirement

Question 19

Why might nations decline International Monetary Fund funds?

Accepted Answer

Such nations may not want to accept the ...

Question 20

The divisibility characteristic of money is illustrated by a financial company's ability to divide its monetary assets among several investments.

Accepted Answer

A) True 
 B)False

Exam 16: Understanding Money and the Role of Banking

Which of the following statements BEST explains how financial institutions create money?

Correct AnswerverifiedShow Answer

What recourse is available to the FDIC when a bank fails?

Correct AnswerverifiedShow Answer

Banks are subject to prosecution when they fail to maintain systems for identifying and reporting suspicious activities.

Correct AnswerverifiedShow Answer

Individual retirement accounts can be opened only by self-employed people such as doctors, small business owners, and consultants.

Correct AnswerverifiedFalse

What types of firms lend to businesses needing capital or long-term funds?

Correct AnswerverifiedShow Answer

Money frees society from a system of barter. In doing so, money is performing which of the following functions?

Correct AnswerverifiedE

What is a debit card?

Correct AnswerverifiedDebit cards allow only the transfer of m...View AnswerShow Answer

Which of the following is a consequence of the divisibility characteristic of money?

Correct AnswerverifiedShow Answer

Which of the following allows a bank's customers to conduct account related activities any time they choose to?

Correct AnswerverifiedShow Answer

What are the components of the M-2 money supply?

Correct AnswerverifiedThe M-2 money supply includes everything...View AnswerShow Answer

Which of the following statements BEST describes why a decrease in reserve requirements often results in an increase in the money supply?

Correct AnswerverifiedC

Which of the following terms refers to the interest level at which member banks can borrow money from the Federal Reserve System?

Correct AnswerverifiedShow Answer

Which of the following terms represents a promise by the bank to pay a firm on behalf of another firm, if specified conditions are met?

Correct AnswerverifiedShow Answer

Which of the following use an embedded computer chip that is programed with electronic money for individual consumer purchases?

Correct AnswerverifiedShow Answer

Which of the three functions of money does a time deposit account MOST exemplify?

Correct AnswerverifiedBy definition, a time deposit account ha...View AnswerShow Answer

Savings and loan associations began primarily to loan money to small and medium-sized businesses.

Correct AnswerverifiedShow Answer

What is the role of the International Monetary Fund?

Correct AnswerverifiedShow Answer

Which of the following terms refers to the interest level at which commercial banks lend reserves to each other, usually overnight?

Correct AnswerverifiedShow Answer

Why might nations decline International Monetary Fund funds?

Correct AnswerverifiedSuch nations may not want to accept the ...View AnswerShow Answer

The divisibility characteristic of money is illustrated by a financial company's ability to divide its monetary assets among several investments.

Correct AnswerverifiedShow Answer

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False

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E

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Debit cards allow only the transfer of m...
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The M-2 money supply includes everything...
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C

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By definition, a time deposit account ha...
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Such nations may not want to accept the ...
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