Test Questions & Answers Ch15 Money And The Financial System

Chapter 15

Money and the Financial System

True / False Questions

1.	Money is a medium of exchange. True False

2.	Certificates of deposit are accounts with funds that usually cannot be withdrawn without advance notice and/or have limits on the number of withdrawals per period. True False

3.	When the Federal Reserve Board (the Fed) buys securities, it decreases the money in circulation. True False

4.	A credit union is owned and controlled by the government. True False

5.	Finance companies offer short-term loans at substantially higher rates of interest than banks. True False

Multiple Choice Questions

_____ is the study of how money is managed by individuals, companies, and governments.

A.	Accounting

Banking

Finance

Economics

Budgeting

Which of the following statements is true of money?

A.	It is not a gold-backed currency.

B.	It is not readily convertible to precious metal.

C.	It is anything accepted in exchange for goods and services.

D.	It is exclusively dispatched through automated teller machines.

E.	It needs to be accompanied by a government "note" or promise to be considered valid.

_____ is best described as a paper money that is not readily convertible to a precious metal such as gold.

A bitcoin

B.	A credit card

C.	A debit card

D.	Plastic money

E.	Fiat money

Linda lives in a small farming town in Wyoming. When she needs to buy farming equipment and supplies, she uses the milk, eggs, and plants her farm produces as currency. What concept does this scenario best describe?

A.	using materials that have their own value to society as money

B.	using unlimited-supply commodities as money

C.	using "IOUs" as money

D.	bartering unlimited goods for limited goods

E.	bartering unlimited goods for other unlimited goods

10.

Matt lives in an apartment in New York. Every month, he must pay rent and utilities to stay in his apartment. This is an example of a(n) _____ action.

financing

investing

C.	entertainment

operating

essential

11.

Danielle has taught spin classes at a large gym for several years. Recently, she decided to start her own spin studio. Which of the following types of actions does this scenario best describe?

A.	entertainment actions

B.	financing actions

C.	operating actions

D.	investing actions

E.	essential actions

12.

Darrell owns and operates a small farm that produces vegetables and fruits. His friend Marcus owns and operates a butchery shop that sells various kinds of meat. Darrell often gives Marcus vegetables and fruits in exchange for meat, and vice versa. This scenario best describes

A.	using fiat money.

B.	using "IOUs."

C.	purchasing.

D.	operating actions.

E.	bartering.

13.

Which of the following is a simpler medium of exchange than bartering?

A.	making it possible for any item to be freely converted to any other good upon agreement between parties

B.	determining set values for types of goods, so they can be converted more easily to other goods

C.	reducing the list of items that can be used as currency

D.	deciding on a single item that can be freely converted to any other good upon agreement between parties

E.	adding a middleman to all transactions to mediate between the buyer and seller

14.

As a measure of value, money primarily serves as a(n)

A.	varying denominator that allows people to compare the different goods and services that can be consumed at various income levels.

B.	common standard or yardstick of the worth of goods and services.

C.	way to accumulate wealth.

D.	agent contributing to inflation.

E.	agent contributing to deflation.

15.

Courtney wants to buy her first house. She has done online research and determined that most houses that have the features she wants cost around $400,000. She hires a real estate agent who helps her find and buy a house for $395,000. Which of the following functions of money does this scenario best describe?

A.	means of savings

B.	store of value

C.	measure of value

D.	medium of exchange

E.	counterfeit deterrent

16.

When money serves as a way to accumulate wealth, money primarily functions as a

A.	yardstick of value.

B.	store of value.

C.	measure of value.

D.	medium of exchange.

E.	counterfeit deterrent.

17.

Mary makes $3500 a month working as a dental hygienist. She wants to buy a used car for $8000. She plans to save $2000 per month for 4 months to buy the car. Which of the following functions of money does this scenario best describe?

A.	measure of value

B.	medium of exchange

C.	yardstick of value

D.	means of bartering

E.	store of value

18.

All of the following are true regarding deflation EXCEPT it

A.	is always a good thing for consumers.

B.	can be just as problematic as inflation.

C.	often leads to increases in debt burdens.

D.	usually indicates slow economic growth and falling prices.

E.	tends to be an indicator of problems in the economy.

19.

To be used as a medium of exchange, money must be

A.	non-portable.

durable.

imitable.

D.	indivisible.

flexible.

20.

As a medium of exchange, money

A.	makes it harder to trade.

B.	creates a complicated service structure.

C.	reduces the need for bartering.

D.	is indivisible.

E.	can easily be counterfeited.

21.

Ryan traded his tablet PC for a cellphone. Since both were of the same value, there was no exchange of money. Which of the following concepts does this scenario illustrate?

A.	discounting

checking

bartering

accruing

devaluing

22.

To be effective, money must be readily received for the purchase of goods and services and for the settlement of debts. Which of the following characteristics of money does this statement reflect?

A.	divisibility

B.	durability

C.	acceptability

stability

E.	portability

23.

IMagicCards.com is a website that allows its members to trade their Magic: The Gathering cards with other members. Since the website's founders do not trust the value of money in relation to the cards, they require members to use only Magic cards as currency, rather than money. Which characteristic of money does this scenario best relate to?

A.	divisibility

B.	acceptability

C.	portability

stability

E.	durability

24.

For money to serve effectively as a measure of value, all items must be valued in terms of comparable units. Which of the following characteristics of money does this statement reflect?

A.	divisibility

B.	durability

C.	acceptability

stability

E.	portability

25.

For money to function as a medium of exchange, it must be easily moved from one location to the next. Which of the following characteristics of money does this statement reflect?

A.	divisibility

B.	durability

C.	acceptability

stability

E.	portability

26.

Which of the following characteristics of money allows people to postpone purchases and save their money to do so?

A.	divisibility

B.	imitability

C.	acceptability

stability

E.	portability

27.

Paula is a high school senior who wants to buy a prom dress that costs $150. She postpones purchasing the dress and gets a weekend job at a grocery store to save money for it. After two months of saving, she is able to buy the dress. Which of the following characteristics of money does this scenario best relate to?

A.	durability

B.	portability

stability

D.	acceptability

E.	divisibility

28.

Which of the following is likely to occur in a country where money is unstable?

A.	People will spend their money as fast as they can to keep it from losing more of its value.

B.	People will save money instead of spending it keep it from losing its value.

C.	People from other countries will invest more in the country to reap the potential benefits of this instability.

D.	People will increasingly store their savings in paper money, rather than assets like gold and land.

E.	People will continue to be confident in the nation's money because they are naturally optimistic.

29.

The life expectancy of a $20 bill is estimated to be 7.7 years. Which of the following characteristics of money does this statement illustrate?

A.	divisibility

B.	durability

C.	acceptability

stability

E.	portability

30.

U.S. money includes subtle colors in addition to the traditional green, as well as enhanced security features, such as a watermark, security thread, and color-shifting ink. Which of the following characteristics of money is being protected by these measures?

A.	acceptability

B.	difficulty to counterfeit

C.	divisibility

stability

E.	portability

31.

Coins are used primarily to provide

A.	acceptability.

B.	inimitability.

C.	divisibility.

D.	stability.

E.	portability.

32.

Stan's older sister tells him that she could buy more toffee candies for a dollar when she was his age than she can now. Stan's sister is referring to the _____ of money.

A.	acceptability

B.	inimitability

C.	divisibility

stability

E.	portability

33.

All of the following are true regarding coins EXCEPT

A.	they cost more to manufacture than they are worth monetarily.

B.	counterfeiting is not as much of an issue with coins as it is with bills.

C.	they are less portable than paper currency.

D.	they are primarily used because of their durability.

E.	their widespread use makes divisibility an important characteristic of money.

34.

The country of Maglia decided to stop holding its currency at a fixed exchange rate with the euro. All of the following are effects this change would have on the investment potential in Maglia EXCEPT

A.	its exports will be more expensive.

B.	its imports will be less expensive.

C.	investors will suffer massive losses.

D.	its stock market will flourish.

E.	investments in this country will no longer be viewed as safe.

35.

Which of the following characteristics of money explains why many countries are discontinuing large denominated bills?

A.	portability

B.	divisibility

C.	difficulty to counterfeit

stability

E.	exchangeability

36.

According to the Federal Reserve Board, what is the estimated life span of $1 notes?

1.3 years

3.7 years

4.9 years

5.9 years

7.7 years

37.

Why is the life span of a $5 note likely to be shorter than that of a $100 note?

A.	A $100 note rates higher on divisibility.

B.	A $100 note rates lower on portability.

C.	A $100 note is more stable.

D.	A $100 note is less frequently passed between users.

E.	A $100 note can easily be imitated.

38.

Money must be very difficult to counterfeit, that is, to

A.	convert into another form of currency.

B.	divide into smaller units.

C.	store as assets.

D.	duplicate illegally.

E.	use for cumbersome bartering.

39.

_____ are preferred over currency for many transactions due to their lower risk of loss.

Bitcoins

Coins

Checks

Gold bars

E.	Real assets

40.

Which of the following is true of checks?

A.	They have a higher risk of loss than currency for transactions.

B.	They have a time limit of 30 days.

C.	They cannot be canceled by means of a stop payment once they are signed.

D.	They are not a substitute for currency and coins.

E.	They can be rendered worthless in case of a suspected forgery.

41.

The acronym NOW, when used by financial institutions, stands for _____ and is a type of interest-bearing checking account.

A.	Near Order Withdrawal

B.	Negotiable Order of Waiver

C.	Near Order of Waiver

D.	Negotiable Order of Withdrawal

E.	Negative Order of Withdrawal

42.

Every month, Charlotte receives a bill in the mail from her mortgage company. By the first of each month, she must send back her payment, along with the bottom part of the bill, which includes her account information and the amount enclosed. She pays these mortgage bills using a form of payment that is essentially a written order to her bank to pay the mortgage company the specified amount from the money in her bank account. What form of payment is Charlotte using in this scenario?

A.	paper money

B.	a certificate of deposit

a check

D.	a line of credit

E.	a debit payment

43.

Savings accounts are also known as

A.	interest deposits.

B.	term deposits.

C.	demand deposits.

D.	time deposits.

E.	certificates of deposit.

44.

Which of the following is true regarding savings accounts?

A.	Their funds can be withdrawn without advance notice.

B.	They do not have limits on the number of withdrawals per period.

C.	They are usually used for transactions.

D.	Their funds can be moved to a checking account or turned into cash.

E.	They are generally used as a medium of exchange.

45.

_____ accounts are similar to interest-bearing checking accounts, but with more restrictions.

Current

B.	Certificates of deposit

C.	Money market

Savings

E.	Negotiable Order of Withdrawal

46.

Jeremy wants to open a new bank account. He is looking for an account with a good interest rate that he can mostly use for savings but that he can also write a few checks from each month, to pay his mortgage and utility bills. Which type of account would Jeremy most likely open?

A.	a checking account

B.	a savings account

C.	a certificate of deposit account

D.	a time deposit account

E.	a money market account

47.

_____ are savings accounts that guarantee a depositor a set interest rate over a specified interval of time as long as the funds are not withdrawn prematurely.

A.	Certificates of deposits

B.	Checking accounts

C.	Money market accounts

D.	Demand deposits

E.	Negotiable Order of Withdrawal accounts

48.

When Samantha's grandfather died, he left her $25,000. Since she doesn't plan to spend the money anytime soon, she decided to open an account that will guarantee her a fixed interest rate of 5% for five years. With this type of account, if she withdraws funds before the 5 years pass, she will have to pay a substantial penalty. What type of account did Samantha open?

A.	a Negotiable Order of Withdrawal account

B.	a checking account

C.	a money market account

D.	a demand deposit account

E.	a certificate of deposit

49.

A money market account differs from an interest-bearing checking account in that the owners of a money market account

A.	can write only a limited number of checks each month.

B.	can take out their funds whenever they want in specific denominations.

C.	can withdraw funds only at the time of their retirement.

D.	cannot convert the funds into cash.

E.	cannot withdraw the funds without an advance notice of six months.

50.

In general, the longer the term of a certificate of deposit, the

A.	higher is its liquidity.

B.	higher is its interest rate.

C.	lower is its value.

D.	lower is its interest rate.

E.	higher is its inflation rate.

51.

Credit cards

A.	work like checks.

B.	allow cardholders to pay for transactions at a later date.

C.	offer no purchase "grace period."

D.	do not charge any interest on a cardholder's unpaid balance.

E.	are the same as debit cards.

52.

If consumers do not pay off their entire credit card balance, they

A.	have to pay interest on the total paid and unpaid amount.

B.	will receive interest on the paid amount.

C.	have to pay interest on the unpaid amount.

D.	will get a rebate from the card issuer.

E.	have their purchased goods repossessed by the creditors.

53.

Which of the following is a reason that credit cards are a popular substitute for cash payments?

A.	They provide tax benefits.

B.	They exempt users from paying transaction fees to merchants.

C.	They allow users to avail interest-free credit.

D.	They allow merchants to avail unlimited credit.

E.	They are accepted by merchants around the world.

54.

MoneyCard is a credit card company that allows people to make purchases and pay at a later date, using preapproved lines of credit. All of the following describe the relationship between MoneyCard and merchants EXCEPT

A.	merchants charge MoneyCard a transaction fee for each customer purchase.

B.	MoneyCard guarantees payment of a credit charge to merchants.

C.	MoneyCard assumes responsibility for collecting customers' money for merchants for credit charges.

D.	merchants pay a transaction fee to MoneyCard for performing credit checks and guaranteeing and collecting payments from customers.

E.	MoneyCard is accepted by merchants around the world.

55.

Shop Mart, a large grocery store, has its own credit card that customers can sign up for to save money. Customers using this card receive weekly coupons for items in the store. What type of credit card is described in this scenario?

A.	a reward card

B.	a debit card

C.	a wholesale club card

D.	a standard credit card

E.	a cash-back card

56.

All of the following are ways the Credit CARD Act of 2009 regulates the practices of credit card companies EXCEPT it

A.	limited credit to young adults.

B.	gave people less time to pay bills.

C.	required young adults under the age of 21 to have an adult co-signer or prove their income level.

D.	limited the ability of card issuers to raise interest rates.

E.	made clearer due dates on billing cycles.

57.

A debit card

A.	provides a hard "paper trail."

B.	allows cardholders to pay for transactions at a later date.

C.	offers a purchase "grace period."

D.	looks like a credit card but works like a check.

E.	has credit features.

58.

Which of the following is a reason that financial institutions want consumers to use debit cards?

A.	For every transaction, the financial institution receives a transaction fee from merchants.

B.	They give the institution a hard "paper trail" for customer transactions.

C.	They increase the amount of interaction the institution has with its customers.

D.	They allow institutions to replace all their banks with less expensive ATMs.

E.	They reduce the number of teller transactions and check processing costs.

59.

Which of the following is a major difference between credit cards and debit cards?

A.	Credit cards result in immediate payment, while debit card payments take longer to process.

B.	Debit cards offer a purchase "grace period," while credit cards do not.

C.	Debit cards do not have the same level of protection as credit cards.

D.	Debit cards provide a "paper trail," while credit cards do not.

E.	It is easier for computer hackers to steal credit card information than debit card information.

60.

The _____ is the guardian of the American financial system.

A.	Federal Savings and Loan Insurance Corporation

B.	Federal Deposit Insurance Corporation

C.	New York Federal Reserve Bank

D.	Federal Reserve Board

E.	National Credit Union Administration

61.

The Federal Reserve Board was established by Congress in 1913 to

A.	provide benefits to retirees and the unemployed.

B.	regulate corporate money laundering.

C.	collect taxes and enforce the Internal Revenue Code.

D.	regulate the banking industry.

E.	facilitate global monetary cooperation.

62.

All of the following are major responsibilities of the Federal Reserve Board EXCEPT

A.	controlling the supply of money.

B.	providing short-term loans to businesses.

C.	regulating banks and other financial institutions.

D.	managing regional and national checking account procedures.

E.	supervising the federal deposit insurance programs of banks belonging to the Federal Reserve System.

63.

The Federal Reserve Board controls the amount of money available in the economy

A.	by issuing credit cards.

B.	through monetary policy.

C.	by printing new currency notes.

D.	by levying heavy taxes.

E.	through certificates of deposit.

64.

Open market operations refer to decisions to

A.	buy or sell U.S. Treasury bills and other investments in the open market.

B.	issue savings accounts and certificates of deposit in the open market.

C.	regulate and charter credit unions in the open market.

D.	set a credit limit for the credit cards.

E.	regulate income tax rates for the open market.

65.

The actual purchase or sale of investments in the open market is performed by the

A.	Federal Savings and Loan Insurance Corporation.

B.	Federal Deposit Insurance Corporation.

C.	National Credit Union Administration.

D.	Federal Reserve Board.

E.	New York Federal Reserve Bank.

66.

Which of the following actions is the Federal Reserve Board most likely to take in an attempt to increase the money supply in the economy?

A.	raise reserve requirements

B.	buy government securities

C.	print more money

D.	raise discount rates

E.	restrict credit controls

67.

When the Federal Reserve Board sells government securities, the

A.	money supply in the economy decreases.

B.	money supply in the economy increases.

C.	property taxes increase.

D.	property taxes decrease.

E.	money supply in the market becomes stable.

68.

Marty's Savings Bank is holding $20 million in deposits, with a 10 percent reserve requirement. As a result, the bank must have reserves of $2 million. If the Federal Reserve Board reduced the reserve requirement to 5 percent, what would this mean for Marty's Savings Bank?

A.	The bank could lend to customers the $1 million difference between the old reserve level and the new lower reserve level.

B.	The bank would be grandfathered into the old reserve level, so nothing would change.

C.	The bank could decide whether to keep the old reserve level or switch to the new lower reserve level.

D.	The bank would have to ask the Federal Reserve Board for permission to switch to the new lower reserve level.

E.	The bank would have to check with its customers before switching to the new lower reserve level.

69.

Which of the following effects is seen on the money supply and the economy when the Federal Reserve Board raises the discount rate?

A.	Interest rates decrease, the money supply increases, and economic activity increases.

B.	Interest rates increase, the money supply decreases, and economic activity slows down.

C.	Banks make more loans, the money supply increases, and economic activity increases.

D.	People are encouraged to make major purchases, increasing economic activity.

E.	Inflation increases, the money supply increases, and economic activity increases.

70.

There is an increase in economic activity when the Federal Reserve Board

A.	sells government securities.

B.	lowers the discount rate.

C.	increases reserve requirements.

D.	restricts credit controls.

E.	sells investments.

71.

When the Federal Reserve Board increases the reserve requirements, the

A.	money supply declines.

B.	amount of money in circulation increases.

C.	amount of insurance for accounts increases.

D.	checks in the system are declared invalid.

E.	percentage of deposits that banks must hold in reserve declines.

72.

Savers Bank is unable to meet the Federal Reserve Board's reserve requirements, so it must take a loan from the Fed. In this scenario, Savers Bank is said to have borrowed at the

A.	"reserve source."

B.	"discount door."

C.	"discount window."

D.	"reserve window."

E.	"reserve discount."

73.

In regards to the Federal Reserve Board's credit controls, which of the following can the Fed do?

A.	determine who can and cannot have credit cards

B.	determine whether a business can or cannot accept credit card payments

C.	prevent certain items from being purchased with credit cards

D.	raise and lower minimum down payment amounts and payment periods

E.	raise and lower the prices for items that are commonly purchased with credit cards

74.

Which of the following effects is seen on the money supply and the economy when the Federal Reserve Board restricts credit controls?

A.	More people are encouraged to make major purchases, increasing economic activity.

B.	Banks make fewer loans, the money supply declines, and economic activity slows down.

C.	Banks make more loans, the money supply increases, and economic activity increases.

D.	Interest rates increase, the money supply decreases, and economic activity slows down.

E.	People are discouraged from making major purchases, decreasing economic activity.

75.

Cheryl is an investor who purchases stock using credit. If the Federal Reserve Board lowers the margin requirement on buying stock with credit, what would Cheryl be likely to do?

A.	consider investing in other items besides stock

B.	trade some stock

C.	sell all her stock

D.	keep her stock as is

E.	buy more stock

76.

All of the following are actions the Federal Reserve Board takes as part of its regulatory functions EXCEPT

A.	controlling the total amount of credit borrowing in the stock market.

B.	establishing and enforcing banking rules that affect monetary policy and the overall level of competition between different banks.

C.	approving or disapproving mergers between banks and the formation of bank holding companies.

D.	determining which nonbanking activities, such as brokerage services, leasing, and insurance, are appropriate for banks and which should be prohibited.

E.	conducting surprise bank examinations to ensure that all rules are enforced and that correct accounting procedures are being followed.

77.

With the passage of the Check Clearing for the 21st Century Act (Check 21 Act), which of the following is now possible?

A.	Checks can be sent for free via a new overnight delivery service.

B.	Checks can be processed in less than a week.

C.	Checks can be processed in a day.

D.	Checks can be sent electronically, so banks can process them while they wait for the actual check to arrive for clearing.

E.	Checks have been replaced with an electronic form banks can fill out.

78.

The oldest and largest of all financial institutions are

A.	thrift institutions.

B.	credit unions.

C.	savings and loans associations.

D.	insurance companies.

E.	commercial banks.

79.

Commercial banks

A.	rely on checking and savings accounts for funds.

B.	invest exclusively in residential mortgages.

C.	use all their funds to make loans to businesses.

D.	are the most recently established of all financial institutions.

E.	do not provide loans for vacations.

80.

The _____ Act prohibited commercial banks from being in the insurance and investment banking business.

A.	Celler-Kefauver

B.	Sarbanes-Oxley

C.	Gramm-Leach-Bliley

D.	Glass-Steagall

E.	Dodd-Frank

81.

The _____ Act repealed the Glass-Steagall Act, putting U.S. commercial banks on the same competitive footing as European banks and providing a more level playing field for global banking competition.

A.	Sarbanes-Oxley

B.	Celler-Kefauver

C.	Dodd-Frank

D.	Credit CARD

E.	Gramm-Leach-Bliley

82.

Which of the following acts restricted commercial banks from engaging in certain high-risk trading activities and also raised the required capital that banks must hold on their balance sheets?

A.	The Federal Deposit Insurance Act

B.	The Financial Services Modernization Act

C.	The Gramm-Leach-Bliley Act

D.	The Glass-Steagall Act

E.	The Dodd-Frank Act

83.

Miranda runs a small backyard horse boarding stable. When her truck broke down and needed to be replaced, she went to the bank to take out a home equity loan, which allowed her to borrow money against the appraised value of her home. Which type of bank would Miranda most likely go to for this type of loan?

A.	a savings and loan association

B.	a commercial bank

C.	a credit union

D.	a mutual savings bank

E.	an independent savings bank

84.

_____, often called "thrifts," are financial institutions that primarily offer savings accounts and make long-term loans for residential mortgages.

A.	Commercial banks

B.	Credit unions

C.	Savings and loan associations

D.	Mutual savings banks

E.	Insurance companies

85.

A _____ is a loan made so that a business or individual can purchase real estate, typically a home.

credit

mortgage

C.	collateral

thrift

debit

86.

Mandy and Derek recently got married, and now, they are ready to purchase their first home together. After finding the house they want to buy, they went to a savings and loan association to get a mortgage. What will happen if Mandy and Derek are ever unable to make their mortgage payments?

A.	The savings and loan association will accept Mandy and Derek's possessions, such as cars, appliances, and electronics, in lieu of payments.

B.	The savings and loan association has the right to repossess their house.

C.	The savings and loan association will give them discounts to help them pay their mortgage.

D.	The savings and loan association will waive their interest to make the mortgage payments more manageable.

E.	The savings and loan association will extend the time Mandy and Derek have to make the payments.

87.

Employees of a local school conduct their financial transactions through a financial institution, which is also owned by them. This financial institution is most likely to be a(n)

A.	commercial bank.

B.	credit union.

C.	savings and loan association.

D.	insurance company.

E.	federal bank.

88.

The major difference between banks and credit unions is that

A.	credit unions have higher default rates than banks.

B.	banks distribute their profits to depositors.

C.	credit unions have higher loan rates and lower interest rates than banks.

D.	bank depositors get to vote for the bank directors.

E.	credit unions are owned and controlled by their depositors.

89.

Jolene works at a hospital that has its own credit union. Her savings account at this credit union is called a(n)

A.	current account.

B.	checking account.

C.	share account.

D.	negotiable order of withdrawal account.

E.	individual retirement account.

90.

A checking account at a credit union is commonly referred to as a(n)

A.	share draft account.

B.	savings account.

C.	share account.

D.	negotiable order of withdrawal account.

E.	individual retirement account.

91.

Which of the following types of institutions is similar to a savings and loan association but is owned by its depositors?

A.	a commercial bank

B.	a thrift institution

C.	a mutual savings bank

D.	a federal bank

E.	an investment bank

92.

The _____ insures individual bank accounts.

A.	Federal Savings and Loan Insurance Corporation

B.	Federal Deposit Insurance Corporation

C.	National Credit Union Administration

D.	Federal Reserve Board

E.	New York Federal Reserve Bank

93.

Which of the following is a reason Congress established insurance funds for banks?

A.	to prevent all future bank failures

B.	to encourage depositors to withdraw their money from banks

C.	to prevent banks and depositors from sueing Congress for losses

D.	to save the banks from losses when depositors withdraw their money

E.	to make people feel secure about their savings

94.

Nonbanking institutions differ from banking institutions in that they

A.	offer long-term loans.

B.	offer investment products.

C.	include credit unions.

D.	do not accept deposits.

E.	do not offer short-term loans.

95.

_____ are businesses that protect their clients against financial losses from certain specified risks in exchange for a fee, called a premium.

A.	Insurance companies

B.	Investment banks

C.	Finance companies

D.	Mutual savings banks

E.	Commercial banks

96.

When Fly Away Airlines needed to purchase some expensive airplanes to expand its business, which of the following institutions would the company most likely turn to for help financing this purchase?

A.	an insurance company

B.	a brokerage firm

C.	a pension fund

D.	a mutual fund

E.	a diversified firm

97.

Which of the following is a difference between a money market fund and a money market account?

A.	A money market fund is a type of bank account, while a money market account is a type of mutual fund.

B.	Money market funds offer slightly lower interest rates than money market accounts.

C.	A money market fund represents a pool of funds, while a money market account is basically a specialized, individual checking account.

D.	Money market funds do not offer any of the services that money market accounts offer.

E.	Money market accounts invest specifically in short-term debt securities issued by governments and large corporations, while money market funds are basically specialized, individual checking accounts.

98.

Which of the following is the largest pension fund?

A.	an individual retirement account

B.	a corporate insurance plan

C.	a money market fund

D.	Social Security

E.	a Roth individual retirement account

99.

Malorie is a thirty-year-old woman who works as a registered nurse. She wants to open an individual retirement account (IRA) to provide for her personal retirement needs. Which of the following is something she should consider when deciding between a traditional IRA versus a Roth IRA?

A.	If she doesn't make enough money, she cannot fund a Roth IRA.

B.	In a traditional IRA, the interest earned may be deferred tax-free until retirement; while in a Roth IRA, no tax is paid on the distribution withdrawn at retirement.

C.	Traditional IRAs can be invested in more diverse financial assets than Roth IRAs.

D.	Investors can contribute more to Roth IRAs than traditional IRAs.

E.	Roth IRAs give individuals more freedom to choose their investments than traditional IRAs.

100.

In the process of buying a new house, Kayla's mortgage company required her to work with an institution that will protect her from financial losses due to accidents, fire, theft, and natural disasters. Which type of institution can provide this protection to Kayla and her new home?

A.	an insurance company

B.	a pension fund

C.	a commercial bank

D.	a credit union

E.	a diversified firm

101.

Dennis is a forty-year-old businessman who invests in a firm that pools funds from a large number of people and buys and professionally manages stock from a number of diversified companies. In this scenario, Dennis is investing in a(n)

A.	certificate of deposit.

B.	individual retirement account.

C.	mutual fund.

D.	banker's acceptance.

E.	time deposit.

102.

Kelly is interested in investing her money in a mutual fund that invests in short-term debt securities issued by governments and large corporations. She also wants to be able to write checks and reinvest interest income from her investments. Which of the following types of institutions would Kelly most likely choose for her investments?

A.	a money market fund

B.	a money market bank account

C.	a pension fund

D.	a brokerage firm

E.	an insurance company

103.

A nonbanking financial institution that buys and sells stocks, bonds, and other securities for its customers is called a

A.	finance company.

B.	credit union.

C.	mutual savings bank.

D.	brokerage firm.

E.	thrift bank.

104.

A(n) _____ underwrites new issues of securities for corporations, states, and municipalities needed to raise money in the capital markets.

A.	private accountant

cashier

C.	investment banker

D.	certified public accountant

E.	certified management accountant

105.

Which of the following is true of finance companies?

A.	They offer short-term loans.

B.	They charge lower interest rates than banks.

C.	They do not require collateral.

D.	They do not make loans to individuals.

E.	They are banking institutions.

106.

Christopher owns his own bicycle repair shop. Business has not been good, so Christopher's credit limit has been exhausted, and he needs a short-term loan to help him stay in business. Which of the following types of institutions, known as the lender of last resort, would Christopher most likely turn to for a loan?

A.	a brokerage firm

B.	an investment firm

C.	a finance company

D.	a mutual fund provider

E.	an insurance company

107.

Paul is on his way to a concert, and he wants to deposit his paycheck, get cash, and check the balance of his bank accounts. Which type of electronic banking will he most likely use to complete these activities?

A.	a credit card

B.	an automated teller machine

C.	an overnight deposit box

D.	an electronic funds transfer

E.	an automated clearinghouse

108.

Jenna has a savings and checking account at the People's Bank. She is about to have some home repairs done, so she wants to make sure that she has enough funds in her checking account. She uses her smartphone to transfer money from her savings account into her checking account. Which of the following methods of electronic banking does this scenario best describe?

A.	a credit card transaction

B.	mutual fund management

C.	an automated teller machine transaction

D.	an automated clearinghouse transaction

E.	an electronic funds transfer

109.

All of the following are advantages of direct deposit payments EXCEPT

A.	convenience.

safety.

C.	potential interest earnings.

D.	increased employee productivity.

E.	increased check-processing expenses.

110.

_____ allow consumers to perform an ever-widening array of financial transactions from their personal or work computers.

A.	Online banking services

B.	Automated clearinghouses

C.	Automated teller machines

D.	Credit card terminals

E.	Magnetic stripe readers

111.

Which of the following factors has challenged the banking industry and forced it to undergo changes?

A.	decrease in international trade

B.	rapid technological innovations

C.	dearth of human resources

D.	stagnation of growth

E.	political instabilities

112.

The Federal Reserve took all of the following actions during the most recent financial crisis between 2007 and 2008 EXCEPT it

A.	gave a directive to change the management of the banks that had to be bailed out.

B.	bought up troubled assets from banks.

C.	lent money at the discount window to nonbanks such as investment bankers and brokers.

D.	kept the interest rates low to stimulate the economy.

E.	entered into the financial markets by making markets in commercial paper and other securities where the markets had ceased to function.

113.

In reaction to the financial meltdown and severe recession between 2007 and 2008, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. What does the full name of this act imply?

A.	that it intends to change the management of the banks that had to be bailed out

B.	that it intends to eliminate the ability of banks to create this type of financial problem in the future

C.	that it does not intend to interfere with how the banks are managed

D.	it intends to keep the discount rates high to discourage borrowing

E.	it intends to issue a directive to keep all information regarding derivative products confidential

114.

During 2007–2008, which of the following contributed to the collapse of the financial markets?

A.	increasing housing prices

B.	mortgages with high-qualifying borrowers

C.	securities backed by subprime mortgages

D.	increasing value of bank assets

E.	a growing capital base

115.

_____ banking refers to companies performing banking functions of some sort that are not regulated by banking regulators.

Online

Digital

Shadow

Mobile

E.	Traditional

116.

Which of the following is a peer-to-peer lender?

A.	Kickstarter

Indiegogo

RocketHub

Prosper

Crowdrise

117.

Which of the following is true of Kickstarter?

A.	It matches investors and borrowers.

B.	It raises money for health care issues.

C.	It funds creative projects in the worlds of art, film, games, music, publishing, and so on.

D.	It raises money for personal financing needs.

E.	It raises money for causes and charities.

Essay Questions

118.	What are the three functions of money?

119.	What are the four major responsibilities of the Federal Reserve Board?

120.	What are the different nonbanking institutions available? How are nonbanking institutions different from banking institutions?

Document Information

Document Type:

DOCX

Chapter Number:

Created Date:

Aug 21, 2025

Chapter Name:

Chapter 15 Money And The Financial System

Author:

O. C. Ferrell

Connected Book

Business Foundations Changing World 11e Complete Test Bank

By O. C. Ferrell

Test Bank General

View Product →

Explore recommendations drawn directly from what you're reading

Chapter 13 Digital Marketing And Social Networking

DOCX Ch. 13

Chapter 14 Accounting And Financial Statements

DOCX Ch. 14

Chapter 15 Money And The Financial System

DOCX Ch. 15 Current

Chapter 16 Financial Management And Securities Markets

DOCX Ch. 16

Appendix A The Legal and Regulatory Environment

DOCX Ch. A

$24.99

100% satisfaction guarantee

Buy Full Test Bank

Quick Navigation

Preview Document Info Connected Book Recommendations

Benefits

Immediately available after payment

Answers are available after payment

ZIP file includes all related files

Files are in Word format (DOCX)

Check the description to see the contents of each ZIP file

We do not share your information with any third party

Test Questions & Answers Ch15 Money And The Financial System

Document Information

Connected Book

Business Foundations Changing World 11e Complete Test Bank

Explore recommendations drawn directly from what you're reading

$24.99

Quick Navigation

Benefits

Report Unauthorized Use

Added to Cart