chapter 15
A credit card is not considered money because
All of the above
Ancient goldsmiths are credited with
All of the above
Excess reserves
All of the above
Which of the following assets is the most liquid?
A traveler's check
Which of the following statements is true when considering central banks?
The number of central banks in the world grew enormously after the Great Depression.
On a bank's balance sheet, ________ are assets and ________ are liabilities.
reserves and loans; transactions deposits
The M1 measurement of the money supply includes all of the following components except
savings deposits
When money is set aside to be used for future purchases, it is serving as a
store of value
Which of the functions of the Federal Reserve is appropriately matched with its correct institution?
Holds reserve balances for depository institutions; The Federal Reserve Bank.
There are two major ways of measuring money, M1 and M2. Which statement is true about the measuring of M1 and M2?
M1 is measured by the transactions approach which stresses the role of money as a medium of exchange while M2 is measured by the liquidity approach which stresses the role of money as a temporary store of value.
Which of the following is a true statement?
The FDIC has reduced the number of depositors who have lost savings, but in doing so, has inadvertently encouraged banks to make riskier loans
Which of the following statements is true when considering liquidity?
The most liquid assets typically earn no or little interest.
What is the basic structure of the Federal Reserve Bank?
There are 12 district banks, a Board of Governors and a Federal Open Market Committee.
When a temporarily illiquid bank which is otherwise in good financial condition borrows money from the Fed in an attempt to prevent a loss of confidence in the bank or in other banks, this is an example of the Fed
acting as the lender of last resort.
Required reserves
are the minimum amount of legal reserves that a depository institution must have to back up its checkable deposits
Open market operations
are the purchase and sale of existing U.S. government securities by the Federal Reserve
Loans to a private company are
assets
Loans to other banks in the federal funds market are
assets
U.S. Treasury bills are
assets
Borrowings from a Federal Reserve district bank are
liabilities
When sellers accept money as payment in market transactions, money is serving as a
medium of exchange
These stones performed the following functions of money:
medium of exchange, store of value, and standard of deferred payment functions of money
Scott is seeking a loan from his bank for a home improvement project. He receives the loan and then decides to take a special vacation opportunity to Las Vegas and enter a gambling tournament. The bank, as a financial intermediary, is facing a problem of
moral hazard
A currency will cease to function as money if
people think that they will not be able to use it to exchange for goods and services later
Money is accepted in exchange for goods and services because people have confidence that it can later be exchanged for other goods and services. In addition, money has _____________ value
predictable
Due to the Gramm-Leach-Bliley Act of 1999
the US government allowed commercial banks to own stock and sell insurance policies.
The opportunity cost of money holdings is
the alternative interest income foregone from not holding some other asset
The value of the U.S. dollar is based on
the public's faith that the dollar can be exchanged for goods and services
Financial intermediaries
transfer funds from savers to investors
The potential money multiplier is equal to
1 divided by the reserve ratio
Which of the following assets is the least liquid?
A house
Which of the following does not describe some of the functions of the Federal Reserve Bank?
Acts as a medium of exchange, a unit of accounting, a store of value and a standard of deferred payment.
Which of the following is not a duty of the a central bank?
Guarantee the savings of its citizens.
Robert has used money in what ways in making his decision?
Medium of exchange and a standard unit of account
Which of the following is a major reason why financial intermediaries, such as banks, exist?
The existence of asymmetric information makes financial intermediaries more efficient in channelling money to its most efficient use.
Because of the FDIC, the federal government is not exposed to asymmetric information problems.
false
Money is the least liquid asset.
false
Obviously financial intermediaries need to collect money from a variety of sources so they can redirect it where it can be used efficiently. The primary source of funds for a financial intermediary are known as its
liabilities
Money is defined by its functions, which are as a __________ of __________, __________ of __________, __________ of __________, and __________ of __________ __________.
medium of exchange; unit of accounting; store of value; and standard of deferred payment.
The possibility that a borrower might engage in riskier behavior after a loan has been obtained is known as
moral hazard
The Fed acts like a private banking institution when it
provides payment - clearing services to depository institutions; holds Depository institution's reserves; acts as the government's fiscal agent
Federal deposit insurance currently covers up to $250,000 per depositor per institution.
true
Individuals purchasing new bonds issued by a corporation is an example of direct finance for the corporation.
true
Which of the following statements is true concerning a fractional reserve banking system?
Banks maintain a fraction of deposits on hand to meet the daily needs of their customers
Which of the following statements is incorrect?
There are a total of 25 Federal Reserve district banks.
The tax pengö functioned as money in Hungary in 1945 and 1946
as a standard pf deferred payment
Liabilities refer to amounts owed, and assets refer to amounts owned.
true
Since 2010, the FDIC has been able to assess premium rates on banks' total liabilities.
true
The Federal Deposit Insurance Corporation (FDIC)
All of the above
An example of a fiduciary monetary system is
American one-dollar bills
What are the features of federal deposit insurance?
Depository institutions' premiums are based on the value of their deposits with the funds being held for use in the case of a failed bank so that depositors can be reimbursed.
Which of the following is a situation of moral hazard created by the existence of the FDIC?
Financial institutions, with FDIC protection, use depositors' funds in riskier investment projects
Which of the following events caused Congress to begin seriously looking at setting up the Federal Reserve system?
Some severe banking crises at the end of the 19th century and early 20th century
All deposits in U.S. banks are insured by the Federal Deposit Insurance Corporation.
TRUE
If you live in Atlanta, Georgia, and you purchase a computer in Los Angeles, California, while there on vacation, which of the following paths would your check take before it finally clears?
The check goes from the computer store's bank to the Federal Reserve bank in San Francisco, then to the Federal Reserve bank in Atlanta, and then to your bank.
Suppose that there is a checkable deposit into YourBank. Which of the following statements is an accurate description of the changes that occur at YourBank?
The required reserves increase by the amount of the deposit times the required reserve ratio.
Which of the following statements is true when considering national banking structures around the world?
U.S. businesses only obtain approximately 30% of their funds from bank loans compared to 65% for European firms
Money may serve as a "standard of value" that allows for comparison of the relative worth of various goods and services. What function of money does this describe?
Unit of accounting
The Fed acts like a government agency when it
acts as a lender of the last resort; regulates the money supply; supplies the economy with fiduciary currency
Vault cash is
an asset
Deposits with a Federal Reserve district bank are
assets
The M2 measurement of the money supply includes all of M1 plus several other highly liquid assets. Which of the following is not one of those assets which is included in M2?
credit card balances
The financial intermediary with liabilities of shares and checkable deposits and assets that include consumer debt and long term mortgage loans is a
credit union
f the Fed engages in an open market sale with a bond dealer, the bond dealer's bank's transactions deposits liabilities will ________ and the money supply will ________.
decrease; decrease
In the United States, the dollar volume of payments using checks exceeds the volume using debit cards.
false
Financial intermediaries
including depository institutions such as commercial banks and savings institutions, insurance companies, mutual funds, and pension funds, transfer funds from ultimate lenders (savers) to ultimate borrowers
Money is a highly liquid asset because
it can be disposed of with low transaction costs and with relative certainty as to its value.
Transactions deposits are
liabilities
Modern nations have fiduciary monetary systems—
national currencies are not convertible into a fixed quantity of gold or silver
When money is used as a means of settling debts maturing in the future, it is serving as a
standard of deferred payment
When the Fed acts as the lender of the "last resort" it means that
the Fed lends to depository institutions it deems should not fail
The FDIC possesses regulatory powers to offset risk-taking temptations to depository institution managers.
true
When money is used as a standard of value that allows people to compare the relative worth of various goods and services, it is serving as a
unit of accounting
