Finance 409 Exam 1
Members of the federal reserve system may include: 1) commercial banks w/ national charter 2) credit unions 3) savings and loan institutions (What number)
1
1,000 invested today at 6% interest would be worth _____ on year from now.
1060
If $5,000 is borrowed on a discount basis and the rate is 10%, the annual percentage interest rate on this loan would be.....
11.1% (5,000*.10=500. 5,000-500=4500. 500/4500=11.1%)
Under the Federal Reserve Act of 1913, the number of Federal Reserve district established is.....
12
If the money supply for an economy is 3 trillion, and the velocity of money is 4.5, then GDP is:
13.5 Trillion (MSxVM)
Each member of the Fed Board of Governors is appointed for a term os....
14 years
Under the Bretton Woods agreement, a fixed exchange rate system tied to gold and the US dollar dominated international trade during...
1944-1971
What period of time was the discount rate lower than the prime rate?
1980-2012
If the money supply for an economy is 3 trillion and GDP is 10 trillion, then the velocity of money is?
3.33 trillion
If annual GDP is 100 billion and the MS is 20 billion, the VM is
5 billion
The Equity Capital Ratio for a bank with equity capital of 3 million and total assets of 50 million would be....
6% (3,000,000/50,000,000)
If $8500 is borrowed on a discount basis and the rate is 6%, the annual percentage interest rate on this loan would be...
6.4% (8500*.06=510; 8500-510=7990, 510/7990=6.4%)
The federal board of governors has how many members appointed for how long?
7 members for 14 years
What is NOT a reason a bank becomes insolvent?
A bank's assets exceeding its liabilities
____ is a promise of future payment issued by a firm and guaranteed by a bank that is used to finance international trade with typical maturities ranging from one to six months.
A banker's acceptance
_____ is a short term debt security sold by a business firm or financial institution to another business or institution where the seller agrees to buy back the security at a specified price and date.
A repurchase agreement
_____ accounts are increasingly used to make direct deposits to, and payments from, check able deposit accounts.
ATS
_____ provide the record-keeping mechanism for showing ownership of the financial instruments used in the flow of financial funds between savers and borrowers and record revenues, expenses, and profitability of organizations that produce and exchange goods and services.
Accountants
The Federal open Market committee was created under a provision of what?
Banking Act of 1935
Why does higher risk have a higher return?
Because since people are risk averse they require a high rate of return on a high risk investment
Although it enjoys substantial independence in its operations, the appointive power of the president and the ability of Congress to alter its structure make the ____ a dependent political structure while being one of the most powerful monetary organizations in the world.
Board of Governors
The seven member board of the Federal Reserve that sets monetary policy is called....
Board of Governors
What type of markets are markets where debt securities with maturities of greater than on year and equity securities are issues and traded (stocks never mature)?
Capital
______ markets are markets where equity securities and debt securities with maturities of greater than on year are traded.
Capital
______ markets are where debt instruments or securities with maturities longer than on year and corporate stocks or equity are issued and traded.
Capital
Primary reserves include ____ assets of the bank.
Cash
All Federal Reserve Banks have what type of facilities?
Check clearing facilities
Which of the following are not thrift institutions?
Commercial Banks
The ____, passed in 1968, requires the clear explanation of consumer credit costs and garnishment procedures (taking wages or property by legal means) and prohibits overly high-priced credit transactions.
Consumer Credit Protection Act
___ collect premiums on insurance policies and employee/employer contributions from pension fund participants and provide retirement benefits and insurance against major financial losses.
Contractual Savings Organizations
The likelihood that borrowers are ill and would not be able to make interest and principal payments is an example of:
Credit (default) risk
____ provide predetermined credit limits to consumers at the time the cards are issued.
Credit Cards
______ are cooperative nonprofit organizations that exist primarily to provide member depositors with consumer credit, including the financing of automobiles and the purchase of homes, and derive their funds almost entirely from the savings of their members.
Credit Unions
One significant feature of ______ was that is expanded Fed control over the reserve requirements of non-member banks.
DIDMCA
_____ accept savings from individuals and then lend these pooled savings to businesses, governments, and individuals.
Depository Institutions
The item on the liabilities and equity section of a bank's balance sheet that represents the largest proportion of a typical bank's liabilities and owners capital is?
Deposits
_______ securities may be used to speculate on the future price direction of the underlying financial assets or to reduce price risk associated with holding the underlying financial assets.
Derivative
What stimulate or repress the level of prices or economic activity?
Dynamic actions of the federal reserve
_____ finance is the study of how growth-driven performance-focused, early-stage firms raise financial capital and manage operations and assets.
Entrepreneurship
_____ behavior refers to how an individual or organization treats others legally, fairly, and honestly.
Ethical
A major international development occurred on Jan 1, 1999, when twelve European countries gave up their individual currencies and adopted a unified currency called the
Euro
The ___ conducts monetary policy for the 12 European countries that adopted the euro as their common currency.
European Central Bank
_____ sets up a procedure for the prompt correction of errors on a revolving charge account and prevents damage to credit ratings while a dispute is being settled?
Fair credit billing act
Although a central bank does not necessarily operate for profit, it generally deals directly with the public.
False
Because the relative values of currencies may change, firms cannot use the currency exchange markets to reduce the risk of holding too much of certain currencies. True or False
False
Credit risk is the likelihood that a bank will be unable to meet depositor withdrawal demands and other liabilities when due.
False
Discount policy is still a major instrument of monetary policy.
False
Empirical evidence shows that in countries where central banks are relatively independent from their governments, there has been higher inflation and lower economic growth rates than in countries where central banks are closely tied to their government.
False
Fiat money is paper money fully backed by a precious metal or gold. T/F
False
Fiat money is paper money fully backed by a precious metal such as gold. T/F
False
Fiat money must be backed by a specific amount of gold or silver. t/f
False
Insurance companies receive contributions from employees and/or their employers and invest the proceeds on behalf of employees for use during retirement years. T/F
False
Insurance companies sell shares in their firms to individuals and invest the pooled proceeds in corporate and government securities. T/F
False
Investment banking firms sell shares in their firms to individuals and invest the pooled proceeds in corporate and government securities. T/F
False
Mortgage banking firms provide loans directly to consumers and businesses or aid individuals in obtaining financing of durable goods and homes. T/F
False
Secondary reserves re vault cash and deposits held at other depository institutions and t Federal Reserve Banks.
False
The Fed prefers to change reserve requirements rather than to use open market operations.
False
The Monetary Control Act prohibited the Federal Reserve from controlling thrift institutions. T/F
False
The US banking system as it exists today is relatively unchanged since just before the Civil War.
False
The US was one of the earliest major-industrial nations to adopt a permanent system of central banking.
False
The ability to change the reserve requirement is a powerful tool the Fed uses frequently.
False
The bank holding company may not engage in direct banking activities. T/F
False
The prime rate of interest remained relatively stable from 2004-2012. T/F
False
An investment bank accepts deposits, makes loans, and issues checking accounts. T/F
False ( that is a commercial bank)
The Fed Board of Governors is composed of seven members who are appointed for a term of 12 years.
False (14 years)
Investment banking firms assist individuals to purchase new or existing securities issues or to sell previously purchased securities.
False (Brokerage firms)
The primary types of assets on a bank's balance sheet include cash and deposits.
False (Loans are 60% of assets)
Keynesians believe that when the supply of money exceeds the quantity demanded, the public will spend more, rapidly causing inflation. T/F
False (Monetarists believe this)
Today, reserve requirements imposed by the Federal Reserve apply only to member banks.
False (Monetary Control Act)
The only bank asset that can be counted as reserve is deposits with the Reserve Banks.
False (Vault cash is included)
Full bodied money is monetary standard based on two metals, usually silver and gold.
False (bimetallic standard)
"Continentals" were denominated in dollars and were backed by gold. T/F
False (continentals had no backed by gold or silver)
The accommodative actions of the FED includes buying treasury securities.
False (function of their monetary policy, not of them directly)
The Federal Reserve has no power to regulate the overseas activities of member banks and bank holding companies.
False (it has broad powers, this allows US banks to complete with institutions of host counties)
Fannie Mae was created to support the financial markets by purchasing home mortgages and automobile loans from banks so that the proceeds could be lent to other borrowers.
False (not automobile loans)
The role of financial markets in a country's financial system is to accumulate and invest savings.
False (not markets)
Commercial Banks provide loans directly to consumers and businesses or aid individuals in obtaining financing of durable gods and homes. T/F
False (only finance companies do this)
The Federal Reserve Act of 1913 provided that all national and state-chartered banks were to become members of the Fed.
False (only national banks are required to be members)
All commercial banks are members of the Fed.
False (only national banks have to be)
The three primary means that the Fed can use to exercise monetary policy includes closed market operations, stabilizing reserve requirements, and freeing the federal discount rate.
False (open, changing, and changing)
Accumulating Savings is apart of the monetary system. T/F
False (part of financial institutions)
Member banks of the Federal Reserve System may not borrow from the Fed.
False (the discount window)
Open market operations are similar to discount operations in that they increase or decrease bank reserves at the initiative of the FED.
False (they differ in that respect)
If excess reserves are near zero, then a reduction of a bank's reserves will cause the system to loosen credit.
False (they'll tighten credit)
The principle of finance that "management objectives may differ from owner objectives" can be resolved by increasing manager salaries. True or False?
False (tie manager pay to measures of performance, and they will perform better for the owner)
Our monetary standard today is the paper dollar, issued by the Federal Reserve, and can be exchanged for gold or silver. T/F
False (we use fiat money)
Consists of 7 members of the Board of Governors of the Fed, plus 5 presidents of Reserve Banks
Federal Open Market Committee
Foreign banks in the US need the approval of the...
Federal Reserve
The ____ established the US central banking system and increased the effectiveness of commercial banking in general.
Federal Reserve Act
The 7 member board of the federal reserve that sets monetary policy is called what....
Federal reserve board of governors
What is the study of how individuals, institutions, and businesses acquire, spend and manage money and other financial resources.
Finance
____ provide loans directly to consumers and businesses and help borrowers obtain mortgage loans on real property.
Finance FIrm
The ____ is a term used to describe the financial system, institutions, markets, businesses, individuals, and global interactions that help the economy operate efficiently
Financial Environment
An area of finance that involves the study of organizations or intermediaries that help the financial system operate effectively and transfer funds from savers and investors to individuals, businesses, and governments that seek to spend or invest the funds in physical assets is called:
Financial Institutions
____ are intermediaries, such as banks, insurance companies, and investment companies that engage in financial activities to aid the flow of funds from savers to borrowers or investors.
Financial Institutions
What handles the transfer of funds from savers to investors and individuals, businesses, and governments?
Financial Institutions/Intermediaries
What handles financial planning, asset management, and fund-raising decisions designed to increase the value of the business?
Financial Management
_____ in business involves making decisions relating to the efficient use of financial resources in the production and sale of goods and services.
Financial Management
Physical locations or electronic
Financial Markets
What provides the mechanism for allocating financial resources or funds from savers to borrowers?
Financial Markets
An economy's _______ is the interaction of policy makers, a monetary system, financial institutions, and financial markets to expedite the flow of financial capital from savings into investment.
Financial System
Real output in an economy may be expressed as the ratio of....
GDP to price level
The price level of goods and services may be expressed as the ratio of.....
GDP to real output
The primary purpose of what act was to aid the savings and loan industry?
Garn St. Germain Depository Institutions Act
Legislation that permits depository institutions to compete with money market mutual funds on an equal bases with respect to interest rates offered to investors is the....
Garn-St. Germain Depository Institutions Act
Legislation that provided for the separation of commercial banking and investment banking activities in the US is called...
Glass Steagall Act
With a mint ratio of 15 ounces of silver to 1 ounce of gold, and a market ratio of 15.5 ounces of silver to 1 ounce of gold.... which money should either dominate or go out of circulation?
Gold coins should go out of circulation
____ is a short-term unsecured promissory note issued by a high credit-quality corporation with maturities of one to three months in length with an active secondary money.
Government Bond
_____ is the sum of an individual's money, real assets, and financial assets or claims against others less the individuals debt obligations.
Individual net worth
What are the three areas of Finance?
Institutions and Markets, Investments, Financial Management
_____ are the two important forms of contractual savings organizations.
Insurance companies and pension funds
The Garn-St. Germain Depository Institutions Act enabled depository institutions to issue money market accounts with no regulated ____ _____ _____.
Interest rate ceiling
The two routes of check clearance include the ____ settlement, in which the transaction takes place entirely within a single federal reserve district, and the _____ settlement, in which there are relationships between banks of two federal reserve districts.
Intradistrict and Interdistrict
_____ collect premiums on insurance polciies and employee/employer contributions from pension fund participants and provide retirement benefits and insurance against major financial losses.
Investment Banking Firms
What handles the sale of securities, analysis of securities, and management of investment risks?
Investments
_____ believe that a change in the MS first causes a change in the interest rate levels, which, in turn, alters the demand for goods and services.
Keynesians
What permits banks to locate offices within a geographically defined distance of the main office?
Limited branch banking
What is the basic function of money?
Medium of exchange
What are the five components of the Federal Reserve System?
Member banks, federal reserve district banks, board of governors, open market committee, advisory committee
_____ believe that when the money supply exceeds the amount of money demanded, the public will spend more rapidly, causing real economic activity or prices to rise. They also believe that a too-rapid rate of growth in the MS will ultimately result in rising inflation because excess money will be used to bid up the prices of existing goods.
Monetarists
___ markets are where debt securities with maturities of one year or less are issued and traded.
Money
_____ markets are the markets where debt securities with maturities of one year or less are issued and traded.
Money
______ issue shares to customers and invest the proceeds in highly liquid, very short maturity, interest bearing debt instruments called money market investments.
Money market mutual funds
Which of the following institutions is not part of the modern banking system (depository institutions)?
Mutual Funds
What enable depository institutions to compete effectively for funds that were flowing in large amounts to money market funds?
NOW accounts
What acts were modified to create greater flexibility of operations under the Federal reserve act of 1913?
National Banking Acts of 1863 and 1864
Is changing the prime rate a tool used by the Fed to implement its monetary policy?
No
Is the chairman of the federal reserve system the president of the new york federal reserve bank?
No
Is the discount rate used as a tool of fiscal policy?
No
Is the federal reserve a depository institution?
No
What are used by the Fed to alter bank reserves?
Open market operations
________ has become the most important and effective means of monetary and credit control.
Open market operations
The item on the liabilities equity section of a bank's balance sheet that represents the smallest proportion of a typical bank's liabilities and owners' capital is?
Owners capital
____ finance is the study of how individuals prepare for financial emergencies, protect against premature death and property losses, and accumulate wealth.
Personal
The _____ securities markets are involved in creating and issuing new securities, mortgages, and other claims to wealth.
Primary
______ markets are where the initial offering or origination of debt and equity securities takes place.
Primary
The issuing of new securities, mortgages, and other claims to wealth takes place in the
Primary Market
What are the markets where financial assets such as stocks and bonds are initially issued?
Primary Securities Markets
What policy's purpose is to make consumers aware of the costs of alternative forms of credit?
Regulation Z
Whose purpose is to make consumers aware of the costs of alternative forms of credit
Regulation Z
What type of money consists of paper money fully backed by a precious metal?
Representative full bodied
Relating to monetary policy, to supervise and regulate, and to provide services for depository institutions and the government
Responsibilities of the Fed
____ accept the savings of individuals and lend pooled savings to individuals primarily in the form of mortgage loans and operate almost entirely in New England, New York, and New Jersey, with most of their assets continuing to be invested in mortgage loans.
Savings Banks
What involves the transfer in individual savings to business firms in exchange for their securities?
Savings-investment process
_____ markets are physical locations or electronic forums where debt (bonds and mortgages) and equity securities are traded.
Secondary
Investment companies (mutual funds), investment banking firms, and brokerage firms are the primary types of....
Securities Firms
____ accept and invest individual savings and also facilitate the sale and transfer of securities between investors.
Securities firms
Under the authority of the Federal reserve act of 1913, what type of banks were permitted to withdraw from membership with the fed?
State chartered
____ may be permitted to join the federal reserve system, given a satisfactory financial condition.
State chartered banks
What consists of 7 members of the Board of Governors of the Fed, plus five presidents of Reserve Banks?
The Federal Open Market Committee
Bank holding companies are supervised and examined by who?
The Federal Reserve
________ is primarily responsible for the amount of money that is created in the U.S. economy.
The Federal Reserve System
The financial system, financial markets, financial institutions or intermediaries, business firms, individuals, government and global interaction all make up what?
The Financial Environment
What extends the Fed's control to thrift institutions and non-member commercial banks?
The Monetary Control Act
What were modified to permit greater flexibility of operations under the Federal reserve act of 1913?
The National Banking Acts of 1863 and 1864
What limits liability on lost or stolen credit cards?
The Truth in Lending Act
___ are non-commercial bank depository institutions that include savings banks and credit unions, which accumulate individual savings and lend primarily to other individuals.
Thrift Institutions
What are the six principles of finance?
Time Value of Money, Risk vs. Return, Diversification of Risk, Efficient Markets, Management vs. Owner, and Reputation
What are coins containing metal of less value than their stated value?
Token coins
A bimetallic standard is a monetary standard based on two metals, usually silver and gold. T/F
True
A major weakness of the banking system under the National Banking Acts was the money supply could not be easily expanded or contracted to meet changing seasonal needs and/or changes in economic activity.
True
About one third of the nation's commercial banks are members of the Fed.
True
Almost all of the paper money in use in the US today is fiat money. T/F
True
Although not provided for in the original organization of the Fed, open market operations have become the most important and effective means of monetary control.
True
Bank solvency reflects the ability to keep the value of a bank's assets greater than its liabilities.
True
Branch banks are those banking offices that are controlled by a single parent bank. T/F
True
By exercising its influence on the monetary system of the US, the Fed performs a unique and important function: promoting economic stability.
True
Commercial banks accept deposits and makes loans to individuals and businesses.
True
Credit risk is the chance of nonpayment or delayed payment of interest or principal.
True
Credit unions are cooperative nonprofit organizations that exist primarily to provide member depositors with consumer credit. T/F
True
Credit unions are cooperative nonprofit organizations that exists primarily to provide member depositors with consumer credit.
True
Demand deposits are issued by commercial banks and savings banks. T/F
True
Depository Institutions include commercial banks, savings and loans, savings banks, and credit unions. T/F
True
Federal Reserve actions that meet the credit needs of individuals and institutions, clearing checks, and supporting depository institutions are called accommodative activities.
True
Federal Reserve actions that stimulate or repress the level of prices or economic activity are dynamic actions.
True
Fiat money is a form of credit money. T/F
True
Fiat money is legal tender proclaimed to be money by law. T/F
True
Interest rate risk results from possible price fluctuations in a fixed-rate debt instruments associated with changes in market interest rates.
True
International banking exists when banks operate in more than one country. T/F
True
Investment banking firms sell or market new securities issued by businesses to individuals and institutional investors. t/F
True
Investment companies sell shares in their firms to individuals and invest the pooled proceeds in corporate and government securities. T/F
True
Keynesians believe that a change in the money supply first causes a change in interest rate levels, which, in turn, alters the demand for goods and services.
True
Major types of financial institutions in the US include commercial banks, mutual funds, insurance companies, and pension funds. T/F
True
Member banks of the Fed Reserve are permitted to count vault cash as part of their reserves.
True
Mutual funds are open end investment companies that can issue an unlimited number of shares to its investors and use the pooled proceeds to purchase corporate and government securities. T/F
True
No other asset is as liquid as money. T/F
True
Open market operations don't always lead to an immediate change in the volume of deposits; this is especially true when bonds are sold to restrict deposit growth. T/F
True
Open market operations involve the buying and selling of securities.
True
Part of the reason that the Banking Act of 1933 (Glass-Steagall Act) was passed was in response to the large number of bank failures. T/F
True
Pension funds receive contributions from employees and/or their employers and invest the proceeds on behalf of the employees for use during their retirement years. T/F
True
Pension funds receive contributions from employees and/or their employers and invest the proceeds on behalf of the employees. T/F
True
Physical money includes coin and currency. T/F
True
Representative full-bodied money is paper money fully backed by a precious metal such as gold. T/F
True
T/F: Deposit money is backed by the creditworthiness of the depository institution that issued the deposit.
True
The Basel Accord was an agreement between major central banks to adopt capital adequacy requirements for internationally involved banks.
True
The Consumer Credit Protection Act requires that lenders clearly explain consumer credit costs and prohibits overly high-priced credit transactions.
True
The FED discount rate is the interest rate that a bank must pay to borrow from its regional federal reserve bank.
True
The Fed lending rate to depository institutions was consistently lower than the bank prime lending rate during the 1980-2012 period.
True
The Federal Open Market Committee directs open market operations by buying and selling securities which are the primary instruments of exercising monetary policy.
True
The Federal Reserve Act of 1913 created a system of central banks in the US. T/F
True
The Federal Reserve system, the central bank of the US, is responsible for setting monetary policy and regulating banking systems. T/F
True
The Glass-Steagall Act was repealede with the passage of the Gramm-Leach-Bliley Act of 1999. T/F
True
The National Banking Act of 1864 made it possible for banks to receive federal charters. T/F
True
The United States was one of the last major industrial nations to adopt a permanent system of central banking.
True
The effective rate of interest is generally lower on a standard loan than an otherwise equivalent discount loan.
True
The essential requirements of a well-functioning financial system include an efficient national payments system, a flexible money supply, and a lending/borrowing mechanism to help alleviate liquidity problems when they arise.
True
The faster the velocity of money, the greater the economy's GDP. True/False
True
The federal reserve act required that ALL national banks were to become members of the Fed.
True
The largest type of assets on a bank's balance is loans.
True
The largest type of liabilities on a bank's balance sheet is deposits.
True
The main provisions of the Monetary Control Act of 1980 are deregulation and monetary control. T/F
True
The money supply can be contracted by holding the amount of reserves constant but raising the reserve requirement.
True
The payment mechanism of the reserve bank includes: processing and clearing checks, issuing currency and coins, and electronic forms of payment. T/F
True
The primary responsibility of the Fed is to formulate monetary policy which involves regulating the growth of the supply of money, and therefore regulating its cost and availability.
True
The principal assets of depository institutions are cash, securities, loans, and fixed assets. T/F
True
The role of financial institutions in a country's financial system is to accumulate and invest savings. T/F
True
The seven members of the Federal Reserve Board of Governors are responsible for the establishment of monetary policy.
True
The two basic components of the US money supply (M1) are physical money and demand deposits. T/F
True
The use of "continentals" led to a long period of distrust of paper money. T/F
True
Total deposits can be contracted by holding the amount of reserves constant but raising the reserve requirement.
True
Under the Federal Reserve Act of 1913 State-chartered banks were permitted to join the system if they could show evidence of a satisfactory financial condition.
True
When reserves are added to the banking system, depository institutions may expand their lending but are not forced to do so.
True
The Fed would be practicing contractionary monetary policy if, through open market operations, it is a net seller of government securities.
True (by selling securities the fed receives money which decreases the money supply which will increase interest rate which is contractionary)
Banks are required by the Fed to hold reserves equal to a park of their deposits as part of the fractional reserve system of the US Banking System.
True (specified percentage)
Because of the National Banking Act, the volume of national bank notes depends on the government bond market rather than the seasonal or cyclical needs of the nation for currency.
True (this was the second weakness of the banking system prior to the Fed was created, banknotes could be issued only to the extent they were backed by US government securities)
What is a bank that may have only one full service office?
Unit bank
The velocity of money measures the rate of circulation of the money supply and can be expressed by the following equation....
VM=GDP/MS
What serves the nation by regulating money supply growth?
a central bank
The adequacy of capital for commercial banks as measured by regulatory authorities is
a composite of equity capital and total assets
The basic requirements for an effective financial system in a developed economy include what three things?
a monetary system, a savings-investment process, and markets for the transfer of financial assets
A _____ is a short term debt instrument issued by commercial banks in denominations of 100,000 or more with typical maturities ranging from one month to one year that have an active secondary market that allows short-term investors to easily match their cash or liquidity needs when they arise.
a negotiable certificate of deposit
The most basic functions of depository institutions are....
accepting deposits and granting loans
Finance has its origins in....
accounting and economics
The principle that "financial markets are efficient" implies that the prices of securities reflect _______ of the information available to the public.
all
The members of the Federal board of governors are elected how?
appointed by the President with the advice and consent of the senate
Before the federal reserve system was created, a large part of the reserves of commercial banks were held where?
as deposits with large city banks
What would NOT be a part of a bank's Owner's Capital?
bank premises
Career opportunities in finance involving both treasury and control functions are generally associated with:
business financial management
How does the Board of governors of the Federal Reserve establish monetary policy?
by setting reserve requirements, altering the discount rate, and through federal open market operations
The least used monetary policy instrument by the Fed is .....
changing the reserve requirement
One of the advantages claimed by branch banking is...
convenience for customers
Basic requirements of an effective financial system include what three tasks?
creating money, transferring money, accumulating savings
What are made up of individuals who possess common bonds of association?
credit unions
Deposit money is backed by....
creditworthiness of the depository institution
Federal reserve actions that offset unexpected monetary developments and contribute to the smooth everyday functioning of the economy are called....
defensive actions
Commercial banks obtain the bulk of their loan able funds forms...
depositors
In the United States, most money is created by.....
depository institutions
The Depository Institutions Deregulation and Monetary Control Act has resulted in more competition among
depository institutions
The principal liabilities of depository institutions are...
deposits
Successful businesses typically progress through a series of life cycle stages, from the idea stage to exiting the business, these five stages include the :
development, startup, survival, rapid growth, and maturity stage
Two risky assets can be combined to lower overall risk. This principle is commonly referred to as....
diversification
The theory of ____ implies that information is quickly embedded in prices making it difficult for investors to "beat the market."
efficient markets
A _____ is necessary for the monetary system to carry out the financial function of transferring money, which in turn is a requirement for an effective financial system.
efficient payment mechanism
The payment mechanism of the Reserve Bank includes: processing and clearing checks, issuing currency and coins, and what else?
electronic forms of payment
Increased credit card usage may ___ money supply.
expand
____ are very short-term loans, usually with maturities of one day to one week made between depository institutions.
federal funds
The National Banking Act of 1864 provided for...
federally chartered banks
Today's Federal Reserve notes are backed by.....
fiat money
_____ provide loans directly to consumers and businesses or aid individuals in obtaining financing of durable goods and homes, whereas ____ help individuals obtain mortgage loans on homes and other real property by bringing together borrowers and institutional investors.
finance companies, mortgage banking firms
____ includes money, debt instruments, equity securities, and other financial contracts that are backed by real assets and the earning abilities of issuers.
financial assets
A major factor in the severity of the 07-09 financial crisis was the massive reduction in the level of debt taken on by.....
financial institution
Intermediaries that help the financial system operate efficiently and transfer funds from savers and investors to individuals, businesses, and governments that seek to spend or invest the funds are known as....
financial institutions
The functions of _______________ include accumulating savings and lending funds.
financial institutions
Crucial elements of the three areas of finance include:
financial institutions, financial markets, and investments and financial management
_____ is the process by which individual savings are accumulated in depository institutions, and, in turn, lent or invested.
financial intermediation
An area of finance that involves financial planning, asset management and fund-raising decisions to enhance the value of business is called...
financial management
An area of finance that refers to the physical locations or electronic forums that facilitate the flow of funds among investors, businesses, and governments is called:
financial market
The Bank of North America was the.....
first incorporated bank in the United States
A basic requirement for an effective financial system is a monetary system that performs which of the following financial functions:
formation and transferring of money
The bank system of the US is a _____ reserve system.
fractional
When coins have an intrinsic value equal to the value of the metal they contain, they are referred to as:
full bodied money
Barter involves the exchange of
goods and services
All money should performs the following functions except:
guarantee of validity
The supply of a currency in international markets depends largely on the....
imports of the issuing country
The holding-company device to control two or more commercial banks has ________.
increased in importance in recent years.
Historically speaking, _____ taken as a group has/have generally been a surplus economic unit in the past.
individuals
An increase in the general overall prices of goods and services that is not offset by increases in the quality of those goods and services is the definition of....
inflation
An organization that sells or markets new securities issued by business to individuals and institutional investors is called...
investment bank
An organization that sells shares in their firms to individuals and other and invests the proceeds in corporate and government securities is called a...
investment company
An area of finance that involves the sale or marketing of securities, the analysis of securities, and the management of investment risk through portfolio diversification is referred to as .....
investments
In addition to the clearing of checks through Federal Reserve Banks, the Fed accommodates check clearing through...
its branches and a group of regional check-processing centers
In addition to the clearing of checks through federal reserve banks, the fed accommodates check clearing through what?
its branches and a group of regional check-processing centers
Currently, the Chairman of the Federal Reserve is who?
janet Yellen
The US created its system of central banking earlier or later than such banks were established in other industrial nations?
later
The effect of an increase of required reserves by the Fed is a decrease is what?
loan able funds
The effect of an increase of required reserves by the Fed is a decrease in...
loanable funds of depository institutions
The item on the assets side of a bank's balance sheet that represents the largest proportion of bank assets is....
loans
The goal of a financial manager in a profit-seeking organization should be to...
maximize the owner's wealth
The primary goal of the financial manager of a profit seeking organization should be to...
maximize the owners wealth
When is it a means of paying for goods and services and discharging debts, money is referred to as a:
medium of exchange
Under the authority of the Federal Reserve Act of 1913, who was required to purchase capital stock in the federal reserve banks of their district?
member banks
The Federal Reserve banks are owned by who?
member banks of the Federal Reserve System
An efficient ______ that is comprised of a central bank and a banking system that is able to create and transfer a stable medium of exchange called money.
monetary system
The three financial system components are....
monetary system, financial institutions, and financial markets
_____ is anything generally accepted as a means of paying for goods and services and paying off debts. It must be easily divisible, so that exchanges can take place in small or large quantities, relatively inexpensive to store and transfer, and reasonably stable in value over time.
money
What does: a) issue shares to customers b) invest in liquid instruments c) invest in interest-bearing debt instruments
money market mutual funds
____ are debt instruments or securities with maturities of one year or less and have low default risk and high liquidity.
money market securities
The principle of finance that states that "money has a time value" implies that money in hand today is worth ______ than the promise of receiving the same amount in the future.
more (money in hand today could be invested and grow over time)
The principal assets of savings banks are:
mortgage loans
An open-end investment company that can issue an unlimited number of its shares to investors and use the pooled proceeds to purchase corporate and government securities is called a...
mutual fund
Another name for an open-end investment company is a.....
mutual fund
are outstanding balances on credit cards or credit card limits included in the money supply?
no
A major factor in the severity of the 2007-2009 financial crisis was the massive amounts of debt taken on by.......
none of the above
WHich of these does the open market committee perform? 1)establishes and administers protective consumer finance regulations 2) furnishes currencies 3) handles US government debt and cash balances
none of these
Which of these is true of the Federal Reserve System? 1) appointed by secretary of treasury 2) serves a life term 3) is the president of the NY Federal Reserve Bank
none of these
Which one of these does the Federal Open Market Committee do? 1) establishes and administers protective consumer finance regulations 2) furnishes currencies 3) handles US government debt and cash balances
none of these
An area of finance that involves the study of government institutions and their involvement in rescuing private firms is called:
not an area of finance
The ____ of the Bank of North America served as a circulation medium of exchange, were loaned liberally to the government, were redeemed in metallic coins upon demand
notes
The advantages claimed for a bimetallic standard were not gained in actual practice because...
one of the metals disappeared from circulation because the mint and market ratios were not the same
The Federal Reserve system's primary method for carrying out monetary policies is through what?
open market operations
The most used monetary policy instrument used by the Fed is ....
open market operations
An organization that received contributions from employees and/or their employers and invests the proceeds on behalf of the employees for use during their reitrement years is called...
pension funds
"Continentals" were backed by what?
possible future tax revenues
The interest rate charged by banks for short term unsecured loans to their highest quality business customers is referred to as the....
prime rate
The possible conflict between managers and owners is sometimes called the...
principal-agent problem
The function of adequate bank capital for a commercial bank is to....
provide a cushion against credit risk and interest rate risk
_____ include the direct ownership of land, buildings or homes, equipment, inventories, durable goods, and even precious metals.
real assets
The primary responsibility of the Federal Reserve System is to.....
regulate the growth of the money supply
Paper money backed by a precious metal is called...
representative full bodied money
The min amount of total reserves that depository institutions must hold are called.....
required reserves.
History generally supports the contention that under the guidance of Paul Volcker, a ______ Fed policy brought down the double-digit inflation of the 1970s and early 1980s and the Federal Open Market Committee consistently responded to his leadership.
restrictive
In general, the effective rate of interest on a discount loan is high than that on a ....
standard loan
What means that branch systems are less likely to fail than independent systems?
statewide branch banking
The accommodative activities of the Federal Reserve are clearing checks, meeting the credit needs of individuals and institutions, and what?
supporting depository institutions
The resolution trust corporation was brought into existence to...
take over and liquidate the assets of failed savings and loan institutions
One of the major weaknesses of the banking system before the federal reserve system was set up was....
the arrangement for holding reserves
The federal open market committee was created under a provisions of...
the banking act of 1935
Credit money is backed by...
the creditworthiness of the issuer
What is the rate a bank must pay to borrow from the Fed?
the discount rate
Bank holding companies are supervised and examined by.....
the federal reserve
Checks may be cleared by...
the federal reserve and banks in the banking system
Rational investors would consider an investment in a risky business venture only if they feel the expected return is high enough to justify....
the greater risk
The First Bank of the United States ceased operations because.....
the opposition of state banking interests and its charter had expired and there was no provisions for its renewal
Maximizing ______ is accomplished through effective financial planning and analysis, asset management, and the acquisition of financial capital.
the owners wealth
The velocity of money measures what?
the rate of circulation of the money supply
If the interest rate is equal to 0%, then a dollar today is worth...
the same as a dollar tomorrow
During the colonial period in the nation's history, banks depended on..
their own issue of paper money
The Federal Reserves primary method for carrying out monetary policies is? a) by the issuance of the f
through open market operations
The principal assets of banks do NOT include
time deposits
What is NOT an asset of depository institutions?
time deposits (these are a liability)
Reasons we study finance include all of the following except:
to make informed medical decisions
The M1 definition of the money supply includes what three things?
travelers checks, currency, and demand deposits
A central bank is a federal government agency that facilitates operation of the financial system and regulates growth of the money supply.
true
The closer to the required minimum the banking system maintains its reserves, the tighter the control the Fed has over the money creation process through its other instruments.
true
What act limits liability on lost or stolen credit cards?
truth in lending act
When are markets said to be "information efficient?"
when the prices of securities reflect all information available to the public
