Ch. 16 GBUS 140

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

A decrease in reserve requirements gives banks more money to lend out.

Domino Grace is a financial services company. It has started using scientific principles of management to analyze the compensation system for its financial advisors. Under the current system, revenue goals are based on the financial advisors' performances in the previous year. Domino Grace management believes that the financial advisors could generate much more revenue if they were encouraged to offer derivatives, a complex but potentially profitable investment product. Which of the following, if true, would weaken the argument of Domino Grace's management?

A new political administration is expected to pass new financial regulations affecting derivative investments.

Which of the following transactions is not included among Automated Clearing House payments?

ATM deposits

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

By taking deposits and loaning out these funds, financial institutions expand the money supply.

An overly large decrease in the reserve requirement by the Federal Reserve System could result in inflation.

False

Banks create money through contracts with the government to mint bills and coins.

False

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

False

The international payments process that moves money between buyers and sellers on different continents is subject to worldwide policy systems.

False

The overall value of the U.S. M-2 has grown considerably since 1979 due primarily to the increased use of credit cards and debit cards.

False

Through the Federal Deposit Insurance Corporation, a deposit in a member bank is currently insured up to $50,000.

False

Which of the following agencies guarantees the safety of all of its members' bank accounts?

Federal Deposit Insurance Corporation

Which of the following financial institutions was taken over by the Federal Housing Finance Agency when it was on the verge of financial failure?

Freddie Mac

Which of the following BEST describes the portability characteristic of money?

It is light and easy to handle.

Regarding the international payments process, which statement is TRUE?

Money does not actually have to flow between two countries.

Which of the following statements is TRUE?

Since insurance companies also generate revenue from investments of premium payments, market fluctuations may affect one's health insurance premium.

Which of the following actions can the Federal Deposit Insurance Company take in the event of a failure of one of its insured banks?

The FDIC can allow another bank to take responsibility for the failed bank's liabilities through sale of the failed bank.

Under which of the following circumstances would the Federal Reserve System want to decrease the money supply by increasing the reserve requirement?

The economy is experiencing severe inflation, yet market activity has been extremely high and erratic.

Which of the following is the main justification for the World Bank to fund national improvements by making loans to build roads and hospitals?

The resulting improvements will help increase the productive capacity, and hence the international trade, of certain developing countries.

Which of the following statements BEST describes why U.S. Treasury securities have always been considered risk-free investments?

They are backed by the U.S. government.

In international payments, equal money inflows and outflows can result in no money being transferred between countries.

True

In order to save money on transactional costs, the U.S. Treasury is moving to electronic fund transfers for payments rather than issuing checks.

True

Which of the following BEST describes the stability characteristic of money?

Units of money have relatively constant value.

Which of the following BEST describes two of the three primary functions of the Federal Reserve System?

aiding banks in conducting business and managing the U.S. money supply and interest rates

Which of the following financial institutions earn profits from loans taken from the funds in each of its depositors' accounts?

commercial banks

Which of the following institutions simplifies financial settlements between buyers and sellers in different countries?

commercial banks

Which of the following is NOT part of the M-1 supply?

currency value of time deposits

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

discount rate

Which of the following indices indicates the relative strength of the currencies of two countries?

exchange rate

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

key rate

When buying from a supplier in France, LTD, based in Cleveland, Ohio, has arranged for its bank to pay the supplier the cost of the desired material when it has passed customs in the United States. Which of the following terms is this type of bank promise called?

letter of credit

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

medium of exchange

Which of the following financial institutions are considered to be owned by their depositors?

mutual savings banks and credit unions

Which of the following pieces of information is not required by the USA Patriot Act for banks to collect for every customer?

place of birth

Which of the following terms refers to the percentage of its deposits a bank must hold, in cash or on deposit, with a Federal Reserve bank?

reserve requirement

Which of the following is NOT a primary tool for controlling the money supply?

taxation

Which of the following federal laws made transactions between banks significantly more efficient?

the Check Clearing for the 21st Century Act

Which of the following political bodies appoints the members of the board of governors for the Federal Reserve System?

the President of the United States

Which of the following BEST describes what is called the "open-market operations" of the Federal Reserve System?

the buying and selling of securities

Which of the following recent events represent the two most significant impacts on changes in the money and banking system since 2000?

the rise of electronic technologies in banking and government intervention to stabilize the U.S. financial system

Which of the following has a fixed term?

time deposits

The Norton County Bank performs such tasks as making monthly bill payments, managing investment portfolios, and managing the estates of deceased persons. What are such services called?

trust services