Lecture 1 Money and Banking

Which of the following is NOT a financial institution? a credit union a business college a life insurance company a pension fund

a business college

Which of the following is a depository institution? a mutual fund a pension fund a life insurance company a credit union

a credit union

Money is defined as -a risk-free repository of spending power. -anything that is generally accepted in payment for goods or services or in the repayment of debt. -bills of exchange. -the unrecognized liability of governments.

anything that is generally accepted in payment for goods

Money is always based on a precious metal like gold or silver. a flow of earnings per unit of time. anything that is generally accepted in payment for goods or services or in the repayment of debt. the total collection of pieces of property that are a store of value.

anything that is generally accepted in payment for goods or services or in the repayment of debt

If an individual moves money from a small-denomination time deposit to a demand deposit account M1 increases and M2 stays the same. M1 stays the same and M2 stays the same. M1 increases and M2 decreases. M1 stays the same and M2 increases.

M1 increases and M2 stays the same.

Currency includes paper money, coins, checks, and savings deposits. paper money and coins. paper money and checks. paper money, coins, and checks.

Paper money and coins

Which of the following can be described as direct finance? -You buy shares of common stock in the secondary market. -You buy shares in a mutual fund. -You borrow $2,500 from a friend. -You take out a mortgage from your local bank.

You borrow 2500 from a friend

Which of the following can be described as involving indirect finance? You make a loan to your neighbor. You buy a U.S. Treasury bill from the U.S. Treasury at TreasuryDirect.gov. You make a deposit at a bank. A corporation buys a share of common stock issued by another corporation in the primary market.

You make a deposit at a bank

Financial institutions that accept deposits and make loans are called exchanges. finance companies. banks. over-the-counter markets.

banks

When I purchase a corporate ________, I am lending the corporation funds for a specific time. When I purchase a corporation's ________, I become an owner in the corporation. bond; stock bond; debt security stock; bond stock; debt security

bond; stock

________ money could be used for some other purpose other than as a medium of exchange, for example, gold coins could be melted down and turned into gold jewelry. Electronic Commodity Fiat Paper

commodity

Financial institutions that accept deposits and make loans are called ________ institutions. contractual savings underwriting investment depository

depository

The concept of diversification is captured by the statement make hay while the sun shines. it never rains, but it pours. don't put all your eggs in one basket. don't look a gift horse in the mouth.

don't put all your eggs in one basket

An increase in interest rates might ________ saving because more can be earned in interest income. discourage encourage invalidate disallow

encourage

Paper currency that has been declared legal tender but is not convertible into coins or precious metals is called ________ money. commodity electronic fiat funny

fiat

Channeling funds from individuals with surplus funds to those desiring funds when the saver does not purchase the borrower's security is known as financial intermediation. barter. taxation. redistribution.

financial intermediation

All of the following are necessary criteria for a commodity to function as money EXCEPT it must be easy to carry. it must deteriorate quickly. it must be widely accepted. it must be divisible.

it must deteriorate quickly

Contractual savings institutions include commercial banks. mutual savings banks. life insurance companies. money market mutual funds.

life insurance companies

A corporation acquires new funds only when its securities are sold in the -primary market by a stock exchange broker. -secondary market by a commercial bank. -primary market by an investment bank. -secondary market by a securities dealer.

primary market by an investment bank

Financial markets promote greater economic efficiency by channeling funds from ________ to ________.greater economic efficiency by channeling funds from ________ to ________. savers; lenders savers; borrowers investors; savers borrowers; savers

savers; borrowers

A financial market in which previously issued securities can be resold is called a ________ market. tertiary secondary primary used security

secondary

An example of economies of scale in the provision of financial services is -providing depositors with a variety of savings certificates. -hiring more support staff so that customers don't have to wait so long for assistance. -spreading the cost of writing a standardized contract over many borrowers. -investing in a diversified collection of assets.

spreading the cost of writing a standardized contract over many borrowers.

Patrick places his pocket change into his savings bank on his desk each evening. By his actions, Patrick indicates that he believes that money is a unit of specialization. medium of exchange. store of value. unit of account.

store of value

The time and money spent in carrying out financial transactions are called transaction costs. financial intermediation. liquidity services. economies of scale.

transaction costs

The M1 measure of money includes money market mutual fund shares. small denomination time deposits. money market deposit accounts. traveler's checks.

travelors checks

When money prices are used to facilitate comparisons of value, money is said to function as a unit of account. store of value. medium of exchange. payments-system ruler.

unit of account