BUS100 Chapter 16

Which of the following statements BEST describes why U.S. Treasury securities have always been considered risk-free investments? A) They are backed by the U.S. government. B) They have a guaranteed rate of return. C) They are easily sold. D) They are readily available for purchase. E) They earn a great profit on the international money market.

A) They are backed by the U.S. government.

Which of the following terms refers to the interest level at which member banks can borrow money from the Federal Reserve System? A) discount rate B) key rate C) prime rate D) federal insurance premium E) reserve requirement

A) discount rate

Which of the following affects the value of money? A) how much currency is in circulation B) how many units the currency can be divided into C) how portable the form of currency is D) how durable the form of currency is E) how much currency has been saved

A) how much currency is in circulation

Which of the following is NOT a primary tool for controlling the money supply? A) taxation B) reserve requirements C) discount rate controls D) credit controls E) open-market operations

A) taxation

Which of the following describes the requirements that the International Monetary Fund has made on certain developing countries? A) that the government decrease spending in order to bring inflation under control B) that private industries decrease prices in order to bring inflation under control C) that the government increase loans in order to create more money in the local markets D) that the local banks increase loans in order to create more money in the local markets E) that the government and private industries partner in creating more jobs in the region

A) that the government decrease spending in order to bring inflation under control

Which of the following BEST describes two of the three primary functions of the Federal Reserve System? A) developing new financial markets and aiding banks in conducting their business B) aiding banks in conducting business and managing the U.S. money supply and interest rates C) managing the U.S. money supply and interest rates and monitoring interbank relationships D) monitoring interbank relationships and acting as a bank for the federal government E) acting as a bank for the federal government and developing new financial markets

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

Which of the following has a fixed term? A) demand deposits B) time deposits C) money market mutual funds D) credit card accounts E) savings accounts

B) time deposits

Which of the following statements BEST describes why a decrease in reserve requirements often results in an increase in the money supply? A) A decrease in reserve requirements gives banks more money to better determine their interest rates. B) A decrease in reserve requirements gives banks more money to pay off their debts. C) A decrease in reserve requirements gives banks more money to lend out. D) A decrease in reserve requirements gives banks more money to offer in dividend payments to their clients. E) A decrease in reserve requirements gives banks more money to reward their employees for meritorious financial ventures.

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

Which of the following reasons is the primary motivator for a commercial bank to acquire new depositors? A) A new deposit account will make more funds available to pay the interest on other deposit accounts. B) A new deposit account will make more funds available to pay the bank's employees. C) A new deposit account will make more funds available to give out in loans. D) A new deposit account will make more funds available to give out in dividends to its investors. E) A new deposit account will make more funds available to facilitate brokerage transactions.

C) A new deposit account will make more funds available to give out in loans.

Which of the following statements BEST explains how financial institutions create money? A) By opening new checking accounts and giving more people access to readily available cash, financial institutions expand the money supply. B) By issuing money through government contracts, financial institutions expand the money supply. C) By taking deposits and loaning out these funds, financial institutions expand the money supply. D) By collecting interest on its accounts through investments, financial institutions expand the money supply. E) By giving interest from its accounts to its clients, financial institutions expand the money supply.

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

How are the individual Federal Reserve Banks organized? A) by size of financial institution members-small, medium, large, etc. B) by type of financial institution members-commercial banks, credit unions, etc. C) by geographical region-Southeast, Northeast, West, etc. D) by financial purpose-buying, lending, interest controlling, etc. E) by legislative districts-10th District of Massachusetts, 1st District of Colorado, etc.

C) by geographical region-Southeast, Northeast, West, etc.

Which of the following financial institutions are considered to be owned by their depositors? A) commercial banks and savings and loan associations B) savings and loan associations and mutual savings banks C) mutual savings banks and credit unions D) credit unions and pension funds E) pension funds and savings institutions

C) mutual savings banks and credit unions

Which of the following political bodies appoints the members of the board of governors for the Federal Reserve System? A) the Senate B) the House of Representatives C) the President of the United States D) the Council of American Governors E) the people of the United States

C) the President of the United States

Which of the following actions can the Federal Deposit Insurance Company take in the event of a failure of one of its insured banks? A) The FDIC can seize the assets of the bank and its investors and settle the bank's debts. B) The FDIC can allow the bank to stay afloat by granting a loan of federal money. C) The FDIC can conduct an inquiry into the investors' assets and actions to determine if there was any malfeasance that caused the bank failure. D) The FDIC can allow another bank to take responsibility for the failed bank's liabilities through sale of the failed bank. E) The FDIC can settle the bank's debts through its insurance deposit fund and regulate the bank's transactions more strictly.

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

Which of the following financial institutions earn profits from loans taken from the funds in each of its depositors' accounts? A) securities investment firms B) pension funds C) credit unions D) commercial banks E) mutual savings banks

D) commercial banks

Which of the following is NOT part of the M-2 money supply? A) debit card account B) time deposits C) money market mutual funds D) savings account E) credit card account

E) credit card account

Which of the following is NOT part of the M-1 supply? A) currency at hand B) currency amount of written checks C) currency available through a debit card D) currency in checking accounts E) currency value of time deposits

E) currency value of time deposits

Money frees society from a system of barter. In doing so, money is performing which of the following functions? A) store of value B) measure of worth C) unit of account D) determination factor E) medium of exchange

E) medium of exchange

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? A) discount rate B) key rate C) prime rate D) federal insurance premium E) reserve requirement

E) reserve requirement

Which of the following BEST describes what is called the "open-market operations" of the Federal Reserve System? A) the development of new financial opportunities for banks B) the minting of new money to disperse into the money market C) the control of interest rates among banks D) the maintenance of a well-functioning lending system among banks E) the buying and selling of securities

E) the buying and selling of securities

True or False Individual retirement accounts can be opened only by self-employed people such as doctors, small business owners, and consultants.

False

True or False Like most of the federal government, the governors of the Federal Reserve System are democratically elected by the citizens of the United States.

False

True or False The reason why a savings account is not considered a component of the M-1 money supply is that it bears interest.

False

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

False

True or False The M-2 money supply includes everything that is in the M-1 money supply.

True

True or False An example of a point-of-sale (POS) terminal is making a payment at the grocery store and having the system transfer funds from your account to the store's account.

True

True or False As the government's bank, the Fed produces the nation's paper currency and lends money to the government.

True

True or False Money deposited into a commercial bank has the potential of increasing the overall money supply.

True

True or False The Federal Deposit Insurance Corporation is the government agency that regulates American banks.

True