Chapter 01
An Introduction to Money and the Financial System
Multiple-Choice Questions
1. Identify which item is not one of the six parts of the financial system. a. Financial markets
b. Central banks c. Credit cards
d. Financial institutions
Ans: C
Difficulty: 01 Easy
Learning Objective: 01-01
AACSB: Reflective Thinking
Blooms: Remember
Topic: The Six Parts of the Financial System
2. Identify which item is not one of the six parts of the financial system. a. Financial instruments
b. Central banks c. Credit cards
d. Financial institutions
Ans: C
Difficulty: 01 Easy
Learning Objective: 01-01
AACSB: Reflective Thinking
Blooms: Remember
Topic: The Six Parts of the Financial System
3. The central bank of the United States is:
a. the Bank of America
b. the Federal Reserve System
c. the U.S. Treasury
d. Citibank
Ans: B
Difficulty: 01 Easy
Learning Objective: 01-01
AACSB: Reflective Thinking
Blooms: Remember
Topic: The Six Parts of the Financial System
4. Identify which of the following is not one of the five core principles of money and banking. a. Risk requires compensation
b. Time has value
c. Information is the basis for decisions d. Stability creates risk
Ans: D
Difficulty: 01 Easy
Learning Objective: 01-02
AACSB: Reflective Thinking
Blooms: Remember
Topic: The Five Core Principles of Money and Banking
5. Investing in financial instruments in today's economy:
a. is an activity practiced only by the wealthy.
b. involves costly transactions.
c. requires a relatively large sum of money to invest (more than $100,000).
d. is made easier by the use of mutual funds.
Ans: D
Difficulty: 02 Medium
Learning Objective: 01-02
AACSB: Reflective Thinking
Blooms: Understand
Topic: The Five Core Principles of Money and Banking
6. Which of the following is an example of a financial market?
a. A local coffeehouse where people regularly buy and sell financial instruments.
b. A bank that only accepts deposits and issues loans.
c. An electronic network used for buying and selling textbooks.
d. A central bank used for raising taxes and borrowing on behalf of the government.
Ans: A
Difficulty: 02 Medium
Learning Objective: 01-01
AACSB: Reflective Thinking
Blooms: Understand
Topic: The Six Parts of the Financial System
7. The amount of information an individual would seek before making a decision:
a. is about the same across all individuals.
b. varies directly with the importance of the decision.
c. is the same across all decisions but varies across individuals.
d. depends on how much time it will take to get the information regardless of the decision.
Ans: B
Difficulty: 02 Medium
Learning Objective: 01-02
AACSB: Reflective Thinking
Blooms: Understand
Topic: The Five Core Principles of Money and Banking
8. The statement "risk requires compensation" implies that people:
a. do not take risk.
b. only accept risk when they absolutely have to.
c. will only accept risk when they are rewarded for doing so.
d. avoid risk at all cost.
Ans: C
Difficulty: 01 Easy
Learning Objective: 01-02
AACSB: Reflective Thinking
Blooms: Understand
Topic: The Five Core Principles of Money and Banking
9. Mutual funds have:
a. been created for very wealthy individuals with a lot of money to invest.
b. increased the risks associated with constructing a portfolio.
c. reduced the costs associated with gathering information on stocks and bonds.
d. increased the transactions costs associated with participating in financial markets.
Ans: C
Difficulty: 02 Medium
Learning Objective: 01-02
AACSB: Reflective Thinking
Blooms: Understand
Topic: The Five Core Principles of Money and Banking
10. Central banks can improve the welfare of a society by doing all of the following except:
a. serving the interests of government rather than the public at large.
b. helping to promote economic growth.
c. focusing on keeping the overall level of prices stable.
d. helping to reduce the volatility of business cycles.
Ans: A
Difficulty: 02 Medium
Learning Objective: 01-01
AACSB: Reflective Thinking
Blooms: Understand
Topic: The Six Parts of the Financial System
An Introduction to Money and the Financial System
Multiple-Choice Questions
1. Identify which item is not one of the six parts of the financial system. a. Financial markets
b. Central banks c. Credit cards
d. Financial institutions
Ans: C
Difficulty: 01 Easy
Learning Objective: 01-01
AACSB: Reflective Thinking
Blooms: Remember
Topic: The Six Parts of the Financial System
2. Identify which item is not one of the six parts of the financial system. a. Financial instruments
b. Central banks c. Credit cards
d. Financial institutions
Ans: C
Difficulty: 01 Easy
Learning Objective: 01-01
AACSB: Reflective Thinking
Blooms: Remember
Topic: The Six Parts of the Financial System
3. The central bank of the United States is:
a. the Bank of America
b. the Federal Reserve System
c. the U.S. Treasury
d. Citibank
Ans: B
Difficulty: 01 Easy
Learning Objective: 01-01
AACSB: Reflective Thinking
Blooms: Remember
Topic: The Six Parts of the Financial System
4. Identify which of the following is not one of the five core principles of money and banking. a. Risk requires compensation
b. Time has value
c. Information is the basis for decisions d. Stability creates risk
Ans: D
Difficulty: 01 Easy
Learning Objective: 01-02
AACSB: Reflective Thinking
Blooms: Remember
Topic: The Five Core Principles of Money and Banking
5. Investing in financial instruments in today's economy:
a. is an activity practiced only by the wealthy.
b. involves costly transactions.
c. requires a relatively large sum of money to invest (more than $100,000).
d. is made easier by the use of mutual funds.
Ans: D
Difficulty: 02 Medium
Learning Objective: 01-02
AACSB: Reflective Thinking
Blooms: Understand
Topic: The Five Core Principles of Money and Banking
6. Which of the following is an example of a financial market?
a. A local coffeehouse where people regularly buy and sell financial instruments.
b. A bank that only accepts deposits and issues loans.
c. An electronic network used for buying and selling textbooks.
d. A central bank used for raising taxes and borrowing on behalf of the government.
Ans: A
Difficulty: 02 Medium
Learning Objective: 01-01
AACSB: Reflective Thinking
Blooms: Understand
Topic: The Six Parts of the Financial System
7. The amount of information an individual would seek before making a decision:
a. is about the same across all individuals.
b. varies directly with the importance of the decision.
c. is the same across all decisions but varies across individuals.
d. depends on how much time it will take to get the information regardless of the decision.
Ans: B
Difficulty: 02 Medium
Learning Objective: 01-02
AACSB: Reflective Thinking
Blooms: Understand
Topic: The Five Core Principles of Money and Banking
8. The statement "risk requires compensation" implies that people:
a. do not take risk.
b. only accept risk when they absolutely have to.
c. will only accept risk when they are rewarded for doing so.
d. avoid risk at all cost.
Ans: C
Difficulty: 01 Easy
Learning Objective: 01-02
AACSB: Reflective Thinking
Blooms: Understand
Topic: The Five Core Principles of Money and Banking
9. Mutual funds have:
a. been created for very wealthy individuals with a lot of money to invest.
b. increased the risks associated with constructing a portfolio.
c. reduced the costs associated with gathering information on stocks and bonds.
d. increased the transactions costs associated with participating in financial markets.
Ans: C
Difficulty: 02 Medium
Learning Objective: 01-02
AACSB: Reflective Thinking
Blooms: Understand
Topic: The Five Core Principles of Money and Banking
10. Central banks can improve the welfare of a society by doing all of the following except:
a. serving the interests of government rather than the public at large.
b. helping to promote economic growth.
c. focusing on keeping the overall level of prices stable.
d. helping to reduce the volatility of business cycles.
Ans: A
Difficulty: 02 Medium
Learning Objective: 01-01
AACSB: Reflective Thinking
Blooms: Understand
Topic: The Six Parts of the Financial System