11. In the United States, control of the quantity of money is given to the:
a. President.
b. Federal Reserve System.
c. Bureau of Printing and Engraving.
d. Department of the Treasury.
Ans: B
Difficulty: 01 Easy
Learning Objective: 01-01
AACSB: Reflective Thinking
Blooms: Remember
Topic: The Six Parts of the Financial System
12. Which of the following statements best describes financial instruments?
a. All financial instruments are a means of payment.
b. Financial instruments can transfer resources between people but not risk.
c. Financial instruments can transfer resources and risk between people.
d. Financial instruments can transfer risk but not resources between people.
Ans: C
Difficulty: 01 Easy
Learning Objective: 01-01
AACSB: Reflective Thinking
Blooms: Understand
Topic: The Six Parts of the Financial System
13. Which of the following statements best describes financial markets?
a. Financial markets lower the cost and increase the speed of buying and selling financial instruments.
b. Financial markets increase the speed of buying and selling, but they also increase the cost since people are earning fees for these transactions.
c. Financial markets are a good example of unregulated markets.
d. Financial markets today offer fewer instruments than they did in the past.
Ans: A
Difficulty: 01 Easy
Learning Objective: 01-01
AACSB: Reflective Thinking
Blooms: Understand
Topic: The Six Parts of the Financial System
14. The New York Stock Exchange is an example of a:
a. financial instrument.
b. financial institution.
c. financial market.
d. bank.
Ans: C
Difficulty: 01 Easy
Learning Objective: 01-01
AACSB: Reflective Thinking
Blooms: Remember
Topic: The Six Parts of the Financial System
15. When an individual obtains a car loan and makes all of the regular monthly payments, the sum of the payments made will exceed the purchase price of the car. This is due primarily to the core principle:
a. risk requires compensation.
b. information is the basis for decisions.
c. markets determine prices and allocate resources.
d. time has value.
Ans: D
Difficulty: 02 Medium
Learning Objective: 01-02
AACSB: Reflective Thinking
Blooms: Understand
Topic: The Five Core Principles of Money and Banking
16. Most financial markets in the United States operate under a system:
a. without any formal rules or regulation.
b. with many rules and regulation to ensure a fair market.
c. where it depends on which state where the financial market is located since some states do not have any regulations.
d. that is totally controlled by the federal government.
Ans: B
Difficulty: 02 Medium
Learning Objective: 01-01
AACSB: Reflective Thinking
Blooms: Remember
Topic: The Six Parts of the Financial System
17. How do financial institutions evaluate the creditworthiness of potential borrowers?
a. They offer high interest rates because only the best borrowers will be able to afford them.
b. They gather information regarding the borrowers' finances.
c. They do not evaluate creditworthiness because everyone is treated the same.
d. They do not evaluate the creditworthiness because they know the borrower will honor his/her obligation to repay the loan.
Ans: B
Difficulty: 02 Medium
Learning Objective: 01-02
AACSB: Reflective Thinking
Blooms: Understand
Topic: The Five Core Principles of Money and Banking
18. Stock prices are:
a. set by the company issuing the stock.
b. set by the central bank.
c. determined by market transactions.
d. unrelated to the value of the company issuing the stock.
Ans: C
Difficulty: 02 Medium
Learning Objective: 01-01
AACSB: Reflective Thinking
Blooms: Understand
Topic: The Six Parts of the Financial System
19. The primary function of central banks is to:
a. increase risk and volatility to increase compensation.
b. control inflation, as well as help reduce the size and frequency of business cycle fluctuations.
c. increase the uncertainty that firms face in making investment decisions.
d. eliminate the need for banks to collect financial information.
Ans: B
Difficulty: 01 Easy
Learning Objective: 01-01
AACSB: Reflective Thinking
Blooms: Understand
Topic: The Six Parts of the Financial System
20. U.S. monetary policy is best described as:
a. aimed at keeping inflation low and stable and growth high and stable. b. determining the denominations of a country's currency.