Quiz 20: Money, Financial Institutions, and the Federal Reserve

Economic growth and the creation of jobs depend on the availability of money.

Most countries restrict the flow of money in and out of their borders.

Economic events in other nations seldom impact the powerful U.S. economy.

Barter is the trading of goods and services for other goods and services.

Barter involves the use of electronic payment systems, like Paypal.com, for online transactions.

Money is anything people generally accept as payment for goods and services.

Efficient monetary systems eliminate the use of barter.

A barter exchange is a system where you input into a system the goods and services that you are willing to trade, and receive trade credit.

Coins and bills are portable and durable.

The strength of the U.S. money system rests on the silver content of the coins.

Electronic cash is one of the newest forms of money.

Historically, coins and paper money complicated the exchange process.

The U.S. government has done its best to create dollar bills that are easily duplicated.

Companies are now developing ways to send money across national boundaries using e-cash.

The President of the U.S. is in control of the money supply in the U.S.

Several European countries report a significant decrease in the level of jobs, income, and production of goods and services. The size and strength of the U.S. economy insulates U.S. businesses from the economic problems of other countries.

Real dollars are made with various lines of colors such as peach and blue. They have art work that is off-center, and there are other identifiable watermarks for the purpose of making replication quite easy.

The currencies of some countries, although durable and portable, are relatively unstable, which makes international exchanges difficult.

The problem with barter exchanges is that it is too difficult to find people to exchange your good with.

Trading internationally by using money appears easy and almost effortless, but the fact is there is a very complex banking system that makes it happen.

According to the Adapting to Change box, it's hard to determine the exact value of Bitcoin.

The U.S. production of the Sacagawea dollar coins provides greater durability than paper dollar bills.

The people living on the island nation of Wacki-ki readily accept a certain type of seashell as payment for the goods and services they trade. For Wackians (the name of Wacki-ki natives), seashells serve as money.

When Mrs. Sweet exchanges her famous chocolate chip cookies for the lawn care services of her neighbor, she engages in a barter transaction.

The money supply represents the amount of money the Federal Reserve Bank makes available for people to buy goods and services.

Both the M-1 and M-2 definitions of money include coins and paper money.

The M-1 money supply includes money in savings accounts, mutual funds, and money market accounts.

M-2 represents the most commonly used definition of the money supply.

The M-1 definition of the money supply includes travelers' checks.

The M-3 includes M-1 money, but not M-2 money.

A significant increase in the money supply creates inflationary pressures in the economy.

Inflation occurs in an economy with too little money chasing too many goods.

Changes in the money supply produce little or no change in inflation, employment and economic growth.

When the value of the dollar falls, foreign goods become less expensive for American consumers.

The strength of the U.S. dollar depends on the strength of the U.S. economy relative to the economies of other nations.

The Federal Reserve establishes the tax policies of the U.S.

Theoretically, with the proper monetary policy, the U.S. economy can continue to grow without causing inflation.

The Federal Reserve consists of seven Federal Reserve districts.

The President of the U.S appoints the members of the Federal Reserve's board of governors.

Open-market operations is the buying and selling of government securities by the Federal Reserve Board.

The reserve requirement represents the interest rate charged by the Federal Reserve for government-guaranteed student loans.

The reserve requirement represents the Fed's most powerful tool for conducting monetary policy.

When the Fed increases the reserve requirement, banks make fewer loans.

When the Federal Reserve wants to increase the money supply, they decrease the reserve requirement.

When the Federal Reserve acts to reduce inflation, they decrease the reserve requirement.

The Fed commonly buys or sells U.S. government securities to regulate the money supply.

The federal funds rate is the interest rate that banks charge each other.

The rate of interest charged by the Federal Reserve is called the federal funds rate.

The three basic tools the Fed uses to manage the money supply are reserve requirements, open-market operations, and the discount rate.

The Federal Reserve assists in the processing of checks between banks.

The electronic transfer of money increases the Federal Reserve's check-clearing operations.

The goal of Federal Reserve monetary policy is to affect the level of competition in the U.S. banking system.

When the value of the euro increases compared to the U.S. dollar, the price of U.S. exports to Europe will decrease.

If you are trying to sell your state-of-the-art bicycles into the Japanese market, you are likely to sell more bicycles if the dollar has strength against the Japanese yen.

To decrease the money supply, the Federal Reserve sells U.S. government bonds in open-market operations.

When the Fed increases the reserve requirement it forces banks to increase the number of loans they make.

To decrease the money supply, the Federal Reserve sells U.S. government bonds in open-market operations.

An increase in the discount rate produces a decrease in money supply.

To reduce inflation, the Federal Reserve increases the discount rate.

By reducing the reserve requirement, the Fed intends to increase the money supply.

When the Fed sells U.S. government securities, the U.S. money supply increases.

Newspapers in the nation of St. Lunatic report a significant increase in money supply during the past few months. This information indicates that St. Lunatic may experience a serious recession in the near future.

The government is concerned about inflationary pressures that seem to be building within the nation. Restricting the growth of money supply provides an effective strategy to reduce these inflationary pressures.

When the value of the dollar increases relative to the euro, the number of U.S. dollars needed to purchase a bottle of French wine decreases.

Springfield National Bank holds $200 million in deposits from their customers. If the Fed sets the reserve requirement at 12 percent, Springfield must hold $24 million in cash at the bank or in non-interest-bearing deposits at the local Federal Reserve district bank.

The Fed has just reduced the reserve requirement from 14% to 12%. Commerce Bank holds $650 million in deposits. It will need to become more conservative with its lending procedures because it now must hold $91 million in reserves.

Next month, Commerce Bank plans to increase the amount of new loans it makes. As a member bank of the Federal Reserve, Commerce can borrow from the Fed. Commerce will charge the customer an interest amount greater than the discount rate.

Recently, the Fed announced a reduction in the discount rate and the reserve requirement. These actions clearly suggest that the Fed intends to decrease the money supply.

Yesterday it was reported that the U.S. is clearly experiencing an economic downturn. A strategy the Fed may enact if the nation is facing recession is to buy government securities in open-market operations.

Great news! The Fed just announced that the discount rate will rise by as much as 1% over the next three months. This will make it easier for Ben, the owner of a laser engraving business, to borrow money for that new piece of equipment he needs.

When the U.S. was still a colony of Great Britain, land banks were created to lend money to farmers.

The United States first established a central bank in 1913 by establishing the Federal Reserve System.

A central bank allows individual banks to deposit and to borrow funds.

Thomas Jefferson proposed the establishment of the first central bank in the United States.

Early in our nation's history, people generally accepted the importance of a central bank authority.

Alexander Hamilton persuaded Congress to create a central bank.

Prior to the Civil War, the United States had two unsuccessful attempts at a central bank.

In the early 1800s, the United States allowed banks to issue different kinds of currencies.

A series of bank failures and a cash shortage in 1907 led to the establishment of the Federal Reserve System in 1913.

By the time of the Civil War, the efficient banking system of the United States was the envy of the rest of the world.

The Federal Reserve System was designed to prevent a repeat of the 1907 banking crisis.

Thanks in part to the Federal Reserve System, few banks failed during the Great Depression.

Created during the Great Depression, the federal deposit insurance program resulted in a large number of bank failures.

In the 1930s, during the Great Depression, the government started an insurance program to protect the public from bank failures.

All federally chartered banks are members of the Federal Reserve.

The Federal Reserve is the "bankers' bank."

Bank crises tend to correlate with economic recessions.

Prior to the establishment of the Federal Reserve System in 1913, the United States had no experience with a central bank.

The Federal Reserve, which was established in 1907 was to be a "lender of last resort," loans money to small businesses that are unable to obtain loans through private banks.

The Federal Reserve System enabled the U.S. economy to avoid serious banking problems during the Great Depression.

The wave of bank failures during the Great Depression prompted the government to establish federal deposit insurance to protect the public from bank failures.

During the Civil War, gold and silver coins were hoarded not because of their currency value, but because they were worth more than currency.

Commercial banks, savings and loan associations, and credit unions all represent components of the American banking system.

Commercial banks offer services to depositors and borrowers.

Depositors represent a bank's primary responsibility, while borrowing customers are secondary.

Commercial banks operate as nonprofit institutions.

Commercial banks attempt to profit by using funds deposited by customers to make interest-bearing loans to borrowers.

A savings account represents a demand deposit.

A demand deposit is the technical name for a checking account.

Typically, banks impose a service charge for check-writing privileges or demand a minimum deposit.

A more recent product of banks is checking accounts that pay interest to depositors.

A saving account is also known as a time deposit.

Technically, a bank can require depositors to give prior notice before they withdraw funds from time deposits.

Certificates of deposit (CDs) represent demand deposits issued by banks.

The Federal Reserve requires that ATM machines be located within 100 yards of a commercial bank.

A growing trend today is mobile banking. In fact, nearly two-thirds of the nation's biggest banks now let customers make deposits by taking a photo of the check.

Banks focus on the creditworthiness of the borrower when determining whether to grant a loan.

A major cause of the recent banking crisis was the neglect of banks to seriously scrutinize loan applicants for creditworthiness.

A savings and loan association (S&L) is a financial institution that accepts both savings and checking deposits and provides home mortgage loans.

Historically, savings and loans always paid lower interest rates on time deposits.

Savings and loan associations, also known as thrift institutions, were created to promote consumer thrift and home ownership.

Many S&Ls failed due to the inflation of the 1970s, deregulation, regulatory failure, and fraud.

Credit unions represent nonprofit, member-owned financial cooperatives that offer the full variety of banking services to their members.

As nonprofit institutions, credit unions enjoy an exemption from federal income taxes.

Credit unions are for-profit cooperatives.

Pension funds are monies put aside by corporations, nonprofit organizations, or unions to fund the financial needs of their employees, upon retirement.

Nonbanks accept deposits, but do not offer lending services, brokerage services, or insurance services.

Some financial services organizations lend money directly to corporations.

Pension funds invest monies contributed by employers and/or employees for the benefit of their members' retirement.

Large pension funds represent a powerful force in U.S. financial markets.

Commercial and consumer finance companies specialize in making low-interest loans to individuals and businesses with strong credit ratings.

Brokerage firms now compete with commercial banks by offering high-yield combination savings and checking accounts.

The interest paid on time deposits, today, represents the main difference between time and demand deposits.

The ability to access funds without a penalty helps to explain why certificates of deposit (CDs) have gained popularity among conservative investors and savers.

Today's consumers have fewer options and less flexibility as a result of increased regulation of the banking industry.

Due to federal regulations limiting their investment opportunities, pension funds play a minor role in U.S. financial markets.

Because they charge higher interest rates, commercial and consumer finance companies often fail to attract borrowers.

According to the Spotlight on Small Business box, merchant cash advance providers often charge much lower interest rates than traditional banks.

After years of banking with Quality Bank and Trust, Saul decided to switch to a competing institution. Thanks to changes in government regulation, his search will uncover a variety of options; however, he will also learn that banks and nonbanks have merged in order to be more competitive in the banking and financial services industries, which may or may not increase his options.

Last week Dave was looking for a place to deposit a $30,000 inheritance from his Great Aunt Martha, who passed away three months ago. He does not plan to spend his money frivolously. He will need part of the funds from time to time for his college education, which he promised Great Aunt Martha he would complete. After speaking with several sales consultants in banking and nonbank institutions, he likes the fact that he can open a stock brokerage account and a money-market account at Goodman Stacks Investment Company (a nonbank company), and will be issued checks for paying bills. You remind him that with the recent mergers between banking and nonbank institutions, he may be able to find a company that provides (both) the convenience of banking services (ATM, cash availability) and low-risk/high-risk securities products.

The U.S. government's lack of regulation alone caused the banking crisis and collapse of banks that had been in business for several decades.

In the early 2000s, banks took the mortgages that they owned, created mortgage-backed securities out of them, and sold them as safe investments.

Due to the fact that investors did not individually purchase MBSs (mortgage-backed securities) in their investment accounts, they remained unaffected when the value of some of these investments became worthless.

One thing is for certain, the average borrower's risk-averse behavior did not contribute to the problems that spiraled out of control and caused the recent banking crisis.

Fortunately, the Troubled Assets Relief Program (TARP) took care of the looming bankruptcy problems of major financial services institutions, and taxpayers were not hit with additional bailouts.

Persons with deposits less than $100,000 in banks, savings and loans, and credit unions run the risk of losing their money in an economic downturn.

The FDIC exists to maintain the public's confidence in the banking system.

When a commercial bank fails, depositors lose all of their money.

The FDIC traditionally protects depositors up to $250,000 per account.

As a response to a rise in savings and loan failures, the federal government no longer insures holders of accounts in savings and loan associations.

The Savings Association Insurance Fund insures the holders of accounts in savings and loan associations.

The National Credit Union Administration provides coverage up to $250,000 per individual depositor at each credit union.

They say "hindsight is 20/20," meaning you can usually see things more clearly, with a much better understanding, after events have occurred. We can say the same for the recent banking crisis. The practices of several participants (for-profit companies, government regulators, and customers) came together to create the crisis that caused the collapse of several banks, financial services companies, and corporations.

There is much speculation that prior to the recent banking crisis, the Fed (Federal Reserve System) and the SEC (Securities and Exchange Commission) were not enforcing the regulations they were charged to enforce.

After the bank failures of the Great Depression, the U.S. government formed three organizations: the FDIC (Federal Deposit Insurance Corporation); the SAIF (Savings Association Insurance Fund); and NCUA (National Credit Union Administration) to restore people's confidence and insure deposits.

Cory worries that his $7,537 in a checking account at the Lottadoe National Bank could be lost if the bank fails. Lottadoe is a FDIC (Federal Deposit Insurance Corporation) member bank, which insures Cory's account up to $250,000.

Andrea has three types of deposits at her credit union. She has a checking account in her own name worth $32,000, a joint savings account with her husband, which currently holds $95,000, and an IRA account worth $125,449. Her deposits are at risk because they exceed the $250,000 limit on insurance coverage by NCUA.

Existing regulations prohibit online banking activities unless the bank also operates a traditional brick-and-mortar facility.

An electronic funds transfer system (EFT) is an electronic transaction system used for paying bills, making direct deposits of paychecks, and paying for a purchase.

A debit card is better than a credit card because it allows the purchaser to float a short-term loan, until the credit card company sends the bills at the end of the month.

A newer product is the payroll debit card. It is cheaper for employers to load your paycheck on a debit card than to cut a check. This is convenient for customers who do not qualify for a regular debit or credit card, because they can use it to pay bills, do online purchasing and even get cash from an ATM machine.

High start-up costs cause Internet banks to have higher operating costs than traditional banks.

Internet banks offer customers better interest rates and lower fees because these businesses avoid the costs of constructing and maintaining a bank building.

Although there are many features about online banking that customers do not care for, they are seldom concerned with security due to continued assurances by the banking industry.

In an electronic funds transfer (EFT) system, the information of a transaction is communicated from one computer to another.

Electronic funds transfer (EFT) tools include debit cards, smart cards, direct deposit, direct payments, and electronic check conversion.

Many employers offer direct deposit as a convenient and cost-savings method of distributing employee pay each month.

From a bank's point of view, debit cards and credit cards are treated in identical ways.

Both checks and debit cards will immediately transfers funds from the customer's account to the seller's account.

Smart cards contain a microprocessor chip that stores information about the user, such as driver's license data and bank balance.

Smart cards can allow the user to access secure areas within buildings or buy gas with the swipe of the card.

A direct payment is a preauthorized electronic payment.

Although there are many new ways to perform electronic funds transfer, legally, the only way that an employer can pay an employee is by writing a check.

Lower fees and better interest rates motivate customers to open accounts with Internet banks. However, the lack of personal service and concern for information security encourages some customers to return to a traditional bank.

While an electronic funds transfer represents a faster and more flexible method of making payments than writing checks, it is more expensive for banks.

Tim travels extensively on business. Most of the hotels where he stays provide him with a card that unlocks his room. The card is keyed to the particular lock that matches the lock on the assigned room, and also contains information about Tim. The type of card that Tim is using is a smart card.

Damian has played supporting roles in a number of movies and is passionate about his craft to the point where he created a home theatre inside his house. He has satellite where he receives an unlimited number of movies, and he also has an online account with Netflix. For added convenience, he has set up direct payment to these companies. This means when his statement arrives each month, he will get online and tell his bank how much to pay these vendors.

A letter of credit represents a promise that a bank will disburse a specified amount of funds at a particular time if certain conditions are met.

Banks help businesses operate in other countries by exchanging the currency of one nation for the currency of another.

A banker's acceptance represents a promise that a bank will pay a specified amount at a specified time if certain conditions are met.

When traveling in other countries, tourists can use their MasterCard or Visa bankcards to obtain foreign currencies at ATMs.

More than ever, the American economy operates as a distinctly separate entity from the international economy.

International bankers prefer to invest in their own countries whenever possible.

The global money markets trade about $4 trillion every day.

International bankers make loans wherever they can get the maximum return for their money.

While Federal Reserve actions impact domestic investors, they have little effect on decisions made by international investors.

The World Bank primarily finances projects to protect the environment.

The World Bank primarily finances projects to improve the productivity and standard of living in less-developed nations.

The International Monetary Fund assists with the smooth flow of money among nations.

The International Monetary Fund does not lend money.

The IMF's goal is to maintain a global monetary system.

Given the size and strength of the U.S. economy and the widespread use of the dollar, the Federal Reserve essentially regulates international monetary markets.

When the Federal Reserve pursues policies that increase interest rates, the amount of foreign funds flowing into the United States also increases.

Abdul Industries wants to import some heavy machinery from a producer located in the Czech Republic. To facilitate payment to the Czech firm, Abdul arranged for its bank to issue a banker's acceptance. Under this arrangement, the bank pays the exporter after the equipment passes inspection.

As a relatively poor nation, Liberia wants to obtain funds for a project to improve the availability of water and electricity. Liberia should contact the International Monetary Fund.

Chipper's Golf Resort plans to carry an inventory of golf clubs-irons, drivers, and woods-from a German manufacturer. The manufacturer has promised delivery in four weeks, which will be just in time for the beginning of Chipper's golf season at its Chicago course. In order to prudently watch cash flow, you have recommended that Chipper's Resort sign a letter of credit with an international bank asking the bank to disburse payment when the clubs arrive at the Chicago course and after they are inspected.

Everything else held constant, an international bank based in New York would prefer to loan money to an efficient firm operating in San Paulo, Brazil, than an inefficient firm operating in southern California.

__________ includes anything that people generally accept as payment for goods and services. A. An intangible asset B) Money C) A commodity D) A barter good

__________ occurs when goods are traded directly for other goods. A. Barter B) Direct exchange C) Direct marketing D) Credit

Which of the following is not a favorable characteristic of money? A. Barterability B) Divisibility C) Portability D) Durability

Which of the following represents a benefit of coins over paper money? A. Improved portability B) Increased divisibility C) Enhanced stability D) Improved durability

The redesign of and new colors added to U.S. paper money are intended to: A. make the currency more difficult to counterfeit. B) increase the use of the barter system. C) improve the durability of our monetary system. D) increase the portability of our money.

The problem with bartering is: A. one person in the trade does not feel he/she got a fair shake. B) there is a significant amount of corruption in the process, and things get stolen before they are traded. C) it is not an easy process, and often cumbersome to carry goods to the place of trade. D) it has no place in today's international trading operations.

Today, a regular _____________ is a system where you can exchange goods for other goods. You submit your goods and you receive trade credit that you can use to buy other goods. A. world market B) barter exchange C) world trade center D) trading post

Kimberly trades some of her homegrown tomatoes to her neighbor, Ron, for some green peppers fresh from Ron's garden. This type of trade represents an example of: A. barter. B) e-commerce. C) direct exchange. D) tax avoidance.

The Fed Chairman is in control of: A. the world's money supply. B) the U.S. money supply. C) fiscal policy. D) the IMF.

The ______ category of money supply includes money that is quickly and easily accessed. A. e-cash B) M-3 C) M-2 D) M-1

__________ represents the most commonly used category of the money supply. A. M-1 B) M-2 C) M-3 D) L

A rapid increase in the money supply may lead to a(n): A. increase in the rate of inflation. B) recession. C) decrease in interest rates. D) decrease in spending by consumers and businesses.

When the value of the U.S. dollar increases relative to other currencies: A. the rate of inflation increases. B) the size of the national debt decreases. C) foreign goods become less expensive to U.S. consumers. D) U.S. goods become less expensive to foreign buyers.

The strength of the U.S. dollar relative to other currencies depends mainly on: A. the rate of inflation in the United States. B) the performance of the U.S. economy relative to other economies. C) how much gold backs the money supply. D) exchange rate decisions made by the International Monetary Fund.

The organization responsible for conducting monetary policy in the United States is the: A. Federal Trade Commission. B) Council of Economic Advisors. C) Federal Reserve System. D) Federal Monetary Control Authority.

The Federal Reserve System consists of ________ Federal Reserve banks. A. 5 B) 9 C) 12 D) 14

The board of governors of the Federal Reserve System determines: A. exchange rates. B) U.S. monetary policy. C) inflows and outflows of gold reserves to ensure a stable money supply. D) how much money the U.S. will loan to foreign governments.

The Fed uses ________ to regulate the money supply. A. stock market investments B) the deposit requirement C) the political negotiation process D) the discount rate

The ___________ represents one of the Fed's most powerful monetary policy tools. A. reserve requirement B) discount rate C) margin requirement D) working capital requirement

Open-market operations involve: A. monitoring the reserve requirement. B) the buying and selling of bonds. C) increasing and decreasing interest rates. D) participating with the IMF.

________ involve(s) the Fed buying and selling U.S. government securities to increase or decrease the money supply. A. Discounting B) Reserve requirements C) Deficit funding D) Open-market operations

The ___________ rate represents the interest rate charged by the Fed when loaning funds to member banks. A. discount B) prime C) federal funds D) reserve

The ___________ plays a role in making certain that checks clear and sellers get paid. A. National Check Register B) Federal Reserve System C) Uniform Commercial Check Processors D) paypal.com network

Which of the following is included in the M-2 definition of the money supply but not the M-1 definition? A. Currency B) Checking account deposits C) Traveler's checks D) Savings account deposits

Which of the following is not included in the M-1 or M-2 definitions of the money supply? A. Savings account deposits B) Gold C) Checking account deposits D) Currency

Which of the following statements best summarizes the difference between M-1 and M-2? A. The M-1 definition of the money supply includes only domestic currencies while the M-2 definition includes foreign currencies. B) The M-1 definition consists of "hard" currencies which are backed by gold and silver, while M-2 consists of "soft" currencies which are not backed by gold and silver. C) The M-2 definition includes everything in the M-1 definition, plus additional components such as money in savings accounts, money market accounts, and certificates of deposit. D) The M-1 money supply consists only of the currency (coins and paper money) that circulates in our economy, while the M-2 includes traveler's checks and funds in demand deposits.

An increase in the rate of inflation would likely result from a(n): A. decrease in spending by the federal government. B) rise in the unemployment rate. C) rise in interest rates. D) increase in the supply of money in circulation.

A significant decrease in the money supply tends to: A. reduce the supply of gold held by the federal government. B) create shortages that would cause prices of goods and services to rise. C) send the economy into a recession. D) reduce the size of the federal government's deficit.

When the Fed increases the reserve requirement, banks: A. must increase the dollar volume of loans they make to customers. B) must pay more to borrow from the Fed. C) have fewer funds available for lending. D) will find their balance sheets temporarily out of balance.

When the Fed increases the discount rate, banks: A. must purchase more government securities. B) must pay a higher rate when they borrow from the Fed. C) will lower the rate they charge to borrowers. D) must hold a greater amount of funds in reserve against deposits.

Which of the following represents one way the Fed increases the amount of money in circulation? A. Reduce taxes B) Raise the discount rate C) Buy government securities D) Increase the reserve requirement

When the Fed buys U.S. government securities, the: A. size of the federal deficit falls. B) discount rate rises. C) money supply increases. D) banking system loses reserves.

Bob read a newspaper story that indicated a dramatic increase in money market accounts and certificates of deposit during the last three months. The story reported that all other major components of the U.S. money supply remained unchanged. Based on this information, Bob can conclude that for the past quarter: A. both the M-1 and M-2 money supplies were stable. B) the M-1 money supply has increased, but the M-2 money supply was stable. C) the M-2 money supply has increased, but the M-1 money supply was stable. D) both the M-1 and the M-2 money supplies have increased.

Louis owns an import business. After traveling to France on numerous occasions, he developed a taste for fine French wines. A radio report that he heard this morning indicated that the dollar has fallen sharply against the euro. Based on this information, Louis expects that: A. American goods will become more expensive in France. B) French wines will become more expensive in the United States. C) French wines will become less expensive in the United States. D) the French government will place an embargo on American exports.

Chipper's Golf Resort plans to use famous Kauri wood from New Zealand for parts of the interior of the magnificent club house at its new golf resort near Portland, OR. According to the importer, each ten-foot slab will cost Chipper's approximately $5,000. Looking at the exchange rates, Chipper's finance director noted that $500 US dollars = $738 NZ dollars. The importer will order directly from his source in New Zealand. Chipper's finance director has determined that: A. it's not a good time to buy the wood. B) it's a good time to buy the wood. C) there will be a shortage of the wood. D) it will cost less when the exchange rate of U.S. dollars to NZ dollars is just about equal.

President Dude, the leader of the island nation of Jaylo, refuses to raise taxes, but wants to expand many government services and increase the size of the Jaylo armed forces. He plans to pay for all of the desired expenditures by printing more money. If President Dude carries out his plan by rapidly increasing the supply of money, Jaylo will likely experience: A. a severe recession. B) reduced private sector spending. C) widespread surpluses of goods and services. D) an increase in the rate of inflation.

The Megabux National Bank currently has deposits of $200 million. If the Fed establishes a reserve requirement of 12 percent, Megabux National must hold reserves of _______ against its deposits. A. $12 million B) $24 million C) $176 million D) $200 million

The Fed bought several billion dollars worth of U.S. government securities. The purpose of this action is to: A. decrease the size of the national debt. B) improve its financial position by investing in relatively safe interest-earning assets. C) stimulate the economy by increasing the amount of money in circulation. D) drive up interest rates to cool off inflationary pressures.

The Fed plans to raise the discount rate to 6%. This indicates that: A. banks borrowing funds from the Fed will now pay 6% on the amount they borrow. B) banks must hold funds in their vault or on deposit with the Fed equal to at least 6% of their deposits. C) the Fed will pay 6% on any securities issued by the federal government during the current time period. D) the amount of money in circulation can be no more than 6% greater than the amount of gold held in reserve by the government.

News reports indicate that the Fed plans to announce its third increase in the discount rate in the past five months. Additional reports suggest that the Fed may also increase the reserve requirement in the near future. Apparently the Fed perceives the number one problem facing the economy is: A. the size of the federal deficit. B) unemployment. C) excessively high interest rates. D) inflation.

When Mr. Smith in Quince Orchard, MD, uses a check to buy a tractor from Mr. Brown in Austin, TX, __________ different banks are involved in the transaction. A. 4 B) 12 C) 15 D) no

Early settlers of the New World relied heavily on barter because: A. they found barter more convenient than the use of money. B) strict laws limited the number of coins that could be brought into the colonies. C) money had not yet evolved. D) they wanted to protest against British control of the banking system.

________ persuaded Congress to establish the first central bank in the United States. A. Benjamin Franklin B) David Farragaut C) Franklin Roosevelt D) Alexander Hamilton

Historically, there was ________ a central bank in the U.S. A. very little resistance to B) resistance to C) insufficient funding of D) disinterest in

By the time of the Civil War, the U.S. banking system operated: A. as an efficient model that many other countries copied. B) under the control of the first Federal Reserve System. C) inefficiently with different banks issuing different types of currencies. D) much the same as it does today.

The banking panic of 1907 and the resulting cash shortage led to the formation of the: A. Federal Reserve System. B) Comptroller of the Currency. C) gold standard for currency, and the establishment of a gold repository at Fort Knox. D) FDIC.

Under the Federal Reserve Act of 1913: A. membership in the Federal Reserve System was made voluntary for all banks. B) federally chartered banks were required to join the Federal Reserve System. C) membership in the Federal Reserve System was required of all banks that had deposits of more than $1 million. D) all banks were required to hold reserves equal to at least 50 percent of their deposits.

As a response to the bank failures of the ________, a system of federal deposit insurance was established to strengthen the banking system. A. Civil War B) wildcat banking crisis of the 1880s C) Great Depression D) banking crisis of the early 1980s

Which of the following historical events motivated Congress to establish the Federal Reserve System? A. The significant outflow of gold during the Civil War B) The collapse of the Second National Bank of the United States C) The banking panic and cash shortage of 1907 D) The Great Depression

The Federal Reserve fulfills its role as a "lender of last resort" when it loans funds to: A. small businesses that are unable to obtain loans from other sources. B) banks during banking emergencies. C) major corporations that are on the verge of bankruptcy. D) the federal government when deficits exceed borrowing limits set by Congress.

One of the most important aspects of the banking legislation passed during the 1930s was that it established: A. the Federal Reserve System. B) the gold standard for currency. C) the Comptroller of the currency. D) federal deposit insurance.

Which of the following statements most accurately represents the history of U.S. banking? A. Although many technological changes have occurred, and banks have grown tremendously in size, the basic structure of banking in the United States has survived since the Revolutionary War. B) A major trend in U.S. banking was a move from federal control during the 1800s and early 1900s to a system now controlled by individual states. C) Although the early history of banking in the United States was very chaotic, the establishment of the Fed stabilized the banking system. D) The U.S. banking system has experienced a great deal of change and instability throughout its history.

The Federal Reserve represents a "bankers' bank" because: A. it was created as a central clearinghouse for the transactions of the largest banks. B) commercial banks compete with the Fed for business customers. C) it lobbies Congress in support of banking reform legislation. D) it holds the deposits of commercial banks and makes loans to banks that need additional funds.

A __________ is a profit-seeking organization that receives deposits from individuals and corporations and uses some of these deposits to make loans. A. credit union B) Federal Reserve Bank C) commercial bank D) consumer finance company

Commercial banks primarily serve two types of customers: A. depositors and borrowers. B) commercial clients and residential clients. C) secured creditors and unsecured creditors. D) short-term borrowers and long-term borrowers.

Which of the following represents the technical name for a checking account? A. Free deposit B) Variable annuity C) Demand deposit D) Certificate of deposit

The technical name for a savings account is a: A. time deposit. B) demand deposit. C) deferred account. D) retained income account.

A time deposit that earns interest is a _______________. A. certificate of deposit B) passbook account C) discount deposit D) NOW account

Traditionally, banks provide loans to individuals and companies according to the recipient's ______________. A. future earnings potential B) family history C) volume of credit already established D) creditworthiness

A(n) __________ accepts savings and checking account deposits and provides home mortgage loans. A. nonbank B) insurance company C) savings and loan association D) commercial finance company

Savings and loan associations are sometimes known as: A. nonbanks. B) thrift institutions. C) credit unions. D) bankers' banks.

__________ are nonprofit, member-owned financial cooperatives that offer a full variety of banking services such as accepting deposits and making loans. A. Mutual thrift associations B) Credit unions C) Commercial banks D) Mutual fund companies

Traditionally, life insurance companies, pension funds, and brokerage firms are known as _________. A. nonbanks B) thrift institutions C) bond companies D) federally chartered banks

____________ represent money set aside by corporations, nonprofit organizations, or unions to cover part of the retirement needs of their members. A. Annuity accounts B) Pension funds C) Individual retirement accounts D) Term-life retirement funds

Commercial banks, savings and loan associations, and credit unions: A. specialize solely in loaning money for home mortgages. B) operate as nonprofit organizations. C) deposit their excess funds with the U.S. Treasury. D) accept deposits and make loans.

Originally, savings and loan associations: A. offered brokerage services to small investors. B) promoted consumer thrift and home ownership. C) acted as a fiscal agent for the federal government, and issued and redeemed U.S. savings bonds. D) handled the overflow of business from national and state banks.

Which of the following represents a nonbank? A. Life insurance companies B) Savings and loan associations C) Credit unions D) Thrift institutions

During the early 1980s, the federal government responded to the severe problems plaguing savings and loan associations by: A. allowing S&Ls to offer a variety of financial services that made them more like commercial banks. B) nationalizing the savings and loan industry, including more regulations. C) providing interest-free loans to S&Ls that were short on reserves. D) declaring a moratorium on S&L debt payments, and limiting the amount of funds depositors could withdraw from a S&L in any given 24-hour period.

Herb has $20,000 in an interest-bearing time deposit with the Applebottom Bank and Trust Company. While earning a relatively attractive rate of interest, Herb had to agree to not withdraw any of the funds until the end of a three-year period. Herb's investment represents a(n): A. passbook savings account. B) negotiable order of withdrawal (NOW) account. C) individual deferred earnings account (IDEA). D) certificate of deposit (CD).

Pleased with the service provided by a national brokerage house when he bought and sold stocks and bonds, Ted would like to have this brokerage firm handle more of his financial needs. If Ted explores the services offered by such firms in more depth, he will find that: A. federal laws prohibit brokerage firms from competing with banks, savings and loan associations, and credit unions. B) although brokerage firms can offer some banking services, they typically are less efficient at providing them than banks, because they specialize in buying and selling securities. C) brokerage firms are becoming serious competitors for banks and other depository institutions by offering high-yield combination savings and checking accounts and money market accounts, as well as certain types of loans. D) although brokerage firms offer attractive banking services, federal law prohibits individual investors from holding both a checking account and a securities account with the same firm.

The community college where Jake works requires all employees to contribute to a pension fund. At this time, he is not too worried about the safety of this contribution because: A. the pensions fund's investments are always backed by the full faith and credit of the U.S. government. B) pension funds are provided by nonbanks so they are not going to take this money and lend it to others. C) he is considered a state employee, and as such, he is protected from this fund going bankrupt. D) pension funds usually make conservative investments.

Shana works as an investment specialist for the Teamsters Union Central States Pension Fund. Her job involves deciding how to invest the contributions paid into the fund. Which of the following statements about Shana's job are true? A. She works for a bank. B) She will probably invest most of the pension's funds in safe corporate stocks and other conservative investments such as government securities. C) In order to qualify for maximum tax benefits, the funds Shana invests all must be contributed by the companies who employ members of the Teamsters Union, rather than by the union members themselves. D) The purpose of the investments Shana is making is to increase the current pay of union members.

Which of the following represent an independent agency of the U.S. government that insures bank deposits? A. National Deposit Assurance Cooperative B) Federal Deposit Insurance Corporation C) Insurance Corporation of America D) Deposit Protection Fund

Tracing the causes of the recent banking crisis, which of the following organizations' activities is not in the news as having been a contributor to the crisis? A. The Federal Reserve suppressed interest rates which made it easier for prospective home owners and others to get loans. B) Congress promoted questionable loans. C) Banks dealt in MBSs (Mortgage Backed Securities) that were not as safe as assumed. D) Pension funds invested in risky investments.

How did banks contribute to the recent financial crisis? A. They began to offer investment products other than demand and time deposits. B) They provided loans higher than the discount rate. C) They made risky loans and then created mortgage-backed securities from the assets they held. D) They refused to sell anything other than fixed-rate mortgages.

The ________ insures holders of accounts in savings and loan associations. A. Savings Association Insurance Fund B) Federal Savings Protection Agency C) Savings and Loan Assurance Corporation D) National Savings Deposit Insurance Cooperative

Designed to create more confidence in banking institutions, the FDIC was established: A. soon after the Civil War. B) in 1908, as the result of the banking panic in 1907. C) in 1917, as the nation entered World War I. D) during the Great Depression of the 1930s.

The __________ insures deposits held in credit unions. A. Federal Credit Insurance Agency (FCIA) B) Credit Union Insurance Fund (CUIF) C) Federal Deposit Insurance Corporation (FDIC) D) National Credit Union Administration (NCUA)

The Federal Deposit Insurance Corporation (FDIC) operates as a(n): A. department of the Federal Reserve System and sells insurance to mortgage holders. B) independent agency of the U.S. government, and sells insurance to banks. C) arm of the Department of the Treasury. D) private nonprofit cooperative operated by member banks, offering insurance premiums for banking clients.

The purpose of creating the FDIC was to: A. restore confidence in banking institutions. B) serve as clearinghouses for transactions involving commercial banks and savings and loans. C) provide federally guaranteed insurance to small businesses at low cost. D) help the Federal Reserve enforce reserve requirements.

Barry has $22,000 in a savings account with the Scott Credit Union. While economic conditions have caused financial institutions to struggle, Barry feels that his money is safe due to the fact that the credit union's accounts are protected by the: A. Federal Deposit Insurance Corporation (FDIC). B) Credit Union Insurance Fund (CUIF). C) National Alliance of Credit Union Underwriters (NACUU). D) National Credit Union Administration (NCUA).

Alfredo banks at a commercial bank that advertises its membership in the FDIC. This means that: A. the bank guarantees it will pay the highest possible interest rate on his savings. B) his money is insured by an independent agency of the federal government. C) his money is automatically invested in securities issued by the federal government. D) the bank is a member of a larger consortium of banks that will enable Alfredo to cash checks and obtain basic bank services in virtually any major city in the United States.

After Bob and Jillian deposited nearly $30,000 in a savings account at Farmers National Bank, the bank failed and filed for bankruptcy. Because the Farmers National Bank was an FDIC member bank, Bob and Jillian: A. should be protected because their account is fully insured by the FDIC. B) can recover up to $20,000, but they will probably lose the rest since their deposits exceed the maximum coverage offered by the FDIC. C) will lose their savings because the FDIC only insures business deposits. D) will be eligible to recover 80 percent of the value of their deposit, less a $2,500 deductible.

Xavier deposited $75,000 in various individual accounts at his local credit union. He and his wife also have a joint savings account worth $34,500. What portion of these deposits is insured? A. $0, because the NCUA does not insure individual credit union deposits. B) $73,220 C) $100,000 D) $109,500

For banks, check-processing activities: A. still represent the cheapest way to permit customers use of their funds. B) are expensive and time consuming. C) are not trustworthy and reliable. D) are extremely efficient and have deterred customers from using other ways to access their funds.

Which of the following is a major difference between Internet banks and traditional banks? A. The government does not regulate Internet banks. B) Traditional banks are prohibited from having ATMs. C) Internet banks have lower overhead costs. D) Traditional banks offer less personal care and attention to customers.

The ________ provides the same results as a check because it withdraws funds from a checking account. A. credit card B) debit card C) smart card D) cashier's check

A(n) __________ allows money to be exchanged electronically more quickly and more economically than with paper checks. A. electronic check conversion (ECC) B) electronic funds transfer system C) virtual banking operation D) telechecking system

___________ replace the typical magnetic strip on a credit or debit card with a microprocessor. A. Smart cards B) Direct deposit cards C) E-cards D) Check conversions

Which of the following can include an embedded radio-frequency antenna that allows the holder to access secure areas in buildings or buy gas with the swipe of a card? A. smart cards B) direct deposit cards C) e-cards D) check conversion cards

On payday, employers can designate their banks to electronically transfer funds from the business's checking account to the employees' checking account. This represents an example of a(n): A. debit card system. B) check kiting system. C) electronic check conversion. D) direct deposit.