Question 1

Banks prefer that customers use an electronic funds transfer system rather than traditional methods of payment because:

Accepted Answer

A)  traditional payments are subject to regulation by the Fed and electronic transactions are not.
B)  electronic funds are subject to a smaller reserve requirement than traditional funds.
C)  electronic funds transfer is more efficient and less expensive for banks than traditional check-based payments.
D)  the bank generates advertising revenue from its website.E) B) and C)
F) A) and C)

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

The bailouts proposed by presidents Bush and Obama totaled:

Accepted Answer

A)  $700 billion
B)  $800 billion
C)  $3 trillion
D)  $1.5 trillionE) All of the above
F) A) and B)

Question 4

Which of the following statements best summarizes the difference between M-1 and M-2?

Accepted Answer

A)  The M-1 definition of the money supply considers 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 includesE) C) and D)
F) None of the above

Question 5

The represents one of the Fed's most powerful monetary policy tools.

Accepted Answer

A)  reserve requirement
B)  discount rate
C)  margin requirement
D)  working capital requirementE) A) and B)
F) None of the above

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Historically, coins and paper money complicated the exchange process.

Accepted Answer

A) True 
 B)False

Question 8

When a customer purchases an item with a debit card:

Accepted Answer

A)  they actually are taking out a short-term loan with 30 days to pay before any interest is charged.
B)  the payment flows first through an electronic clearinghouse which then sends the customer a bill.
C)  the transaction duplicates the process of a credit card.
D)  the funds are automatically transferred from the customer's account to the store's account.E) B) and D)
F) A) and B)

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

A(n)  accepts savings and checking account deposits and provides home mortgage loans.

Accepted Answer

A)  nonbank
B)  insurance company
C)  savings and loan association
D)  commercial finance companyE) All of the above
F) A) and B)

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Historically, there was a central bank in the U.S.

Accepted Answer

A)  very little resistance to
B)  resistance to
C)  insufficient funding of
D)  disinterest inE) None of the above
F) A) and C)

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Credit unions are for-profit cooperatives.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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.

Accepted Answer

A)  4
B)  12
C)  15
D)  noE) None of the above
F) A) and D)

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

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Historically, coins and paper money complicated the exchange process.

Correct AnswerverifiedShow Answer

Historically, there was a central bank in the U.S.

Correct AnswerverifiedShow Answer

A(n) accepts savings and checking account deposits and provides home mortgage loans.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When a customer purchases an item with a debit card:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The bailouts proposed by presidents Bush and Obama totaled:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Credit unions are for-profit cooperatives.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Banks prefer that customers use an electronic funds transfer system rather than traditional methods of payment because:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The represents one of the Fed's most powerful monetary policy tools.

Correct AnswerverifiedShow Answer

Which of the following statements best summarizes the difference between M-1 and M-2?

Correct AnswerverifiedShow Answer

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