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Quiz 2
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1
A bank is an example of:
A)a financial instrument.
B)a financial market.
C)a financial institution
D)None of the above is correct.
2
Financial instruments are:
A)used to transfer resources from savers to investors.
B)used to transfer risk.
C)sold in financial markets.
D)All of the above are correct.
E)None of the above is correct.
3
Money:
A)consists solely of currency.
B)consists solely of gold and silver coins.
C)is used to purchase goods and services and to store wealth.
D)is only rarely used to pay for transactions today.
4
Which of the following correctly describes trends associated with financial instruments in the U.S.?
A)Transactions have become relatively more costly over time due to rising brokerage fees.
B)Mutual funds now allow less wealthy households to purchase a share of a diversified collection of financial assets at a relatively low cost.
C)The variety of types of financial instruments that are sold in financial markets has been reduced substantially over time.
D)The use of electronic networks to trade financial instruments has declined during the past 5 years in response to fears over the reliability and security of these networks.
5
The central bank for the U.S. today is:
A)the U.S. Treasury.
B)the Federal Reserve.
C)the First Bank of the U.S.
D)the Second Bank of the U.S.
E)the U.S. Export-Import Bank.
6
Mutual funds pool the funds of savers and use them to buy:
A)shares in mutual savings banks only.
B)a variety of financial instruments.
C)shares in the Federal Reserve system.
D)None of the above is correct.
7
The variety of financial services offered by banks has _______ over the past 50 years.
A)expanded
B)contracted
C)remained the same
D)expanded and contracted periodically, but with a general downward trend in the range of services provided
8
After graduation from college, students observe that the total amount of their student loan payments is substantially greater than the amount that was borrowed. This occurs because:
A)the government forces students to pay excessively high interest rates compared to the interest rates that students pay on loans from credit card companies.
B)lenders must be compensated for giving up the use of funds since time has value.
C)default rates on student loans are much higher than on credit card loans.
D)All of the above are correct.
9
Long-term government bonds offer higher interest rates than short-term government bonds, in part, because:
A)individuals must be compensated if they are to give up the use of their funds for longer periods.
B)the government wishes to discourage people from buying short-term bonds.
C)the higher interest rates on long-term bonds are really a marketing gimmick and are actually equivalent to the interest that would be received if people held a sequence of short-term bonds over the longer time period.
D)None of the above is correct.
10
Individuals with poor credit scores are charged higher interest rates because:
A)time has value.
B)risk requires compensation.
C)stability improves welfare.
D)None of the above is correct.
11
Insurance companies receive more in premium payments in a typical year than they pay out in claims because:
A)those that are buying the insurance are not aware they're overpaying for these services.
B)individuals and firms are willing to pay a premium to transfer risk to the insurance company.
C)insurance companies don't generally manage their portfolios of financial assets very well.
D)None of the above is correct.
12
In well-developed financial markets, the value of stocks or bonds offered by a given company is determined by:
A)government regulators.
B)the Securities and Exchange Commission.
C)the interaction of buyers and sellers in stock and bond markets.
D)the pricing authorities of the Federal Reserve Board of Governors.
13
Since stability improves welfare, the Federal Reserve is charged with the task of:
A)guaranteeing that a job exists for every worker.
B)deterring technological change that may cause some workers to be replaced by machines.
C)keeping the price of each and every good constant over time.
D)maintaining low and stable inflation and high and stable economic growth.
14
Because "risk requires compensation:"
A)automotive insurance premiums are higher for new drivers than for more experienced drivers.
B)junk bonds offer higher interest rates than bonds issued by companies with higher credit ratings.
C)college students pay higher rates for credit cards than do individuals with an established (and positive) credit history.
D)All of the above are correct.
15
The core principles of money and banking imply that:
A)most people would prefer a variable income that averages to $70,000 per year to a certain income of $70,000 per year.
B)junk bonds will offer lower interest rates than other corporate bonds.
C)individuals benefit when the Fed is able to reduce cyclical fluctuations in output and prices.
D)most stock and bond prices are determined primarily by government pricing authorities.





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