Question 1

Every financial asset represents the lending or investing of money transferred from one economic unit to another.

Accepted Answer

A) True 
 B)False

Question 2

There is a term missing from the identity shown below: Expenditures out of Current Income-Current Income Receipts = Change in Holdings of Debt and Equity during the Current Period- ____. Which of the terms shown below correctly completes the identity above?

Accepted Answer

A)  Change in holdings of real and financial assets during the current period 
B)  Change in holdings of real assets during the current period 
C)  Change in holdings of financial assets during the current period 
D)  Change in net worth during the current period 
E)  None of the above 
A)  Change in holdings of real and financial assets during the current period 
B)  Change in holdings of real assets during the current period 
C)  Change in holdings of financial assets during the current period 
D)  Change in net worth during the current period 
E)  None of the above

Question 3

Money's role as a standard of value means that it is usually the only financial asset which virtually every business, household and unit of government will accept in payment for goods and services.

Accepted Answer

A) True 
 B)False

Question 4

Disintermediation is most likely to occur during periods of:

Accepted Answer

A)  High and rapidly rising interest rates 
B)  High consumption and low saving 
C)  High, but stable interest rates 
D)  Rapid inflation, while interest rates remain relatively low 
E)  None of the above 
A)  High and rapidly rising interest rates 
B)  High consumption and low saving 
C)  High, but stable interest rates 
D)  Rapid inflation, while interest rates remain relatively low 
E)  None of the above

Question 5

Indirect finance requires that ultimate lenders (surplus-budget units) and ultimate borrowers (deficit-budget units) have a coincidence of wants in terms of the amount, form and terms of loan.

Accepted Answer

A) True 
 B)False

Question 6

Financial assets are fungible, which means they can easily be transported from one location to another.

Accepted Answer

A) True 
 B)False

Question 7

The withdrawal of funds from a financial intermediary by ultimate lenders (savers) and the lending of those funds to ultimate borrowers is called:

Accepted Answer

A)  Diversification 
B)  Indirect finance 
C)  Disintermediation 
D)  Internal finance 
E)  None of the above 
A)  Diversification 
B)  Indirect finance 
C)  Disintermediation 
D)  Internal finance 
E)  None of the above

Question 8

The prudent person rule:

Accepted Answer

A)  Limits the amount of borrowing a financial institution can do to a fixed percentage of liabilities 
B)  Limits the amount of lending a financial institution can do to a fixed percentage of liabilities 
C)  Sets the maximum quality of security an institution can buy based on that which an informed and careful investor would do 
D)  Sets the maximum quality security an institution can sell based on that which an informed careful investor would do 
E)  None of the above 
A)  Limits the amount of borrowing a financial institution can do to a fixed percentage of liabilities 
B)  Limits the amount of lending a financial institution can do to a fixed percentage of liabilities 
C)  Sets the maximum quality of security an institution can buy based on that which an informed and careful investor would do 
D)  Sets the maximum quality security an institution can sell based on that which an informed careful investor would do 
E)  None of the above

Question 9

Borrowing money from the bank is an example of:

Accepted Answer

A)  Indirect finance 
B)  Direct finance 
C)  Semi-direct finance 
D)  Internal finance 
E)  None of the above 
A)  Indirect finance 
B)  Direct finance 
C)  Semi-direct finance 
D)  Internal finance 
E)  None of the above

Question 10

According to the textbook, money market funds are classified as:

Accepted Answer

A)  Depository institutions 
B)  Contractual institutions 
C)  Investment institutions 
D)  Common stock investment companies 
E)  None of the above 
A)  Depository institutions 
B)  Contractual institutions 
C)  Investment institutions 
D)  Common stock investment companies 
E)  None of the above

Question 11

The M2 measure of the U.S. money supply includes currency and coin held by the public.

Accepted Answer

A) True 
 B)False

Question 12

A difference between a financial broker and a financial dealer is that

Accepted Answer

A)  A dealer also purchases the seller securities in the hopes of making a profit on their sale to the buyer 
B)  A broker also purchases the seller securities in the hopes of making a profit on their sale to the buyer 
C)  A dealer must have a college degree in finance 
D)  A broker must have a college degree in finance 
E)  None of the above 
A)  A dealer also purchases the seller securities in the hopes of making a profit on their sale to the buyer 
B)  A broker also purchases the seller securities in the hopes of making a profit on their sale to the buyer 
C)  A dealer must have a college degree in finance 
D)  A broker must have a college degree in finance 
E)  None of the above

Question 13

What is disintermediation and why is it important? How has disintermediation changed in recent years?

Accepted Answer

Disintermediation refers to the withdraw

Question 14

The prudent person rule:

Accepted Answer

A)  Limits the amount of borrowing a financial institution can do to a fixed percentage of liabilities. 
B)  Limits the amount of lending a financial institution can do to a fixed percentage of liabilities. 
C)  Sets the minimum quality of security an institution can buy based on that which an informed and careful investor would do. 
D)  Sets the maximum quality security an institution can sell based on that which an informed careful investor would do. 
E)  None of the above. 
A)  Limits the amount of borrowing a financial institution can do to a fixed percentage of liabilities. 
B)  Limits the amount of lending a financial institution can do to a fixed percentage of liabilities. 
C)  Sets the minimum quality of security an institution can buy based on that which an informed and careful investor would do. 
D)  Sets the maximum quality security an institution can sell based on that which an informed careful investor would do. 
E)  None of the above.

Question 15

Short-term borrowings in the money market are included in the M1 definition of the U.S. money supply.

Accepted Answer

A) True 
 B)False

Question 16

Why are the following concepts important? Deficit-budget unit (DBU): E > R, DD > DFA (i.e. net borrower of funds); surplus-budget unit (SBU): R > E, DFA > DD (i.e. net lender of funds); balanced- budget unit (BBU): R = E, DD = DFA (i.e. neither net lender nor net borrower).

Accepted Answer

These concepts are important because it

Question 17

A benefit of a financial system is the ability of economic units to adjust their financial positions smoothly and efficiently.

Accepted Answer

A) True 
 B)False

Question 18

M2Z is a money measure close to the transactions demand for money.

Accepted Answer

A) True 
 B)False

Question 19

In a given time period, if income exceeds expenditures, then

Accepted Answer

A)  There is additional discretionary income 
B)  Money can be added to savings 
C)  Any debt outstanding can be reduced 
D)  There's more money than expenses 
E)  All of the above 
A)  There is additional discretionary income 
B)  Money can be added to savings 
C)  Any debt outstanding can be reduced 
D)  There's more money than expenses 
E)  All of the above

Question 20

A deficit-budget unit is a net borrower of funds from the financial marketplace; that is DD < DFA.

Accepted Answer

A) True 
 B)False

Exam 2: Financial Systems, Monetary Units, and the Role of Money in the Economy

Every financial asset represents the lending or investing of money transferred from one economic unit to another.

There is a term missing from the identity shown below: Expenditures out of Current Income-Current Income Receipts = Change in Holdings of Debt and Equity during the Current Period- ____. Which of the terms shown below correctly completes the identity above?

Money's role as a standard of value means that it is usually the only financial asset which virtually every business, household and unit of government will accept in payment for goods and services.

Disintermediation is most likely to occur during periods of:

Indirect finance requires that ultimate lenders (surplus-budget units) and ultimate borrowers (deficit-budget units) have a coincidence of wants in terms of the amount, form and terms of loan.

Financial assets are fungible, which means they can easily be transported from one location to another.

The withdrawal of funds from a financial intermediary by ultimate lenders (savers) and the lending of those funds to ultimate borrowers is called:

The prudent person rule:

Borrowing money from the bank is an example of:

According to the textbook, money market funds are classified as:

The M2 measure of the U.S. money supply includes currency and coin held by the public.

A difference between a financial broker and a financial dealer is that

What is disintermediation and why is it important? How has disintermediation changed in recent years?

The prudent person rule:

Short-term borrowings in the money market are included in the M1 definition of the U.S. money supply.

Why are the following concepts important? Deficit-budget unit (DBU): E > R, DD > DFA (i.e. net borrower of funds); surplus-budget unit (SBU): R > E, DFA > DD (i.e. net lender of funds); balanced- budget unit (BBU): R = E, DD = DFA (i.e. neither net lender nor net borrower).

A benefit of a financial system is the ability of economic units to adjust their financial positions smoothly and efficiently.

M2Z is a money measure close to the transactions demand for money.

In a given time period, if income exceeds expenditures, then

A deficit-budget unit is a net borrower of funds from the financial marketplace; that is DD < DFA.

Understanding the Financial System and Its Impact on the Economy and Markets

Financial Indices, Market Information, and Economic Data

The Financial Crisis and Its Impact on the Mortgage Market and Economy

Understanding Interest Rates, Savings, and the Wealth Effect

Financial Concepts and Interest Rates

Effects of Inflation and Yield Curves on Stock Prices and Investments

Understanding Risk and Market Factors in Financial Securities

Exploring Financial Markets and Hedging Strategies

Factors Affecting the Volume of CDs

Exploring the Reserve Accounting System, Money Markets, and Financial Instruments

Exploring Central Banks and Their Impact on the Economy and Financial System

Central Banking and Monetary Policy: Exploring Tools and Strategies

Banking and Financial Services: Regulations, Operations, and Trends

Comparative Analysis of Financial Institutions and Their Operations

Exploring Various Aspects of Pension Funds, Finance Companies, and Insurance Industry

The Impact of Deregulation and Regulation on Financial Institutions and Banking Industry in the United States

Treasury Auctions, Public Debt, and Government Borrowing: Exploring the Us Treasury System

Corporate Bond Pricing, Market Development, and Financing Strategies

The Truth About Regulation Fd and Stock Holdings: Debunking Common Myths in the Financial Market

Flexible Savings Account Options

Mortgage Market and Mortgage Instruments

International Financial Transactions and Balance of Payments

International Banking and Financial Regulations

Exploring the Complexities of Financial Services and Regulation

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