basic finance an introduction to financial institu
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,Name Clas Dat
: s: e:
Chapter 02: THE ROLE OF FINANCIAL MARKETS AND FINANCIAL INTERMEDIARIES
1. The power to create money is given by the Constitution to the Federal Reserve.
a. True
b. False
ANSWER: False
2. Since M-2 excludes time deposits, M-2 is a less comprehensive measure of the money supply than M-1.
a. True
b. False
ANSWER: False
3. When individuals withdraw cash from checking accounts, the money supply is unaffected.
a. True
b. False
ANSWER: True
4. The yield curve relates risk and interest rates.
a. True
b. False
ANSWER: False
5. During most historical periods, the yield curve has been positively sloped.
a. True
b. False
ANSWER: True
6. What serves for money in France may not be money in another country.
a. True
b. False
ANSWER: True
7. The U.S. Treasury creates most of the nation's money supply.
a. True
b. False
ANSWER: False
8. When individuals deposit cash in a demand deposit, the money supply is reduced.
a. True
b. False
ANSWER: False
9. M-1 includes savings accounts in commercial banks.
a. True
b. False
ANSWER: False
Copyright Cengage Learning. Powered by Cognero. Page 1
,Name Clas Dat
: s: e:
Chapter 02: THE ROLE OF FINANCIAL MARKETS AND FINANCIAL INTERMEDIARIES
10. A financial intermediary transfers funds from borrowers to lenders by creating claims on itself.
a. True
b. False
ANSWER: False
11. When cash is deposited in a checking account, the reserves of commercial banks are increased.
a. True
b. False
ANSWER: True
12. When funds are deposited in a savings account, the excess reserves of banks are unaffected.
a. True
b. False
ANSWER: False
13. Large certificates of deposit in units of $500,000 are insured by FDIC.
a. True
b. False
ANSWER: False
14. In general, banks prefer loans that stress liquidity and safety.
a. True
b. False
ANSWER: True
15. Insurance companies are a major source of loans to individuals.
a. True
b. False
ANSWER: False
16. Money market mutual funds invest in short-term securities like U.S. Treasury bills.
a. True
b. False
ANSWER: True
17. An increase in interest rates tends to reduce the earnings of money market mutual funds.
a. True
b. False
ANSWER: False
18. A pension plan that invests in the stock of IBM or Verizon does not perform the function of a financial intermediary.
a. True
b. False
Copyright Cengage Learning. Powered by Cognero. Page 2
, Name Clas Dat
: s: e:
Chapter 02: THE ROLE OF FINANCIAL MARKETS AND FINANCIAL INTERMEDIARIES
ANSWER: True
19. Investments in money market mutual funds are insured up to $100,000 by the federal government.
a. True
b. False
ANSWER: False
20. A financial intermediary creates claims on itself, when it accepts depositors' funds.
a. True
b. False
ANSWER: True
21. M-1 includes coins, currency, and .
a. demand deposits
b. savings accounts
c. certificates of deposit
d. time deposits
ANSWER: a
22. The power to create money is given by the Constitution to
a. state governments
b. Congress
c. the Federal Reserve
d. commercial banks
ANSWER: b
23. The term structure of interest rates relates
a. risk and yields
b. yields and credit ratings
c. term and yields
d. stock and bond yields
ANSWER: c
24. The term structure of interest rates indicates the
a. relationship between risk and yields
b. relationship between the time and yields
c. the difference between borrowing and lending
d. the difference between the yield (interest rate) on government and corporate debt
ANSWER: b
25. Money serves as
a. a substitute for equity
b. a precaution against inflation
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