ECON 3303 Money and Banking Exam 1 Summer MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

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1 ECON 3303 Money and Banking Exam 1 Summer 2017 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) If peanuts serve as a medium of exchange, a unit of account, and a store of value, then peanuts are A) bank deposits. B) money. C) reserves. D) loanable funds. 1) 2) A liquid asset is A) always sold in an over-the-counter market. B) difficult to resell. C) a share of an ocean resort. D) an asset that can easily and quickly be sold to raise cash. 2) 3) An investment bank purchases securities from a corporation at a predetermined price and then resells them in the market. This process is called A) understanding. B) underhanded. C) underwriting. D) undertaking. 3) 4) Well-functioning financial markets A) eliminate the need for indirect finance. B) cause inflation. C) produce an efficient allocation of capital. D) cause financial crises. 4) 5) Bonds that are sold in a foreign country and are denominated in a currency other than that of the country in which it is sold are known as A) Eurobonds. B) country bonds. C) foreign bonds. D) equity bonds. 5) 6) Sustained downward movements in the business cycle are referred to as A) economic recoveries. B) recessions. C) expansions. D) inflation. 6) 7) Evidence from the United States and other foreign countries indicates that A) there is little support for the assertion that ʺinflation is always and everywhere a monetary phenomenon.ʺ B) there is a strong positive association between inflation and growth rate of money over long periods of time. C) money growth is clearly unrelated to inflation. D) countries with low monetary growth rates tend to experience higher rates of inflation, all else being constant. 7) 8) Which of the following statements about financial markets and securities is true? A) A debt instrument is intermediate term if its maturity is ten years or longer. B) A bond is a long-term security that promises to make periodic payments called dividends to the firmʹs residual claimants. C) The maturity of a debt instrument is the number of years (term) to that instrumentʹs expiration date. D) A debt instrument is intermediate term if its maturity is less than one year. 8) 9) is the relative ease and speed with which an asset can be converted into a medium of exchange. A) Efficiency B) Specialization C) Liquidity D) Deflation 9) 1

2 10) Which of the following are short-term financial instruments? A) A repurchase agreement. B) A Treasury note with a maturity of four years. C) A share of Walt Disney Corporation stock. D) A residential mortgage. 10) 11) When money prices are used to facilitate comparisons of value, money is said to function as a A) store of value. B) medium of exchange. C) payments-system ruler. D) unit of account. 11) 12) The process of indirect finance using financial intermediaries is called A) financial liquidation. B) direct lending. C) financial intermediation. D) resource allocation. 12) 13) An important function of secondary markets is to A) create a market for newly constructed houses. B) make it easier for governments to raise taxes. C) raise funds for corporations through the sale of securities. D) make it easier to sell financial instruments to raise funds. 13) 14) When we say that money is a stock variable, we mean that A) money never loses purchasing power. B) the quantity of money is measured at a given point in time. C) we must attach a time period to the measure. D) it is sold in the equity market. 14) 15) The stock market is important because it is A) where foreign exchange rates are determined. B) the market where most borrowers get their funds. C) where interest rates are determined. D) the most widely followed financial market in the United States. 15) 16) Long-term debt has a maturity that is. A) between five and ten years. B) ten years or longer. C) between one and ten years. D) less than a year. 16) 17) An investment intermediary that lends funds to consumers is A) an investment bank. B) a finance fund. C) a consumer company. D) a finance company. 17) 18) Financial markets have the basic function of A) providing a risk-free repository of spending power. B) assuring that the swings in the business cycle are less pronounced. C) assuring that governments need never resort to printing money. D) getting people with funds to lend together with people who want to borrow funds. 18) 2

3 19) The primary purpose of deposit insurance is to A) protect bank employees from unemployment. B) improve the flow of information to investors. C) protect bank shareholders against losses. D) prevent banking panics. 19) 20) When stock prices fall A) an individualʹs wealth may decrease but their willingness to spend is not affected. B) an individualʹs wealth may decrease and their willingness to spend may decrease. C) a business firm will be more likely to sell stock to finance investment spending. D) an individualʹs wealth is not affected nor is their willingness to spend. 20) 21) Which of the following can be described as involving indirect finance? A) You make a loan to your neighbor. B) A corporation buys a share of common stock issued by another corporation in the primary market. C) You buy a U.S. Treasury bill from the U.S. Treasury. D) You make a deposit at a bank. 21) 22) Evidence from business cycle fluctuations in the United States indicates that A) recessions have been preceded by declines in share prices on the stock exchange. B) recessions have been preceded by dollar depreciation. C) a negative relationship between money growth and general economic activity exists. D) recessions have been preceded by a decline in the growth rate of money. 22) 23) The upward and downward movement of aggregate output produced in the economy is referred to as the. A) shock wave B) roller coaster C) see saw D) business cycle 23) 24) The time and money spent in carrying out financial transactions are called A) transaction costs. B) financial intermediation. C) economies of scale. D) liquidity services. 24) 25) Everything else held constant, a decline in interest rates will cause spending on housing to A) fall. B) either rise, fall, or remain the same. C) rise. D) remain unchanged. 25) 26) Equity holders are a corporationʹs. That means the corporation must pay all of its debt holders before it pays its equity holders. A) residual claimants B) debtors C) underwriters D) brokers 26) 27) U.S. dollar deposits in foreign banks outside the U.S. or in foreign branches of U.S. banks are called. A) foreign dollars B) Atlantic dollars C) outside dollars D) Eurodollars 27) 28) policy involves decisions about government spending and taxation. A) Financial B) Fiscal C) Monetary D) Systemic 28) 3

4 29) Collateral is the lender receives if the borrower does not pay back the loan. A) an asset B) a present C) a liability D) an offering 29) 30) Financial intermediaries A) hold very little of the average Americanʹs wealth. B) produce nothing of value and are therefore a drain on societyʹs resources. C) provide a channel for linking those who want to save with those who want to invest. D) can hurt the performance of the economy. 30) 31) Which of the following financial intermediaries is not a depository institution? A) A commercial bank B) A finance company C) A credit union D) A savings and loan association 31) 32) The conversion of a barter economy to one that uses money A) does not increase economic efficiency. B) increases efficiency by reducing transactions costs. C) increases efficiency by reducing the need to specialize. D) increases efficiency by reducing the need to exchange goods and services. 32) 33) The organization responsible for the conduct of monetary policy in the United States is the A) Federal Reserve System. B) U.S. Treasury. C) Comptroller of the Currency. D) Bureau of Monetary Affairs. 33) 34) Which of the following can be described as direct finance? A) You buy shares in a mutual fund. B) You buy shares of common stock in the secondary market. C) You borrow $2500 from a friend. D) You take out a mortgage from your local bank. 34) 35) Financial institutions that accept deposits and make loans are called. A) over-the-counter markets B) exchanges C) finance companies D) banks 35) 36) The bond markets are important because they are A) the markets where all borrowers get their funds. B) easily the most widely followed financial markets in the United States. C) the markets where interest rates are determined. D) the markets where foreign exchange rates are determined. 36) 37) U.S. Treasury bills are considered the safest of all money market instruments because there is no risk of. A) desertion B) demarcation C) default D) defeat 37) 38) The evolution of the payments system from barter to precious metals, then to fiat money, then to checks can best be understood as a consequence of A) innovations that reduced the costs of exchanging goods and services. B) government regulations designed to improve the efficiency of the payments system. C) government regulations designed to promote the safety of the payments system. D) competition among firms to make it easier for customers to purchase their products. 38) 4

5 39) Budget deficits are important because deficits A) can result in higher rates of monetary growth. B) always cause interest rates to fall. C) cause bank failures. D) always cause prices to fall. 39) 40) A goal of the Securities and Exchange Commission is to reduce problems arising from A) asymmetric information. B) banking panics. C) competition. D) risk. 40) 41) An important financial institution that assists in the initial sale of securities in the primary market is the A) brokerage house. B) commercial bank. C) investment bank. D) stock exchange. 41) 42) Financial markets promote economic efficiency by A) channeling funds from savers to investors. B) creating inflation. C) channeling funds from investors to savers. D) reducing investment. 42) 43) Which of the following is not a goal of financial regulation? A) Reducing adverse selection B) Ensuring the soundness of the financial system C) Ensuring that investors never suffer losses D) Reducing moral hazard 43) 44) Bonds that are sold in a foreign country and are denominated in the countryʹs currency in which they are sold are known as A) equity bonds. B) Eurobonds. C) country bonds. D) foreign bonds. 44) 45) Even economists have no single, precise definition of money because A) economists find disagreement interesting and refuse to agree for ideological reasons. B) money supply statistics are a state secret. C) the Federal Reserve does not employ or report different measures of the money supply. D) the ʺmoneynessʺ or liquidity of an asset is a matter of degree. 45) 46) If there are five goods in a barter economy, one needs to know ten prices in order to exchange one good for another. If, however, there are ten goods in a barter economy, then one needs to know prices in order to exchange one good for another. A) 20 B) 25 C) 30 D) 45 46) 47) An example of the problem of is when a corporation uses the funds raised from selling bonds to fund corporate expansion to pay for Caribbean cruises for all of its employees and their families. A) moral hazard B) adverse selection C) credit risk D) risk sharing 47) 5

6 48) A financial market in which only short-term debt instruments are traded is called the market. A) bond B) stock C) capital D) money 48) 49) A corporation acquires new funds only when its securities are sold in the A) secondary market by a commercial bank. B) secondary market by a securities dealer. C) primary market by an investment bank. D) primary market by a stock exchange broker. 49) 50) Typically, borrowers have superior information relative to lenders about the potential returns and risks associated with an investment project. The difference in information is called A) moral selection. B) asymmetric information. C) risk sharing. D) adverse hazard 50) 6

7 Answer Key Testname: ECON3303_EXAM1_SUMMER2017 1) B 2) D 3) C 4) C 5) A 6) B 7) B 8) C 9) C 10) A 11) D 12) C 13) D 14) B 15) D 16) B 17) D 18) D 19) D 20) B 21) D 22) D 23) D 24) A 25) C 26) A 27) D 28) B 29) A 30) C 31) B 32) B 33) A 34) C 35) D 36) C 37) C 38) A 39) A 40) A 41) C 42) A 43) C 44) D 45) D 46) D 47) A 48) D 49) C 50) B 7