59) Which of the following terms refers to the percentage of its deposits a bank must hold, in
cash or on deposit, with a Federal Reserve Bank?
A) Discount rate
B) Key rate
C) Prime rate
D) Federal insurance premium
E) Reserve requirement
60) Which of the following terms refers to the interest level at which member banks can borrow
money from the Federal Reserve System?
A) Discount rate
B) Key rate
C) Prime rate
D) Federal insurance premium
E) Reserve requirement
61) Which of the following terms refers to the interest level at which commercial banks lend
reserves to each other, usually overnight?
A) Discount rate
B) Key rate
C) Prime rate
D) Federal insurance premium
E) Reserve requirement
62) Which of the following BEST describes what is called the “open-market operations” of the
Federal Reserve System?
A) The development of new financial opportunities for banks
B) The minting of new money to disperse into the money market
C) The control of interest rates among banks
D) The maintenance of a well-functioning lending system among banks
E) The buying and selling of securities by the Fed
63) Which of the following political bodies appoints the members of the board of governors for
the Federal Reserve System?
A) The Senate
B) The House of Representatives
C) The President of the United States
D) The Council of American Governors
E) The people of the United States
64) How are the individual Federal Reserve Banks organized?
A) By size of financial institution members—small, medium, large, etc.
B) By type of financial institution members—commercial banks, credit unions, etc.
C) By geographical region—Southeast, Northeast, West, etc.
D) By financial purpose—buying, lending, interest controlling, etc.
E) By legislative districts—10th District of Massachusetts, 1st District of Colorado, etc.
65) Which of the following BEST describes two of the three primary functions of the Federal
Reserve System?
A) Developing new financial markets and aiding banks in conducting their business
B) Aiding banks in conducting business and managing the U.S. money supply and interest rates
C) Managing the U.S. money supply and interest rates and monitoring interbank relationships
D) Monitoring interbank relationships and acting as a bank for the federal government
E) Acting as a bank for the federal government and developing new financial markets
66) Which of the following statements BEST describes why U.S. Treasury securities have
always been considered risk-free investments?
A) They are backed by the U.S. government.
B) They have a guaranteed rate of return.
C) They are easily sold.
D) They are readily available for purchase.
E) They earn a great profit on the international money market.
67) Which of the following statements BEST describes why a decrease in reserve requirements
often results in an increase in the money supply?
A) A decrease in reserve requirements gives banks more money to better determine their interest
rates.
B) A decrease in reserve requirements gives banks more money to pay off their debts.
C) A decrease in reserve requirements gives banks more money to lend out.
D) A decrease in reserve requirements gives banks more money to offset lower interest rates.
E) A decrease in reserve requirements gives banks more money to reward their employees for
meritorious financial ventures.
68) Which of the following statements BEST describes why an increase in the discount rate often
results in a decrease in the money supply?
A) An increase in the discount rate will lower the overall values of loans from the Federal
Reserve Banks to individual banks.
B) An increase in the discount rate will lower the overall values of loans from individual banks
to other financial institutions.
C) An increase in the discount rate will lower the overall number of banks issuing loans to
individuals.
D) An increase in the discount rate will lower the overall number of loans from the Federal
Reserve Banks to individual banks.
E) An increase in the discount rate will lower the overall number of loans from the Federal
Reserve Banks to individuals.
69) Which of the following is a leading indicator for economic growth?
A) Inflation
B) Interest rates
C) Investments
D) Quantitative easing
E) Newly minted currency
70) Which of the following is the result of printing paper money while at the same time
experiencing severe limitations in the supply of goods and services.
A) Inflation
B) Interest rates
C) Investments
D) Quantitative easing
E) Hyperinflation
71) An overly large decrease in the reserve requirement by the Federal Reserve System could
result in inflation.
72) As the government’s bank, the Fed produces the nation’s paper currency and lends money to
the government.
73) Like most of the federal government, the governors of the Federal Reserve System are
democratically elected by the citizens of the United States.
74) One of the daily responsibilities of the Federal Reserve System is to regulate the current
federal funds rate.
75) Open-market operations are often a more effective method for the Federal Reserve System to
expand the money supply than is minting more dollars and coins.
76) The Federal Reserve Bank has the responsibility of ensuring the reasonableness of the
interest rates for business and personal loans within the United States.
77) How does the Fed’s monetary policy influence banks’ willingness to loan money?
78) What happens to demand and price during times of inflation?
79) A recent report to the House reveals that unemployment continues to be high and that the
economy is sluggish. At the same time, the discount rate is very close to zero, and the reserve
requirement for banks was recently lowered to an all-time low. What actions might the Federal
Reserve System do in order to stimulate the economy?
80) Which of the following is the goal of the government’s continued unprecedented infusion of
funding for U.S. financial institutions?
A) Limiting lending
B) Increasing the availability of the M-1 supply
C) Increasing assurances of repayment
D) Stabilizing the fractured financial system
E) The elimination of warrants
81) Which of the following laws requires financial institutions to deter funding of crimes by
tracking and reporting suspicious transactions?
A) The Check Clearing for the 21st Century Act
B) The USA Patriot Act
C) The Bank Secrecy Act
D) The Federal Reserve Act
E) The Emergency Economic Stabilization Act
82) Which of the following federal laws made transactions between banks significantly more
efficient?
A) The Check Clearing for the 21st Century Act
B) The Bank Secrecy Act
C) The USA Patriot Act
D) The Federal Reserve Act
E) The Economic Emergency Recovery Act
83) Which of the following statements BEST describes how the Automated Clearing House
Network (ACH) maintains its integrity as a processor of electronic payments?
A) The ACH network is an institution within the Federal Bank System and is regulated by strict
government standards.
B) The ACH network is a for-profit company and is regulated by its need to make a profit, which
it can only do by strictly regulating itself.
C) The ACH network is a financial institution and is thus regulated by its obligations to its
investors.
D) The ACH network is a not-for-profit association which launched the Accredited ACH
Professional program and established the system’s operating rules.
E) The ACH network is a professional organization to which all financial institutions are
obligated to contribute resources and is regulated by the interests of these institutions.
84) Which of the following financial institutions was taken over by the Federal Housing Finance
Agency when it was on the verge of financial failure?
A) Lehman Brothers Holdings
B) JP Morgan Chase
C) Freddie Mac
D) Federal Home Loan Banks System
E) Federal Reserve
85) Which of the following transactions are NOT included among Automated Clearing House
payments?
A) ATM deposits
B) Business-to-business electronic payments
C) Checks
D) Internet-initiated debit card payments
E) Local tax payments
86) Which of the following will allow for the transfer of money between accounts in order to
allow an individual to make retail purchases, without increasing funds at the individual’s
disposal?
A) Smart cards
B) Blink cards
C) Debit cards
D) E-commerce cards
E) Credit cards
87) Which of the following use a computer chip that sends a radio-frequency signal when an
individual is making a retail purchase?
A) Smart cards
B) Blink cards
C) Debit cards
D) E-commerce cards
E) Credit cards
88) Which of the following use an embedded computer chip that is programmed with “electronic
money” for individual consumer purchases?
A) Smart cards
B) Blink cards
C) Debit cards
D) E-commerce cards
E) Credit cards
89) Banks are subject to prosecution when they fail to maintain systems for identifying and
reporting suspicious activities.
90) An example of a point-of-sale (POS) terminal is making a payment at the grocery store and
having the system transfer funds from your account to the store’s account.
91) The Federal Reserve System has been instrumental in providing interbank clearing of
electronic payments for the nation’s financial institutions.
92) What is a debit card?
93) What is the difference between a credit card and a debit card?
94) Describe the Check Clearing for the 21st Century Act and its effect on the writing of checks
for the future.
95) Which of the following indicates the relative strength of the currencies of two countries?
A) Trade rate
B) Exchange rate
C) Trade balance
D) Relative gross national products
E) International loan rate
96) Which of the following institutions simplifies financial settlements between buyers and
sellers in different countries?
A) The U.S. State Department
B) The International Monetary Fund
C) The World Bank
D) Commercial banks
E) The Internet
97) In which way does the World Bank differ from true international banks?
A) The World Bank does not charge interest to governments with emerging markets.
B) The World Bank only provides funds for national improvements in order to increase
international trade.
C) The World Bank is comprised and run by a group of 150 member nations.
D) The World Bank is designed to promote the stability of exchange rates among member
nations.
E) The World Bank only lends money to those with negative trade balances.
98) Which of the following describes one of the requirements that the International Monetary
Fund (IMF) has imposed on certain developing countries?
A) The government decreases spending in order to bring inflation under control.
B) Private industries decrease prices in order to bring inflation under control.
C) The government increases loans in order to create more money in the local markets.
D) The local banks increase loans in order to create more money in the local markets.
E) The government and private industries partner in creating more jobs in the region.
99) Which of the following affects the movement of funds between international buyers and
sellers?
A) Buyer’s home country government trade policies
B) Seller’s home country government policies
C) International government policies
D) Currency exchange rates
E) International payment process
100) Why do exchange rates change daily?
A) Because exchange rates reflect global supply and demand
B) Because exchange rates reflect political decisions
C) Because exchange rates reflect the economic health of the country
D) Because exchange rates are closely tied to the unemployment rates
E) Because exchange rates are based on the travel industry
101) When the value of a currency is strong in the international market, what happens to trade?
A) Trade increases because the cost of the item is more affordable in the international market.
B) Trade decreases because the cost of the item is more expensive in the international market.
C) Trade increases because sales decrease, creating a more competitive market.
D) Trade decreases because the manufacturers limit production of the item.
E) Trade increases with a slower revenue growth.
102) In the United States, who has the greatest influence on the value of the U.S. dollar?
A) The World Bank
B) The International Monetary Fund
C) The Federal Reserve
D) The European Central Bank
E) The United Nations (U.N.)
103) Why does a government lower interest rates to affect the value of the currency?
A) To strengthen the value of the currency in the world market
B) To make goods cheaper and more attractive in the world market
C) To stimulate inflation
D) To increase the number of foreign imports, thereby increasing trade
E) To offset the price of must-have commodities, such as oil
104) What is the role of the International Monetary Fund?
A) To provide long-term loans to member countries
B) To provide a system of rules and procedures for member countries who trade with each other
C) To limit the amount of loans available to member nations who have negative trade balances
D) To encourage the development of a system for international payments
E) To determine the value of currency and exchange rates for member nations
105) In the global economy, how is the value of one currency determined when compared to
another?
A) World Bank rate
B) International monetary fund
C) Inflation rate
D) Exchange rate
E) Automated Clearing House network
106) Why do exchange rates matter to companies?
A) Strong exchange rates could stimulate sales in foreign markets.
B) Inflation could be caused by an exchange rate that is too strong.
C) Poor exchange rates can be offset by government contribution.
D) Exchange rates indicate the strength of the overall economy.
E) Exchange rates affect the prices of goods and services.
107) The international payments process that moves money between buyers and sellers on
different continents is subject to worldwide policy systems.
108) In international payments, equal money inflows and outflows can result in no money being
transferred between countries.
109) The one area the Federal Reserve System has very little control over is the strength of the
U.S. dollar against other currencies.
110) Why might nations decline International Monetary Fund funds?