Business, Eighth Canadian Edition Griffin, Ebert, Starke, Dracopoulos, Lang
Chapter 18—Understanding Money and Banking
82. Which of the following is most likely to get an unsecured loan?
a. A retail florist shop with collateral
b. A wholesale grocer with a marginal credit history
c. A lawyer with collateral
d. A large manufacturing firm with an excellent credit rating
e. A farmer
Difficulty: 2 Page-Reference: 587
Question ID: 18-1-82 Skill: Comprehension
Objective: 18.3
83. If the reserve requirement were 10 percent, a $100 deposit could result in a ______
increase in new deposits for all banks in the system.
a. $200
b. $500
c. $1000
d. $10 000
e. $100 000
Difficulty: 1 Page-Reference: 587-588
Question ID: 18-1-83 Skill: Application
Objective: 18.3
84. Banks expand the money supply by
a. opening new chequing accounts.
b. earning higher profits.
c. paying interest on accounts.
d. printing money.
e. taking in deposits and lending money.
Difficulty: 2 Page-Reference: 587
Question ID: 18-1-84 Skill: Comprehension
Objective: 18.3
85. The ________ is the percentage of its deposits a bank must hold, in cash or on deposit,
with a chartered bank.
a. prime rate
b. open-market operation
c. selective credit control
d. reserve requirement
e. bank rate
Difficulty: 1 Page-Reference: 587
Question ID: 18-1-85 Skill: Knowledge
Objective: 18.3
Business, Eighth Canadian Edition Griffin, Ebert, Starke, Dracopoulos, Lang
Chapter 18—Understanding Money and Banking
86. An alternate bank that safeguards funds and estates in its care is called a(n)
a. trustee.
b. credit union.
c. trust company.
d. pension fund.
e. Schedule B bank.
Difficulty: 2 Page-Reference: 589
Question ID: 18-1-86 Skill: Knowledge
Objective: 18.4
87. Which of the following provides cooperative savings and lending services to its members?
a. Schedule B Bank
b. Trustee
c. Credit union
d. Trust company
e. Pension fund
Difficulty: 2 Page-Reference: 589
Question ID: 18-1-87 Skill: Knowledge
Objective: 18.4
88. What is the largest credit union in Canada (based on annual revenues)?
a. Credit Union Central (Saskatchewan)
b. Le Mouvement des Caisses Desjardins
c. Vancouver City Savings Credit Union
d. B.C. Central Credit Union
e. Credit Union Central of Ontario
Difficulty: 3 Page-Reference: 590
Question ID: 18-1-88 Skill: Knowledge
Objective: 18.4
89. A corporation selling bonds to investors will often use a __________ to protect the
bondholders’ interests.
a. trust company
b. chartered bank
c. credit union
d. caisses populaire
e. finance company
Difficulty: 1 Page-Reference: 589
Question ID: 18-1-89 Skill: Knowledge
Objective: 18.4
Business, Eighth Canadian Edition Griffin, Ebert, Starke, Dracopoulos, Lang
Chapter 18—Understanding Money and Banking
90. A ________ company shares risks with its policyholders in return for payment of a
premium.
a. life insurance
b. venture capital
c. credit union
d. sales finance
e. factoring
Difficulty: 2 Page-Reference: 590
Question ID: 18-1-90 Skill: Knowledge
Objective: 18.4
91. A ________ buys accounts receivables from a firm for less than face value.
a. sales finance company
b. credit union
c. trust company
d. consumer finance company
e. factoring company
Difficulty: 2 Page-Reference: 590
Question ID: 18-1-91 Skill: Knowledge
Objective: 18.4
92. In 2011, venture capital firms in Canada raised $_________.
a. 40 million
b. 95 million
c. 645 million
d. 1.5 billion
e. 10.4 billion
Difficulty: 3 Page-Reference: 591
Question ID: 18-1-92 Skill: Knowledge
Objective: 18.4
93. Which term identifies companies that specialize in loans to businesses and consumers?
a. Business Development Bank of Canada
b. Finance companies
c. Trust services
d. Mutual savings banks
e. Credit unions
Difficulty: 2 Page-Reference: 592
Question ID: 18-1-93 Skill: Knowledge
Objective: 18.4
Business, Eighth Canadian Edition Griffin, Ebert, Starke, Dracopoulos, Lang
Chapter 18—Understanding Money and Banking
94. A ________ company specializes in financing installment purchases made by individuals
and firms.
a. sales finance
b. credit union
c. consumer finance
d. life insurance
e. factoring
Difficulty: 1 Page-Reference: 591
Question ID: 18-1-94 Skill: Knowledge
Objective: 18.4
95. What type of institution shares risk with its policyholders in return for payment of a
premium?
a. Trust company
b. Schedule B Bank
c. Credit union
d. Pension fund
e. Life insurance company
Difficulty: 1 Page-Reference: 590
Question ID: 18-1-95 Skill: Knowledge
Objective: 18.4
96. Suppose that, as a small business owner, you decide to buy a new copying machine.
Since you cannot afford to pay cash, you finance the machine over 12 months. The copy machine
itself will serve as loan collateral. The major source of credit for this type of purchase is a(n)
a. investment company.
b. sales finance company.
c. venture capital firm.
d. consumer finance company.
e. factoring company.
Difficulty: 2 Page-Reference: 590
Question ID: 18-1-96 Skill: Comprehension
Objective: 18.4
97. Which of the following do not make loans to business firms?
a. Sales finance companies
b. The Business Development Bank of Canada
c. Credit unions
d. Consumer finance companies
e. All of these do make loans to business firms
Difficulty: 2 Page-Reference: 591
Question ID: 18-1-97 Skill: Comprehension
Objective: 18.4
Business, Eighth Canadian Edition Griffin, Ebert, Starke, Dracopoulos, Lang
Chapter 18—Understanding Money and Banking
98. A pool of funds managed to provide retirement income for its members is called a(n)
a. trust service.
b. insurance company.
c. finance company.
d. factoring company.
e. pension fund.
Difficulty: 1 Page-Reference: 591
Question ID: 18-1-98 Skill: Knowledge
Objective: 18.4
99. ________ provides funds for new or expanding firms thought to have significant potential
and may demand an ownership stake in the business.
a. A pension fund
b. The International Monetary Fund (IMF)
c. A chartered bank
d. A global bank
e. A venture capital firm
Difficulty: 2 Page-Reference: 591
Question ID: 18-1-99 Skill: Knowledge
Objective: 18.4
100. A venture capital firm may do all but which of the following?
a. Demand a seat on the board of directors
b. Provide financing to new or expanding firms with growth potential
c. Earn a higher than normal return on their investment
d. Provide pension services to new businesses
e. Demand an ownership stake
Difficulty: 2 Page-Reference: 591
Question ID: 18-1-100 Skill: Comprehension
Objective: 18.4
101. Financing new, untested businesses is risky, so the easiest route to financing would be
to go to ________
a. a venture capital firm.
b. the Economic Development Bank.
c. an institutional lender.
d. the Industrial Development Bank.
e. a brokerage house.
Difficulty: 2 Page-Reference: 591
Question ID: 18-1-101 Skill: Comprehension
Objective: 18.4
Business, Eighth Canadian Edition Griffin, Ebert, Starke, Dracopoulos, Lang
Chapter 18—Understanding Money and Banking
102. One function of investment dealers is to
a. manage pensions for large Canadian corporations.
b. create stability in the money supply.
c. provide equity start-up loans for small business.
d. underwrite new stock and bond issues.
e. provide debt financing to small businesses.
Difficulty: 2 Page-Reference: 591
Question ID: 18-1-102 Skill: Knowledge
Objective: 18.4
103. Which of the following is not a government supplier of funds to businesses in Canada?
a. Federal Bureau of Government Grants
b. Business Development Bank of Canada
c. Export Development Corporation
d. Canada Mortgage and Housing Corporation
e. All of these are suppliers of funds
Difficulty: 1 Page-Reference: 592
Question ID: 18-1-103 Skill: Comprehension
Objective: 18.4
104. The ________ makes term loans primarily to small firms judged to have growth
potential but unable to secure funds on reasonable terms from traditional sources.
a. International Monetary Fund
b. Business Development Bank of Canada
c. Department of Regional Industrial Expansion
d. Government pension fund
e. Export Development Corporation
Difficulty: 2 Page-Reference: 592
Question ID: 18-1-104 Skill: Knowledge
Objective: 18.4
105. The law of one price is
a. the principle that to be competitive, a company must offer its product at only one price.
b. a principle suggested by Canadian economists that means that all products in a given
economy should be sold for the same price.
c. that the supply and demand of a product must not alter its price.
d. a principle that identical products should sell for the same price in all countries.
e. if a retailer puts an item on sale, all other retailers must match their price for consumers.
Difficulty: 2 Page-Reference: 593
Question ID: 18-1-105 Skill: Knowledge
Objective: 18.5
Business, Eighth Canadian Edition Griffin, Ebert, Starke, Dracopoulos, Lang
Chapter 18—Understanding Money and Banking
106. The value of the Canadian dollar
a. is valued always at the same exchange rate.
b. typically trades above the U.S. dollar.
c. is typically valued at par with the U.S. dollar.
d. reflects the overall supply and demand for Canadian dollars both at home and abroad.
e. none of these.
Difficulty: 2 Page-Reference: 592
Question ID: 18-1-106 Skill: Knowledge
Objective: 18.5
107. According to the Big Mac index,
a. Big Macs should be priced higher in China than in Canada.
b. the price of a Big Mac is used as a comparison of foreign currencies being overvalued or
undervalued.
c. Big Macs are better than Mom’s homemade hamburgers.
d. Big Macs are always cheaper in France than in Canada.
e. Big Macs are the same price all over the world.
Difficulty: 2 Page-Reference: 593
Question ID: 18-1-107 Skill: Knowledge
Objective: 18.5
108. The determination of whether a currency is overvalued or undervalued is based on a
comparison with
a. the Japanese yen.
b. the U.S. dollar.
c. the British pound.
d. the euro.
e. none of these.
Difficulty: 2 Page-Reference: 593
Question ID: 18-1-108 Skill: Knowledge
Objective: 18.5
109. The law of one price says that
a. almost all companies will have a trade deficit.
b. identical products should sell for the same price in all countries.
c. a good must be available for the same price in every province in Canada.
d. the price of a Rolex watch is the same in all countries.
e. all currencies are over-valued.
Difficulty: 2 Page-Reference: 593
Question ID: 18-1-109 Skill: Comprehension
Objective: 18.5
Business, Eighth Canadian Edition Griffin, Ebert, Starke, Dracopoulos, Lang
Chapter 18—Understanding Money and Banking
110. The law of one price
a. says that the supply and demand of a product must not alter its price.
b. says that if a retailer puts an item on sale, all other retailers must match that price.
c. says that identical products should sell for the same price in all countries.
d. is a principle suggested by Canadian economists that means that all identical products in a
given economy should be sold for the same price.
e. is the principle that to be competitive, a company must offer its product at only one price;
that is, it should not negotiate with customers about the price.
Difficulty: 2 Page-Reference: 593
Question ID: 18-1-110 Skill: Comprehension
Objective: 18.5
111. According to the Big Mac index, in 2012 the currency of ______ was overvalued, while
the currency of ______ was undervalued.
a. Norway; Switzerland
b. India; China
c. Canada; India
d. South Korea; Brazil
e. Sweden; Australia
Difficulty: 2 Page-Reference: 593
Question ID: 18-1-111 Skill: Knowledge
Objective: 18.5
112. Which of the following statements is true regarding the international payments process?
a. Most foreign nations will never accept dollars.
b. Banks just do not get involved in such transactions.
c. Money does not actually have to flow between the two countries.
d. Diplomatic pouches move currency payments from one nation to another.
e. All of these statements are true.
Difficulty: 2 Page-Reference: 594
Question ID: 18-1-112 Skill: Comprehension
Objective: 18.5
113. Which of the following would not be expected when a country’s currency becomes
overvalued?
a. Its export goods become too expensive.
b. Its high costs make the country less competitive.
c. Its exchange rate is higher than warranted by its economic conditions.
d. Fewer goods are purchased by other countries.
e. The costs of exported goods declines.
Difficulty: 2 Page-Reference: 592-593
Question ID: 18-1-113 Skill: Comprehension
Objective: 18.5
Business, Eighth Canadian Edition Griffin, Ebert, Starke, Dracopoulos, Lang
Chapter 18—Understanding Money and Banking
114. A government may ________ its currency to correct its balance–of-payments conditions.
a. regulate
b. devalue
c. reconvert
d. recentre
e. interpolate
Difficulty: 2 Page-Reference: 593
Question ID: 18-1-114 Skill: Knowledge
Objective: 18.5
115. The United Nations agency that provides only a limited scope of financial services, such
as funding national improvements in undeveloped countries, is the
a. International Monetary Fund (IMF).
b. Interbank Bank.
c. World Bank.
d. Bank of Canada.
e. Global Bank.
Difficulty: 2 Page-Reference: 594-595
Question ID: 18-1-115 Skill: Knowledge
Objective: 18.5
116. The group of 188 nations that have combined resources to promote stable exchange
rates, provide temporary short-term loans, and serve other purposes is the
a. International Monetary Fund (IMF).
b. Bank of Canada.
c. Global Bank.
d. Interbank Bank.
e. World Bank.
Difficulty: 2 Page-Reference: 595
Question ID: 18-1-116 Skill: Knowledge
Objective: 18.5
117. Which is not a purpose of the International Monetary Fund?
a. Encourage development of a system for international payments
b. Promote social programs in nations suffering from negative trade balances
c. Encourage members to co-operate on international monetary issues
d. Promote the stability of exchange rates
e. Provide temporary short-term loans to member countries
Difficulty: 2 Page-Reference: 595
Question ID: 18-1-117 Skill: Comprehension
Objective: 18.5
Business, Eighth Canadian Edition Griffin, Ebert, Starke, Dracopoulos, Lang
Chapter 18—Understanding Money and Banking
118. Some members of the Palau government want to ask the World Bank to help fund
economic development, rather than focus on short-term monetary stimulation. Which of the
following would strengthen the case for this course of action?
a. Palau has come under criticism in the United Nations for alleged human rights abuses.
b. Palau has been able to grow enough food to export to surrounding nations.
c. Corruption is a major problem among Palau’s government officials.
d. Palau needs humanitarian aid due to a recent volcanic eruption.
e. Palau suffers from widespread poverty.
Difficulty: 2 Page-Reference: 594-595
Question ID: 18-1-118 Skill: Analysis
Objective: 18.5
119. A financial firm is thinking about discontinuing its foreign currency investments in the
euro in favor of the yuan in order to increase its profits. If the following facts were known, which
one would MOST weaken this idea?
a. Investments in the yuan have marginally outperformed investments in the euro during the
last decade.
b. The vast majority of Canadian voters approve of European governments and disapprove of
the Chinese government.
c. The company currently has much more money invested in the euro than in the yuan.
d. Europe is showing signs of recovery, but China is showing signs of a downturn.
e. One of the financial firm’s competitors achieved record profits after shifting its investments
from Japanese yen to U.S. dollars.
Difficulty: 2 Page-Reference: 592-593
Question ID: 18-1-119 Skill: Analysis
Objective: 18.5
120. A company that sells energy drinks is preparing to sell its product outside Canada. The
financial officer of the company wants to expand into South America because he believes that
doing so will help the company generate a consistent year-round cash flow. If the following facts
were known, which one would strengthen the CFO‘s argument?
a. There are many different areas of the world where energy drinks are popular.
b. Demand for energy drinks is greater in developed countries than in emerging markets.
c. The company has gotten about as much of the energy drink market share in Canada as it
can reasonably hope to get.
d. In South America, the biggest brands dominate the energy drink market.
e. Energy drinks sell much better at the hottest time of the year.
Difficulty: 2 Page-Reference: 592
Question ID: 18-1-120 Skill: Analysis
Objective: 18.5
1. Coins came into use sometime around 600 BCE and paper money around 1200 CE.
a. True
b. False
Difficulty: 2 Page-Reference: 576
Question ID: 18-2-121 Skill: Knowledge
Business, Eighth Canadian Edition Griffin, Ebert, Starke, Dracopoulos, Lang
Chapter 18—Understanding Money and Banking
Objective: 18.1
2. The characteristics of money include portability, divisibility, durability, and stability.
a. True
b. False
Difficulty: 1 Page-Reference: 576
Question ID: 18-2-122 Skill: Knowledge
Objective: 18.1
3. Gold satisfies the requirements of portability, divisibility, durability, and stability better than
paper money does.
a. True
b. False
Difficulty: 1 Page-Reference: 576
Question ID: 18-2-123 Skill: Comprehension
Objective: 18.1
4. Money functions as a medium of exchange, a unit of account, and a store of value.
a. True
b. False
Difficulty: 1 Page-Reference: 577
Question ID: 18-2-124 Skill: Knowledge
Objective: 18.1
5. A barter economy is more efficient than a money economy.
a. True
b. False
Difficulty: 1 Page-Reference: 577
Question ID: 18-2-125 Skill: Comprehension
Objective: 18.1
6. Currency and money are the same thing.
a. True
b. False
Difficulty: 1 Page-Reference: 576-577
Question ID: 18-2-126 Skill: Knowledge
Objective: 18.1
7. The concept of money as “a store of value” refers to the fact that money is used to assign a
relative value to goods and services.
a. True
b. False
Difficulty: 2 Page-Reference: 577
Question ID: 18-2-127 Skill: Knowledge
Business, Eighth Canadian Edition Griffin, Ebert, Starke, Dracopoulos, Lang
Chapter 18—Understanding Money and Banking
Objective: 18.1
8. Heather told her friends she just bought $1000 worth of new clothes. Heather’s statement
illustrates the “unit of account” function of money.
a. True
b. False
Difficulty: 2 Page-Reference: 577
Question ID: 18-2-128 Skill: Comprehension
Objective: 18.1
9. The M-1 money supply account measures only the most liquid forms of money, such as
currency and demand deposits.
a. True
b. False
Difficulty: 1 Page-Reference: 577
Question ID: 18-2-129 Skill: Knowledge
Objective: 18.1
10. A personal chequing account represents demand deposits because the bank must pay
“on demand” to the person receiving the cheque.
a. True
b. False
Difficulty: 1 Page-Reference: 577
Question ID: 18-2-130 Skill: Knowledge
Objective: 18.1
11. The value of money will fluctuate in response to the laws of demand and supply just as
the value of a corn crop will fluctuate by the same laws.
a. True
b. False
Difficulty: 2 Page-Reference: 577
Question ID: 18-2-131 Skill: Knowledge
Objective: 18.1
12. In 2011, about 5 percent of Canadian bank notes were counterfeit.
a. True
b. False
Difficulty: 2 Page-Reference: 577
Question ID: 18-2-132 Skill: Knowledge
Objective: 18.1
Business, Eighth Canadian Edition Griffin, Ebert, Starke, Dracopoulos, Lang
Chapter 18—Understanding Money and Banking
13. M-1 is a more reliable measure of money supply than M-2.
a. True
b. False
Difficulty: 2 Page-Reference: 577-578
Question ID: 18-2-133 Skill: Comprehension
Objective: 18.1
14. The M-2 measurement of the money supply includes time deposits, money market mutual
funds, and savings deposits.
a. True
b. False
Difficulty: 2 Page-Reference: 578
Question ID: 18-2-134 Skill: Knowledge
Objective: 18.1
15. Certificates of deposits (CDs) and saving certificates are classified as time deposits,
which means that advance notice is required to make a withdrawal.
a. True
b. False
Difficulty: 1 Page-Reference: 578
Question ID: 18-2-135 Skill: Knowledge
Objective: 18.1
16. Credit cards are widely used in business transactions but are not included in either M-1 or
M-2.
a. True
b. False
Difficulty: 2 Page-Reference: 578
Question ID: 18-2-136 Skill: Knowledge
Objective: 18.1
17. Credit cards serve as a temporary medium of exchange but are not a store of value;
therefore, they are do not qualify as a form of money.
a. True
b. False
Difficulty: 2 Page-Reference: 578
Question ID: 18-2-137 Skill: Knowledge
Objective: 18.1
18. The new chip encryption technology for credit cards (which requires an additional
password) means that credit cards are now totally safe from fraud.
a. True
b. False
Difficulty: 2 Page-Reference: 578
Question ID: 18-2-138 Skill: Knowledge