1. An asset that can easily be exchanged for goods and services is referred to as:
a.
an intangible asset.
b.
a productive resource.
c.
a liquid asset.
d.
a fixed asset.
e.
a scarce resource.
2. Identify the correct definition of liquidity.
a.
The availability of credit in the form of money is known as liquidity.
b.
The ability of money to be a store of value is known as liquidity.
c.
The difference between real and nominal money values is known as liquidity.
d.
The ability of an asset to be easily converted into money is known as liquidity.
e.
The ability of an asset to be universally accepted as a means of exchange is known as liquidity.
MACR.BOYE.16.59 – ch. 12, 1
What Is Money?
3. Which of the following assets would be considered least liquid?
a.
A silver coin
b.
An antique automobile
c.
A U.S. savings bond
d.
A debit card
e.
A certificate of deposit
MACR.BOYE.16.59 – ch. 12, 1
United States – The Role of Money
What Is Money?
4. An asset is said to be illiquid when:
a.
it lacks purchasing power.
MACR.BOYE.16.59 – ch. 12, 1
What Is Money?
b.
it cannot act as a store of value.
c.
it is an illegal tender.
d.
it cannot be readily exchanged for goods.
e.
it cannot be used to settle debts.
5. The concept of double coincidence of wants refers to the fact that:
a.
b.
c.
d.
e.
MACR.BOYE.16.59 – ch. 12, 1
United States – The Role of Money
What Is Money?
6. Which of the following is a reason why the Japanese yen is considered money?
a.
It is backed by gold.
b.
Its value over the years has varied significantly.
c.
Goods in Japan are priced in terms of the yen, the most liquid asset of the economy.
d.
It is backed by silver.
e.
It is an asset that lacks liquidity.
MACR.BOYE.16.59 – ch. 12, 1
United States – The Role of Money
What Is Money?
7. The use of money as a unit of account:
a.
discourages specialization and division of labor.
b.
inhibits the exchange of goods and services.
c.
makes it difficult to compare the relative values of goods and services.
MACR.BOYE.16.59 – ch. 12, 1
What Is Money?
d.
lowers information costs relative to barter.
e.
relies on the existence of a double coincidence of wants.
8. Which of the following properties should a commodity have to be considered as money?
a.
It should be scarce and rare.
b.
It should be perishable.
c.
It should be indivisible.
d.
It should be unpredictable in value.
e.
It should be homogenous in nature.
MACR.BOYE.16.59 – ch. 12, 1
United States – The Role of Money
What Is Money?
9. Using money as a medium of exchange:
a.
requires people to match goods wanted with goods available.
b.
inhibits economic transactions.
c.
reduces the need for barter in the economy.
d.
reduces the need for a banking system.
e.
reduces the range of feasible exchanges in the economy.
MACR.BOYE.16.59 – ch. 12, 1
What Is Money?
10. A scalper reselling Super Bowl tickets is an example of money being used as:
a.
a store of value.
b.
a unit of account.
c.
an illegal asset.
d.
a standard of deferred payment.
e.
a medium of exchange.
MACR.BOYE.16.59 – ch. 12, 1
United States – The Role of Money
What Is Money?
11. Perishable goods such as tomatoes and milk are never used as a form of money, primarily because they cannot
function as:
a.
a store of purchasing power.
b.
a means of payment.
c.
a standard of deferred payment.
d.
a medium of exchange.
e.
a unit of account.
MACR.BOYE.16.59 – ch. 12, 1
What Is Money?
12. Money fails to act as a store of value when:
a.
it is no longer backed by gold.
b.
the inflation rate is very high.
c.
the goods produced in an economy are indivisible.
d.
the economy goes into a recession.
e.
coins are replaced by paper money.
MACR.BOYE.16.59 – ch. 12, 1
United States – The Role of Money
What Is Money?
13. If Brazil experienced a period of rapid and unexpected inflation, causing Brazilians to lose confidence in the local
currency (real) as a store of value, which of the following would be least likely to occur?
a.
The value of the Brazilian real would depreciate on the foreign exchange market.
b.
Foreign currency would be used as a substitute for the real.
c.
The real would be used as a store of value in other countries
d.
Brazilians would save less.
e.
The purchasing power of the real would decrease.
United States – Reflective Thinking
MACR.BOYE.16.59 – ch. 12, 1
What Is Money?
14. The use of foreign money instead of domestic money when the domestic economy has a high rate of inflation is called
_____.
a.
currency depreciation
b.
currency substitution
c.
capital flight
d.
currency devaluation
e.
currency trade
MACR.BOYE.16.59 – ch. 12, 1
United States – The Role of Money
What Is Money?
15. As a standard of deferred payment, money can be used to:
a.
express debt obligations in the form of purchasing power.
b.
foster barter activity.
c.
facilitate exchanges of goods and services.
d.
achieve a common denominator for measuring the value of goods and services.
e.
ascertain the liquidity of financial assets.
MACR.BOYE.16.59 – ch. 12, 1
United States – The Role of Money
What Is Money?
16. Credit can be described as:
a.
money used as a standard of deferred payment.
b.
savings made available to borrowers.
c.
fiduciary currency.
d.
a form of liquid asset.
e.
bank loans converted into commodity money.
MACR.BOYE.16.59 – ch. 12, 1
What Is Money?
United States – The Role of Money
What Is Money?
17. In the United States, the different categories of money supply measurement are based on:
a.
the elasticity of money.
b.
the liquidity of money.
c.
the amount of purchasing power.
d.
the reserve requirements in the banking system.
e.
the velocity of money.
18. The measure of money supply that includes the fewest types of assets:
a.
is M4.
b.
is M2.
c.
is M3.
d.
is M1.
e.
is M0.
MACR.BOYE.16.60 – ch. 12, 2
What Is Money?
19. Which of the following would be counted as part of M1?
a.
Money market deposit accounts
b.
Saving deposits
c.
Mutual funds
d.
Traveler’s checks
e.
Time deposits
MACR.BOYE.16.60 – ch. 12, 2
United States – The Role of Money
What Is Money?
20. Which of the following is a transactions account?
MACR.BOYE.16.60 – ch. 12, 2
What Is Money?
a.
Currency
b.
Travelers’ checks
c.
A savings account
d.
A credit card balance
e.
A demand deposit
21. Commodity money is money that:
a.
has no value as a commodity.
b.
is not backed by gold or silver and is not a legal tender.
c.
may go out of circulation with an increase in its intrinsic value.
d.
always has a face value greater than the intrinsic value.
e.
is solely used in barter exchanges.
MACR.BOYE.16.60 – ch. 12, 2
What Is Money?
Knowledge
22. U.S. bank notes have no intrinsic value and yet are widely accepted as a medium of exchange. This is a result of:
a.
Gresham’s law.
b.
the use of money as a store of value.
c.
the fiduciary monetary system.
d.
the valuation of currency as commodity money.
e.
the gold and silver reserves of the Federal government that backs the currency.
Easy
MACR.BOYE.16.60 – ch. 12, 2
United States – The Role of Money
What Is Money?
Knowledge
23. Under Gresham’s law, the term bad money refers to:
a.
money with no face value.
b.
illegal tender.
c.
devalued money.
d.
commodity money.
Moderate
MACR.BOYE.16.60 – ch. 12, 2
United States – The Role of Money
What Is Money?
Knowledge
e.
money with low commodity value.
24. According to Gresham’s Law:
a.
money with relatively high intrinsic value will be used for transactions.
b.
money with relatively low intrinsic value will be used for transactions.
c.
money with relatively high intrinsic value will cause inflation.
d.
money with relatively low intrinsic value will cause inflation.
e.
inflation increases the intrinsic value of money.
MACR.BOYE.16.60 – ch. 12, 2
United States – The Role of Money
What Is Money?
25. Which of the following is true of other checkable deposits?
a.
They are checking account deposits at commercial banks and do not pay any interest.
b.
They are accounts at financial institutions that pay interest and give the depositor check-writing privileges.
c.
They comprise solely of demand deposits at mutual savings banks.
d.
They are not included in the M1 money supply.
e.
They are savings deposits that earn interest at savings and loan associations.
MACR.BOYE.16.60 – ch. 12, 2
What Is Money?
26. _____ are accounts at the U.S. commercial banks that combine an interest-bearing savings account with a noninterest
bearing checking account.
a.
Automatic transfer system accounts
b.
Negotiable orders of withdrawal
c.
Eurodollar deposits
d.
Certificates of deposit
e.
Credit union share draft accounts
MACR.BOYE.16.60 – ch. 12, 2
What Is Money?
27. The M2 measure of money supply includes all of the following, except:
a.
demand deposits.
b.
U.S. government securities.
c.
savings deposits.
d.
money market deposits.
e.
certificates of deposit.
b
Moderate
MACR.BOYE.16.60 – ch. 12, 2
United States – The Role of Money
What Is Money?
Knowledge
28. Which of the following is true of a certificate of deposit?
a.
They are accounts at savings and loan associations.
b.
The funds in this deposit account are not given out in the form of loans.
c.
The funds in this account must be deposited for a specified period of time.
d.
The value of the deposit should be more than $100,000.
e.
The deposits earn very little or no interest.
Easy
MACR.BOYE.16.60 – ch. 12, 2
What Is Money?
Knowledge
The table given below shows the components of money supply in an economy.
Table 12.1
Money Component
Amount (in millions)
Currency
$550
Travelers’ Checks
$20
Savings Deposits
$180
NOW Accounts
$185
Small-Denomination Time Deposits
$620
Retail Money Market Mutual Funds
$605
ATS Accounts
$180
Demand Deposits
$210
29. Refer to Table 12.1 and calculate the value of M1.
Easy
MACR.BOYE.16.60 – ch. 12, 2
What Is Money?
Knowledge
a.
$550 million
b.
$570 million
c.
$780 million
d.
$1,125 million
e.
$1,145 million
30. Refer to Table 12.1 and calculate the value of M2.
a.
$1,145
b.
$1,325
c.
$1,750
d.
$2,550
e.
$2,815
d
Challenging
MACR.BOYE.16.60 – ch. 12, 2
What Is Money?
Application
31. Calculate the dollar price of a German automobile worth 40,000 euros, if the dollar per euro exchange rate is 1.5.
a.
$41,500
b.
$26,700
c.
$60,000
d.
$50,000
e.
$38,500
Moderate
MACR.BOYE.16.61 – ch. 12, 3
United States – The Role of Money
What Is Money?
Application
32. Which of the following is true of international reserve currencies?
a.
They are used for international exchange of goods and services.
b.
They are used to settle international debt.
c.
They are used for international bookkeeping.
d.
They are held for government investment abroad.
Challenging
MACR.BOYE.16.60 – ch. 12, 2
United States – The Role of Money
What Is Money?
Application
e.
They are created for international stock market trading.
33. A composite currency whose value is the average of the values of the U.S. dollar, the Japanese yen, the euro, and the
British pound is known as a:
a.
special drawing right.
b.
productive resource.
c.
standard of value.
d.
scarce diligence resource.
e.
scarce delivery resource.
Easy
MACR.BOYE.16.61 – ch. 12, 3
United States – The Role of Money
What Is Money?
Knowledge
Revised
34. Which of the following can be categorized as a composite currency?
a.
Italian lira
b.
European Currency Unit
c.
Pound
d.
Australian dollar
e.
Danish Krone
b
Easy
MACR.BOYE.16.61 – ch. 12, 3
What Is Money?
Knowledge
35. The primary international reserve asset in most countries is:
a.
silver.
b.
gold.
c.
the euro.
d.
the U.S. dollar.
e.
the Japanese yen.
b
Easy
MACR.BOYE.16.61 – ch. 12, 3
What Is Money?
Knowledge
36. Which of the following is true of the European Currency Unit?
a.
It was used by the European nations as a medium of exchanging goods and services.
b.
It was an accounting entry that was transferred between two European nations.
c.
It was replaced by the euro in the early 1980s.
d.
It was denominated in the British pound.
e.
It was a primary international reserve asset of most of the nations across the world.
b
Easy
MACR.BOYE.16.61 – ch. 12, 3
United States – The Role of Money
What Is Money?
Knowledge
37. Assume that an American investor decides to buy one-year Swiss bonds that are denominated in Swiss francs and pay
2 percent annual interest. For this purpose, $10,000 is exchanged into Swiss francs at an exchange rate of $1 = 2Fr to buy
the bonds. How many dollars will the investor have after one year if the exchange rate is $1 = 1.5Fr?
a.
$10,000
b.
$10,200
c.
$15,300
d.
$13,600
e.
$7,650
d
Challenging
MACR.BOYE.16.61 – ch. 12, 3
What Is Money?
Revised
38. Which of the following is not true about a special drawing right (SDR)?
a.
The SDR is a composite currency.
b.
The value of the SDR is an average of the values of the currencies of major industrial countries.
c.
The SDR was created in 1980 by the World Bank.
d.
The SDR is an international reserve asset.
e.
The SDR is used to settle international debts.
MACR.BOYE.16.61 – ch. 12, 3
Moderate
MACR.BOYE.16.61 – ch. 12, 3
What Is Money?
Knowledge
39. The thrift institutions:
a.
were nonprofit banking institutions.
b.
were owned by the Federal Reserve.
c.
historically offered only savings accounts, not checking accounts.
d.
controlled the U.S. monetary policy prior to the establishment of the Federal Reserve.
e.
were monitored by the Federal Deposit Insurance Corporation.
MACR.BOYE.16.62 – ch. 12, 4
40. The Depository Institutions Deregulation and Monetary Control Act passed by the Congress in 1980 led to:
a.
the complete removal of thrift institutions.
b.
increased competition among financial institutions.
c.
the formation of large number of savings and loan associations.
d.
privatization of all financial institutions in the U.S.
e.
the complete removal of credit unions.
MACR.BOYE.16.62 – ch. 12, 4
United States – The Role of Money
41. The Gramm-Leach-Bliley Act (GLBA), passed by the U.S. Congress in the year 1999, allows commercial banks to:
a.
operate in all foreign countries.
b.
open new branches in Cuba.
c.
expand their business into other areas of finance, including insurance and selling securities.
d.
raise reserve requirements for other financial institutions.
e.
eliminate unit banking.
MACR.BOYE.16.62 – ch. 12, 4
United States – The Role of Money
42. The main source of earning profits for banks is:
a.
government securities.
b.
saving accounts.
c.
reserves.
d.
loans.
e.
checking account fees.
d
Easy
MACR.BOYE.16.62 – ch. 12, 4
United States – The Role of Money
Banking
Knowledge
43. A depository institution’s profit is derived from the difference between:
a.
the interest rate it receives on loans and the rate it receives on investments in government securities.
b.
the interest rate it pays on deposits and the rate it receives on loans.
c.
its primary deposit and its derivative deposit.
d.
its assets and its liabilities.
e.
the interest rate it receives on domestic loans and the rate it receives on Eurodollar loans.
b
Moderate
MACR.BOYE.16.62 – ch. 12, 4
Banking
Knowledge
44. Commercial banks act as middlemen between savers and borrowers, therefore they are called _____.
a.
lenders of the last resort
b.
financial intermediaries
c.
banker’s banks
d.
thrift institutions
e.
profitable institutions
b
Easy
MACR.BOYE.16.62 – ch. 12, 4
United States – The Role of Money
Banking
Knowledge
45. Which of the following is true of unit banking?
a.
It is the dominant form of banking in the United Sates.
Knowledge
b.
It occurs when national banks open interstate branch offices.
c.
It implies that every financial institution should maintain its account with the Federal Reserve.
d.
It occurs when a bank is not allowed to operate in more than one location.
e.
It refers to the monopolization of the banking industry.
46. In the 1980s, some states in the United States had significantly more bank failures than other states. What industries
did the former states depend on heavily?
a.
Oil and agriculture
b.
Tourism
c.
Defense and aeronautics
d.
Construction and textiles
e.
The computer industry
Easy
MACR.BOYE.16.62 – ch. 12, 4
47. Which of the following facilities give bank customers access to services over a much wider geographic area than any
single bank’s branches can cover?
a.
Traveler’s checks
b.
Saving account checks
c.
ATM networks
d.
Demand drafts
e.
Certificates of deposit
Easy
MACR.BOYE.16.62 – ch. 12, 4
Knowledge
48. Which of the following is true of the banks that operate under Islamic law?
a.
Islamic banks are not allowed to lend out to private firms.
b.
Islamic banks do not function as intermediaries between borrowers and lenders.
c.
Islamic Banks are not allowed to offer checking accounts or traveler’s checks.
d.
Islamic banks are required to offer trade-related services free of cost.
d
MACR.BOYE.16.62 – ch. 12, 4
Banking
e.
Islamic banks do not charge interest on loans or pay interest on deposits.
49. Which of the following is true of the FDIC?
a.
It controls the operations of all commercial banks in the U.S.
b.
It exists only in the countries of North America and Europe.
c.
It covers depositors against losses up to $500,000 in a bank account.
d.
It is a federal agency that insures bank deposits in commercial banks.
e.
It is a financial institution that uses cost-plus pricing.
d
Moderate
MACR.BOYE.16.62 – ch. 12, 4
United States – The Role of Money
Banking
Knowledge
50. Which of the following is the most popular instrument for financing Islamic investments?
a.
Murabaha
b.
Mortgage
c.
Microfinance
d.
Riba
e.
Mudaraba
Challenging
MACR.BOYE.16.62 – ch. 12, 4
United States – Analytic – BB-Legal
United States – The Role of Money
Global Business Insight – Islamic Banking
Knowledge
51. Which of the following is true of offshore banking?
a.
The offshore banks are mainly concentrated in the European Union and the transactions are generally
denominated in euro.
b.
The offshore banks operate with costly restrictions and pay higher taxes than the domestic banks.
c.
The offshore banks usually charge higher rates of interest on consumption loans than the domestic banks.
d.
Offshore banks in the U.S. are able to offer a higher rate on dollar deposits and a lower rate on dollar loans
than their domestic competitors.
e.
Offshore banking transactions are considerably less risky than domestic transactions as they are closely
monitored by the government of the nations in which they operate.
Moderate
MACR.BOYE.16.62 – ch. 12, 4
United States – Analytic – BB-Legal
United States – The Role of Money
Global Business Insight – Islamic Banking
Knowledge
52. A Eurodollar loan is a(n):
a.
ECU-denominated loan issued by a U.S. bank.
b.
dollar-denominated loan payable to a European bank.
c.
ECU-denominated loan that is subject to banking regulations in both the United States and Europe.
d.
dollar-denominated loan issued outside the U.S. domestic banking system.
e.
loan by the European Community to the U.S. government.
d
Moderate
MACR.BOYE.16.63 – ch. 12, 5
United States – International Trade and Finance
Banking
Knowledge
53. The interest rate charged on a Eurodollar loan will be:
a.
higher than the interest rate charged on a U.S. loan.
b.
lower than the interest rate charged on a U.S. deposit.
c.
essentially equal to the interest rate charged on a Eurodollar deposit.
d.
lower than the London interbank offer rate.
e.
lower than the interest rate charged on a U.S. loan.
Challenging
MACR.BOYE.16.63 – ch. 12, 5
Banking
Analysis
54. The _____ account for about 60 percent of deposit and loan activity in the Eurocurrency market.
a.
ECUs
b.
U.S. dollar
c.
Euroyen
d.
Euros
e.
Eurodollars
Easy
MACR.BOYE.16.63 – ch. 12, 5
Challenging
MACR.BOYE.16.63 – ch. 12, 5
Banking
Knowledge
55. Which of the following is true of International Banking Facilities (IBFs) in the U.S.?
a.
IBFs were legalized by the Federal Reserve Board in 1970.
b.
IBFs are bookkeeping systems set up in existing bank offices of the U.S. to record international banking
transactions
c.
IBFs are “shell” bank branches of U.S. banks in the Caribbean.
d.
Loans extended by the IBFs are subject to reserve requirements and interest rate regulations.
e.
IBFs are allowed to extend loans to the residents and businesses of the United States and not to the
nonresidents.
b
MACR.BOYE.16.63 – ch. 12, 5
United States – Analytic – BB-Legal
Banking
56. Which of the following statements apply to international banking facilities (IBFs)?
a.
IBFs are subject to U.S. interest rate regulations.
b.
IBFs are located all over the world.
c.
IBFs do not require FDIC deposit insurance premiums.
d.
IBFs offer a higher interest rate spread than normal U.S. banks.
e.
IBFs allow European residents to participate in the American stock exchanges.
Moderate
MACR.BOYE.16.63 – ch. 12, 5
United States – Analytic – BB-Legal
United States – International Trade and Finance
Knowledge
57. People in developing countries may want to participate in a rotating savings and credit association (ROSCAS)
because:
a.
such associations are part of the black market and they offer attractive returns.
b.
such associations promise a guaranteed return unlike other banking institutions.
c.
such associations allow participating individuals to invest their savings abroad.
d.
such associations allow all but the last member to receive funds faster than they could save on their own.
e.
most governments encourage it.
d
MACR.BOYE.16.63 – ch. 12, 5
Revised
58. In fractional reserve banking:
a.
bank assets are less than bank reserves.
b.
only a fraction of total deposits are bank reserves.
c.
only a fraction of required reserves are investor assets.
d.
bank loans are less than bank reserves.
e.
a fraction of bank reserves needs to be backed by gold.
MACR.BOYE.16.64 – ch. 12, 6
United States – The Role of Money
Banks and the Money Supply
59. When do we say that a bank is loaned up?
a.
When its debtors don’t want to repay
b.
When it is susceptible to a bank panic
c.
When its excess reserves equal zero
d.
When it is part of a fractional reserve banking system
e.
When its required reserves are equal to its excess reserves
MACR.BOYE.16.64 – ch. 12, 6
Banks and the Money Supply
60. The balance sheet of a depository institution lists:
a.
loans to private individuals as assets.
b.
excess reserves as liabilities.
c.
checkable deposits as liabilities.
d.
required reserves as liabilities.
e.
loans from the central bank as assets.
MACR.BOYE.16.64 – ch. 12, 6
Banks and the Money Supply