30) Which of the following is a financial intermediary?
A) the U.S. Department of the Treasury
B) the Internal Revenue Service
C) a share of corporate stock
D) an insurance company
31) Which of the following is NOT a financial intermediary?
A) commercial banks
B) a savings and loan association
C) the Federal Reserve Bank of New York
D) the Internal Revenue Service
32) Let us suppose that you apply for a bank loan. You tell the bank that you are going to
remodel your house, but after you get the loan you go to Las Vegas to gamble with the money.
Your behavior is an example of
A) adverse selection.
B) direct credit allocation.
C) moral hazard.
D) indirect credit allocation.
33) The function that banks perform by obtaining funds from households, businesses, and
governments and lending these funds to other households, businesses, and governments is known
as
A) financial intermediation.
B) lending intermediation.
C) fiscal intermediation.
D) liquidity intermediation.
34) Which of the following is NOT a reason that people tend to deposit their funds with banks
rather than lend their funds directly to other individuals?
A) adverse selection problems
B) asymmetric information problems
C) moral hazard problems
D) liquidity problems
35) Adverse selection refers to the
A) possibility that the borrower may engage in riskier behavior after the loan is obtained.
B) likelihood that a potential borrower may use the funds that he receives for unworthy, high risk
projects.
C) possession of information by one party in a financial transaction not known by the other
party.
D) use of statistical discrimination in making loans.
36) The possibility that a borrower might engage in riskier behavior after a loan is made is called
A) adverse selection.
B) liability aversion.
C) moral hazard.
D) the risk of default.
37) Which of the following describes a moral hazard problem?
A) a process by which individuals have substantial resources devoted to the exchange process
and need to make a profit or they will be adversely affected
B) a post-contractual problem that may result because participants to the exchange process have
information that allows them to act in an opportunistic manner
C) a process by which individual buyers or sellers with better information are more likely to
participate in voluntary exchange
D) a contractual problem that results because monopolies exist in all economies
38) Suppose you and your friend are in a shopping mall and you borrow $100 from your friend
to pay for a handbag that you purchase in a shop. This is an example of
A) direct financing.
B) indirect financing.
C) moral hazard.
D) money laundering.
39) Suppose you borrow $10,000 from your bank to purchase a vehicle. This is an example of
A) direct financing.
B) indirect financing.
C) moral hazard.
D) transaction costs.
40) When you use a debit card to purchase a pair of jeans, you are
A) creating a 30-day loan from your bank to the seller.
B) creating a 30-day loan from the seller to your bank.
C) giving your bank an instruction to transfer funds directly from your bank account to the
store’s bank account.
D) creating an overnight repurchase agreement between your bank and the store.
41) When you make a purchase at a retail store by giving your bank an instruction to transfer
funds directly from your bank account to the store’s bank account, you have most likely made the
purchase using
A) cash.
B) a loan.
C) a debit card.
D) credit.
42) Explain the role of financial intermediation.
15.3 The Federal Reserve System: The U.S. Central Bank
1) The central bank for the United States is
A) Chase Manhattan Bank.
B) the U.S. Treasury.
C) the Federal Reserve System.
D) First National Bank of America.
2) The current chair of the Board of Governors of the Federal Reserve is
A) Alan Greenspan.
B) Ben Bernanke.
C) Janet Yellen.
D) Henry Paulson.
3) Which of the following is TRUE of the Federal Reserve System?
I. It was established in the early 1980s.
II. It serves as the central bank of the United States.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
4) The Federal Open Market Committee (FOMC)
A) determines the tax policy of the government.
B) influences the future growth of the money supply.
C) oversees all transactions on the stock market.
D) lends to the least credit-worthy customers.
5) The part of the Federal Reserve System that determines monetary policy actions is the
A) District Bank Board.
B) Federal Deposit Insurance Corporation (FDIC).
C) Federal Open Market Committee.
D) Comptroller’s Office.
6) The Board of Governors of the Federal Reserve System is
A) elected by the general public.
B) composed of seven members who are appointed by the President and approved by the Senate.
C) composed of representatives from the country’s 12 largest commercial banks.
D) composed of 12 members of the Senate and the U.S. House of Representatives.
7) Monetary policy actions are determined by the
A) Federal Open Market Committee.
B) New York Federal Reserve Bank.
C) President of the United States.
D) all of the above
8) Who appoints the Federal Reserve System’s Board of Governors?
A) the Secretary of the Treasury
B) the President of the United States
C) the Speaker of the House of Representatives
D) the American Banking Association
9) Which of the following is NOT a part of the Federal Reserve System?
A) the Twelve District Federal Reserve banks
B) the Federal Open Market Committee
C) the Federal Deposit Insurance Corporation
D) the Board of Governors
10) The Board of Governors of the Federal Reserve System is
A) appointed by the Congress.
B) elected by the public.
C) appointed by the President with approval of the U.S. Senate.
D) elected by members of the American Banking Association.
11) Which of the following is NOT a function of the Federal Reserve System?
A) The Fed holds reserves of depository institutions.
B) The Fed supplies the economy with fiduciary currency.
C) The Fed determines government spending and taxation policies.
D) The Fed acts as fiscal agent for the United States Department of the Treasury.
12) Which of the following is NOT a function of the Fed?
A) regulating the money supply in the economy
B) offering credit and loans to the U.S. public
C) acting as government’s fiscal agent
D) providing a system of check collection and clearing for depository institutions
13) Which of the following is NOT a function of the Fed?
A) holding reserves for depository institutions
B) supervising member banks
C) regulating the money supply
D) determining the credit-worthiness of firms and individuals
14) Which of the following is NOT a function of the Federal Reserve System?
A) providing for check collection and clearing
B) holding deposits of member banks
C) supervising member banks
D) making loans to private firms
15) Regarding the nation’s money supply, the Federal Reserve
A) has no ability to influence its magnitude or its rate of growth.
B) precisely sets the amount of money in circulation in consultation with the Congress.
C) has a major impact on its rate of growth.
D) gives the U.S. Treasury the authority to print as much as it wishes.
16) Which of the following statements is correct?
I. The Fed can periodically and without warning examine member commercial banks to ensure
that they are conforming to current banking standards.
II. The Fed helps the government collect certain tax revenues and aids in the purchase and sale
of government securities.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
17) The Fed is said to be the “lender of last resort” in that
A) it stands ready to lend to any depository institution that it has decided should not fail.
B) it makes loans to individuals whom commercial banks do not believe are credit-worthy.
C) it charges a higher interest rate to borrowers than does any other bank.
D) it functions as the government’s bank only when commercial banks fail to do so.
18) All of the following are functions of the Federal Reserve System EXCEPT
A) supplying the economy with fiduciary currency.
B) providing a system of check collection and clearing.
C) acting as the government’s fiscal agent.
D) lending funds to risky customers denied credit by commercial banks.
19) It is widely believed that the Federal Reserve’s most important function is
A) to provide loans to the federal government.
B) to regulate the money supply.
C) to set the legal, controlled consumer interest rates.
D) to lend to risky customers.
20) Which of the following is NOT a function of the Federal Reserve System?
A) regulating the money supply
B) offering banking services to households and businesses
C) acting as the fiscal agent of the federal government
D) supervising member banks
21) The Federal Reserve System acts as the government’s fiscal agent by
A) auditing taxpayers.
B) providing checking account services for the government.
C) preparing the budget the President presents to Congress every year.
D) determining how to finance a deficit.
22) Which of the following is NOT a correct statement about the Federal Reserve banks?
A) They supervise member banks within the Federal Reserve System.
B) They provide a system of check collection and clearing.
C) They provide the economy with gold backed currency.
D) They act as banker and fiscal agent for the U.S. government.
23) A “banker’s bank” is another name for
A) a financial intermediary.
B) a government bank.
C) a central bank.
D) the Federal Depository Insurance Agency.
24) Which of the following is the central bank for the United States?
A) the Bank of America
B) the U.S. Mint
C) the Comptroller of the Currency
D) none of the above
25) The U.S. central bank performs all the following roles for the nation EXCEPT
A) performing banking functions for their nations’ governments.
B) lending funds directly to the public.
C) providing financial services for private banks.
D) conducting their nations’ monetary policies.
26) The Federal Reserve System was established in which year?
A) 1865
B) 1913
C) 1929
D) 1941
27) The Board of Governors of the Federal Reserve System has how many governors?
A) 1
B) 5
C) 7
D) 12
28) All of the following are functions of the Federal Reserve System EXCEPT
A) to provide loans to developing countries.
B) to supply the economy with fiduciary currency.
C) to hold depository institutions’ reserves.
D) to act as the government’s fiscal agent.
29) By serving as the lender of last resort,
A) the Fed provides check clearing services.
B) the Fed supervises depository institutions.
C) the Fed can prevent bank failures.
D) the Fed aids in the sale of government securities.
30) The Federal Reserve System is divided into how many districts?
A) 1
B) 5
C) 7
D) 12
31) Control of the money supply is handled by
A) Congress.
B) the Federal Reserve System.
C) all commercial banks.
D) Congress and all member commercial banks.
32) Depository institutions must
A) use and pay for the services of the Federal Reserve System.
B) set their interest rates according to schedules established by the Federal Reserve System.
C) keep a certain percentage of their deposits as reserves.
D) turn over a percentage of their profits to the Federal Reserve System as payment for services
provided by the Fed.
33) The Fed
A) is responsible for minting coins.
B) distributes Federal Reserve notes, which are paper currency.
C) is responsible for conducting U.S. fiscal policy.
D) has 15 Federal Reserve banks and governing boards in New York and Chicago.
34) Which of the following is responsible for the distribution of paper currency in the United
States?
A) the U.S. Treasury
B) the Office of the Comptroller of the currency
C) the Federal Reserve
D) all of the above
35) Check collection and clearing happen
A) at the bank where the check was written.
B) only at private clearing centers.
C) at the Fed and at private clearing centers.
D) only at the Fed.
36) Which of the following is NOT true about the duties the Fed performs for the federal
government?
A) The Federal Reserve is the banker and fiscal agent of the federal government.
B) The U.S. Treasury controls the Fed.
C) The Federal Reserve aids in the purchase and sale of certain government securities.
D) The U.S. Treasury has a checking account at the Fed.
37) As a “lender of last resort,” the Fed
A) is obligated to bail out any depository institution in the country that is in financial difficulty.
B) protects the deposits of $100,000 or less in all commercial banks in the country.
C) provides loans to banks experiencing temporary liquidity problems.
D) bails out any corporation the government has decided should not fail.
38) The most important function of the Fed is to
A) provide a system for collecting and clearing checks.
B) collect taxes.
C) support the federal government’s deficit spending by buying government securities.
D) regulate the money supply.
39) All of the following are functions of the Fed EXCEPT
A) providing paper currency.
B) enforcing international trade agreements.
C) serving as a mechanism for clearing checks.
D) the banker and fiscal agent for the government.
40) Which of the following depository institutions is NOT regulated by a government agency?
A) savings and loan associations
B) credit unions
C) commercial banks that are not part of the Federal Reserve System
D) None of the above: All depository institutions are regulated by some government agency.
41) Which of the following is solely responsible for determining changes in the money supply in
the United States?
A) the U.S. Treasury
B) the Comptroller of the Currency
C) the Federal Open Market Committee
D) the chairman of the Federal Reserve
42) Which one of the following is a function of the Federal Reserve System?
A) providing the economy with currency
B) providing a system for check clearing
C) serving as a lender of last resort
D) all of the above
43) Why might the Federal Reserve intervene in foreign currency markets?
A) to ensure the safety of overseas investments for banks
B) to ensure the safety of overseas investments for private investors
C) to ensure the safety of overseas investments for pension funds
D) to maintain a desired exchange rate for the dollar
44) The Federal Reserve Bank was first established in the U.S. by an Act of Congress passed in
A) 1776.
B) 1938.
C) 1913.
D) 1947.
45) The Board of Governors of the Federal Reserve System has
A) 7 members serving 14 year terms.
B) 7 members serving 4 year terms.
C) 12 members serving 14 year terms.
D) 12 members serving 4 year terms.
46) The Federal Reserve System has
A) 7 district banks.
B) 12 district banks.
C) 24 district banks.
D) 50 district banks.
47) How many Federal Reserve district banks are there in the United States?
A) 12
B) 5
C) 7
D) none of the above
48) The fiscal agent for the U.S. federal government is
A) the United States Treasury.
B) the Internal Revenue Service.
C) the Comptroller of Currency.
D) the Federal Reserve System.
49) A major function of the Federal Reserve System is
A) the implementation of fiscal policy for the federal government.
B) the control of the money supply.
C) the control of government spending.
D) the control of taxing policy.
50) Which of the following is NOT a function of the Federal Reserve System?
A) supply fiduciary currency to the economy
B) provide a system for check collection and clearing
C) implement fiscal policy
D) regulate the money supply
51) Who appoints the chair of the Federal Reserve System?
A) the Senate and Congress
B) member banks of the Federal Reserve System
C) the President of the United States
D) the Federal Open Market Committee (FOMC)
52) The part of the Federal Reserve System (the Fed) that sets reserve requirements is
A) the Federal Open Market Committee.
B) the Federal Advisory Committee.
C) the Federal Reserve district banks.
D) the Board of Governors.
53) The part of the Federal Reserve System (the Fed) that holds the reserve balances of
depository institutions is
A) the Federal Open Market Committee.
B) the Federal Advisory Committee.
C) the Federal Reserve district banks.
D) the Board of Governors.
54) The part of the Federal Reserve System (the Fed) that directs the buying and selling of U.S.
government securities is
A) the Federal Open Market Committee.
B) the Federal Advisory Committee.
C) the Federal Reserve district banks.
D) the Board of Governors.
55) The part of the Federal Reserve System (the Fed) that supervises and regulates member
banks is
A) the Federal Open Market Committee.
B) the Federal Advisory Committee.
C) the Federal Reserve district banks.
D) the Board of Governors.