Basic Finance An Introduction to Financial Institutions, Investments, and Management , 13th Edition Herbert B. Mayo TEST BANK

Test Bank

,Name: Class: Date:

Chapter 02: The Role of Financial Markets and Financial
Intermediaries True / False

1. The power to create money is given by the Constitution to the federal government.
a. True
b. False
ANSWER: True

2.SinceM2excludestimedeposits,M2isalesscomprehensivemeasureofthemoneysupplythanM1.
a. True
b. False ANSWER: False

3. When individuals withdraw cash from checking accounts, the money supply is unaffected.
a. True
b. False
ANSWER: True

4. The yield curve relates risk and interest rates.
a. True
b. False ANSWER: False

5. During most historical periods, the yield curve has been positively sloped.
a. True
b. False
ANSWER: True

6. What serves for money in France may not necessarily be money in another country.
a. True
b. False
ANSWER: True

7. The U.S. Treasury creates most of the nation's money supply.
a. True
b. False ANSWER: False

8. When individuals deposit cash in a demand deposit, the money supply is reduced.
a. True
b. False ANSWER: False

9. M1 includes savings accounts in commercial banks.
a. True
b. False




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,Name: Class: Date:

Chapter 02: The Role of Financial Markets and Financial

Intermediaries ANSWER: True

10. A financial intermediary transfers funds from borrowers to lenders by creating claims on itself.
a. True
b. False ANSWER: False

11. When cash is deposited in a checking account, the reserves of commercial banks are increased.
a. True
b. False
ANSWER: True

12. When funds are deposited in a savings account, the excess reserves of banks are unaffected.
a. True
b. False ANSWER: False

13. Large certificates of deposit in units of $500,000 are insured by FDIC.
a. True
b. False ANSWER: False

14. In general, banks prefer loans that stress liquidity and safety.
a. True
b. False
ANSWER: True

15. Insurance companies are a major source of loans to individuals.
a. True
b. False ANSWER: False

16. Money market mutual funds invest in short-term securities like U.S. Treasury bills.
a. True
b. False
ANSWER: True

17. An increase in interest rates tends to reduce the earnings of money market mutual funds.
a. True
b. False ANSWER: False

18.ApensionplanthatinvestsinthestockofIBMorVerizonperformsthefunctionofafinancialintermediary.
a. True
b. False




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, Name: Class: Date:

Chapter 02: The Role of Financial Markets and Financial

Intermediaries ANSWER: False

19.Afinancialintermediarycreatesclaimsonitselfwhenitacceptsdepositors'funds.
a. True
b. False
ANSWER: True

Multiple Choice

20. M1 includes coins, currency, and
a. demand deposits.
b. savings accounts.
c. certificates of deposit.
d. time deposits.
ANSWER: a

21. The power to create money is given by the Constitution to
a. state governments.
b. Congress.
c. the Federal Reserve.
d. commercial banks
. ANSWER: b

22. The term structure of interest rates relates
a. risk and yields.
b. yields and credit ratings.
c. term and yields.
d. stock and bond yields.
ANSWER: c

23. The term structure of interest rates indicates the
a. relationship between risk and yields.
b. relationship between the time and yields.
c. difference between borrowing and lending.
d. difference between the yield (interest rate) on government and corporate debt
. ANSWER: b

24. Money serves as a
a. substitute for equity.
b. precaution against inflation.
c. medium of exchange.
d. risk-free liability.
ANSWER: c


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