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Multiple Choice Quiz
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1
Identify which item is not one of the six parts of the financial system.
A)Financial markets
B)Central banks
C)Credit cards
D)Financial institutions
2
The central bank of the United States is:
A)The Bank of America.
B)The Federal Reserve System.
C)The U.S. Treasury.
D)Citibank.
3
The amount of information most individuals would seek before making a decision:
A)Is about the same across all individuals.
B)Varies directly with the importance of the decision.
C)Is the same across all decisions but varies across individuals.
D)Depends on how much time it will take to get the information regardless of the decision.
4
The statement "risk requires compensation" implies that, in general, people:
A)Do not take risk.
B)Only accept risk when they absolutely have to.
C)Will only accept risk when they are rewarded for doing so.
D)Avoid risk at all cost.
5
Banks usually offer higher rates of interest to people willing to keep their funds in the bank longer because:
A)These depositors are the banks' best customers.
B)Banks really do not want a lot of people coming into the bank.
C)Bankers realize time has value and people need to be compensated if they are to keep their money in the bank longer.
D)These depositors are very wealthy and so have other options about what to do with their funds.
6
Central banks can improve the welfare of a society by doing all of the following except:
A)Serving the interests of government rather than the public at large.
B)Helping to promote economic growth.
C)Focusing on keeping the overall level of prices stable.
D)Helping to reduce the volatility of business cycles.
7
In the United States control of the money supply is given to:
A)The President.
B)The Federal Reserve System.
C)The Bureau of Printing and Engraving.
D)The Department of the Treasury.
8
Which of the following statements best describes financial instruments?
A)All financial instruments are a means of payment.
B)Financial instruments can transfer resources between people but not risk.
C)Financial instruments can transfer resources and risk between people.
D)Financial instruments can transfer risk but not resources between people.
9
Which of the following statements best describes financial markets?
A)Financial markets lower the cost and increase the speed of buying and selling financial instruments.
B)Financial markets increase the speed of buying and selling, but they also increase the cost since people are earning fees for these transactions.
C)Financial markets are a good example of unregulated markets.
D)Financial markets today offer fewer instruments than they did in the past.
10
The New York Stock Exchange is an example of:
A)A financial instrument.
B)A financial institution.
C)A financial market.
D)A bank.
11
When an individual obtains a car loan and makes all of the regular monthly payments, the sum of the payments made will exceed the purchase price of the car. This is due primarily to the core principle:
A)Risk requires compensation.
B)Information is the basis for decisions.
C)Markets determine prices and allocate resources.
D)Time has value.
12
Most financial markets in the United States operate under a system:
A)Without any formal rules or regulation.
B)With many rules and regulation to ensure a fair market.
C)Depending in what state the financial market is located since some states do not have any regulations.
D)That is totally controlled by the federal government.
13
How do financial institutions evaluate the creditworthiness of potential borrowers?
A)They offer high interest rates because only the best borrowers will be able to afford them.
B)They gather information regarding the borrowers' finances.
C)They cannot evaluate creditworthiness so everyone is treated the same.
D)They do not evaluate the creditworthiness because they know the borrower will honor his/her obligation to repay the loan.
14
The primary function of central banks is to:
A)Increase risk and volatility to increase compensation.
B)Control inflation and help reduce business cycle fluctuations.
C)Increase the uncertainty that firms face in making investment decisions.
D)Eliminate the need for banks to collect financial information.
15
Current U.S. monetary policy is best described as:
A)Aimed at keeping inflation low and stable and growth high and stable.
B)Determining the denominations of a country's currency.
C)One of the most important functions of Congress.
D)Attempting to keep inflation constant at zero percent.





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