Question 1

Correspondent banking:

Accepted Answer

A)   is illegal in the United States.
B)   is an interbank relationship involving deposits and various services.
C)   refers to "bank-by-mail" services offered by many financial institutions.
D)   means that when one financial institution's reserve account increases, another institution's reserve account must decrease.

Question 2

Over the past thirty years:

Accepted Answer

A)   the U.S. Supreme Court, in a landmark decision, declared the Monetary Control Act of 1980 to be unconstitutional.
B)   additional legislation was passed that weakened the deregulatory trend started by the Monetary Control Act of 1980.
C)   additional legislation was passed that strengthened the deregulatory trend started by the Monetary Control Act of 1980.
D)   there was no legislation passed that had any effect on the deregulatory trend started by the Monetary Control Act of 1980.

Question 3

A reserve account can be defined as:

Accepted Answer

A)   the cash that a financial depository institution keeps in its vaults.
B)   a deposit that a Federal Reserve Bank keeps with the U.S. Treasury.
C)   the amount designated by a financial depository institution to cover bad checks, defaulted loans, and such.
D)   a deposit in the name of a financial depository institution held at a Federal Reserve Bank or other designated place.

Question 4

As a result of the Depository Institutions Deregulation and Monetary Control Act of 1980, the authority of the Federal Reserve over monetary matters was:

Accepted Answer

A)   decreased by placing the Federal Reserve under the control of the Secretary of the Treasury.
B)   decreased by limiting the number of banks that can belong to the Federal Reserve System.
C)   increased by allowing only Federal Reserve banks to offer interest-bearing checking accounts.
D)   increased by adding relationships between the Federal Reserve and nonmember depository institutions that did not previously exist.

Question 5

Which of the following statements is FALSE?

Accepted Answer

A)   Commercial banks are profit-driven businesses.
B)   Commercial banks can create and destroy money.
C)   While commercial banks do not need a charter to operate, it is advantageous to do so.
D)   Most commercial banks are insured through the FDIC.

Question 6

Changes in the value of money are:

Accepted Answer

A)   directly related to changes in the general level of prices.
B)   inversely related to changes in the general level of prices.
C)   established by the monetary authority and are the cause of changes in the general level of prices.
D)   directly related to changes in the general level of prices during inflation, and inversely related during deflation.

Question 7

The ease of converting an asset to its value in cash or spendable funds is its:

Accepted Answer

A)   velocity.
B)   liquidity.
C)   cash-equivalence.
D)   conversion factor.

Question 8

The Resolution Trust Corporation was formed in an effort to deal with the savings and loan crisis.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is FALSE?

Accepted Answer

A)   The Board of Governors of the Federal Reserve System is responsible for key monetary policy decisions.
B)   The members of the Board of Governors are appointed by the president of the United States and confirmed by the Senate.
C)   The Open Market Committee authorizes the buying and selling of government securities by the Federal Reserve System.
D)   The Open Market Committee buys and sells stocks and bonds of private corporations for the Federal Reserve System.

Question 10

Which of the following is a function of money?

Accepted Answer

A)   Measure of value.
B)   Medium of exchange.
C)   Method for storing wealth.
D)   All of the above.

Question 11

Which of the following was NOT identified in the text as a medium of exchange?

Accepted Answer

A)   Feathers.
B)   Boar tusks.
C)   Cows' milk.
D)   Porpoise teeth.

Question 12

Which of the following statements is true?

Accepted Answer

A)   Today, geographic location has no impact on the size of a bank.
B)   By 2010 the 3 largest banking organizations each had over a trillion dollars in assets and thousands of branches.
C)   Because of recent legislative changes, most experts think one bank will control 100 percent of total U.S. banking assets by the year 2010.
D)   All of the above are true.

Question 13

The law that allows banks to use electronic substitute checks for check clearing purposes is:

Accepted Answer

A)   Federal Reserve Regulation CC.
B)   the Monetary Control Act.
C)   Check 21.
D)   U.S. Treasury Regulation CC.

Question 14

A financial holding company:

Accepted Answer

A)   is any company that holds stock in another company.
B)   is a company whose business it is to buy and sell commercial banks.
C)   can engage in banking, securities, insurance, and other financial activities.
D)   can engage in securities, insurance, and other financial activities, but not in banking activities.

Question 15

The Dodd-Frank Act relaxes regulatory oversight over financial institutions.

Accepted Answer

A) True 
 B)False

Question 16

The money supply (M1)  is made up of:

Accepted Answer

A)   coins and paper money in circulation, and certificates of deposits.
B)   coins and paper money in circulation, and savings accounts.
C)   coins and paper money in circulation, checking accounts (demand deposits) , and savings accounts.
D)   coins and paper money in circulation, checking accounts (demand deposits) , and travelers' checks.

Question 17

The entity within the Federal Reserve System responsible for developing policies concerning money, banking, and other financial institutional practices is known as the
_________________________.

Accepted Answer

The answer of The entity within the Federal Reserve System...

Question 18

In the U.S., each state is a separate Federal Reserve district.

Accepted Answer

A) True 
 B)False

Question 19

The largest component of the M1 money supply is other checkable deposits.

Accepted Answer

A) True 
 B)False

Question 20

Velocity is the number of times per year the average dollar is spent in relation to GDP.

Accepted Answer

A) True 
 B)False

Exam 7: Money, Financial Institutions, and the Federal Reserve

Which of the following statements is FALSE?

Correct AnswerverifiedShow Answer

Over the past thirty years:

Correct AnswerverifiedShow Answer

The Resolution Trust Corporation was formed in an effort to deal with the savings and loan crisis.

Correct AnswerverifiedShow Answer

The law that allows banks to use electronic substitute checks for check clearing purposes is:

Correct AnswerverifiedShow Answer

The money supply (M1) is made up of:

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

The entity within the Federal Reserve System responsible for developing policies concerning money, banking, and other financial institutional practices is known as the _________________________.

Correct AnswerverifiedShow Answer

Which of the following was NOT identified in the text as a medium of exchange?

Correct AnswerverifiedShow Answer

Which of the following statements is FALSE?

Correct AnswerverifiedShow Answer

A reserve account can be defined as:

Correct AnswerverifiedShow Answer

The Dodd-Frank Act relaxes regulatory oversight over financial institutions.

Correct AnswerverifiedShow Answer

Which of the following is a function of money?

Correct AnswerverifiedShow Answer

The largest component of the M1 money supply is other checkable deposits.

Correct AnswerverifiedShow Answer

In the U.S., each state is a separate Federal Reserve district.

Correct AnswerverifiedShow Answer

A financial holding company:

Correct AnswerverifiedShow Answer

Correspondent banking:

Correct AnswerverifiedShow Answer

Velocity is the number of times per year the average dollar is spent in relation to GDP.

Correct AnswerverifiedShow Answer

As a result of the Depository Institutions Deregulation and Monetary Control Act of 1980, the authority of the Federal Reserve over monetary matters was:

Correct AnswerverifiedShow Answer

The ease of converting an asset to its value in cash or spendable funds is its:

Correct AnswerverifiedShow Answer

Changes in the value of money are:

Correct AnswerverifiedShow Answer

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