Title: Financial Markets and System
Course: Demo 1

Q: Types of money include:
- coins
- paper bills
- credit cards
A: coins; paper bills

Q: Marty goes to a concert with his friends and wants to buy a t-shirt as a souvenir of the event. He pays the vendor with a $50 bill and gets change back. Later his friend Doc wants to buy a hot pretzel but is 50 cents short. Marty gives him 2 quarters. On the way home Marty stops and puts gas in his car and pays with his Visa. In which of these transactions did Marty actually use money?
- T-shirt purchase
- Doc’s purchase of a pretzel
- Gas purchase
A: T-shirt purchase; Doc’s purchase of a pretzel

Q: Although money has no intrinsic value, it is demanded throughout society. Among the reasons that money is demanded are:
- it stores value.
- It can be used as a medium of exchange.
- it can be used as a measurement of value of goods and/or services.
- it measures value.
A: it stores value.; It can be used as a medium of exchange.; it can be used as a measurement of value of goods and/or services.; it measures value.

Q: For money to function as a medium of exchange it must be:
- difficult to counterfeit
- durable
- colorful
A: difficult to counterfeit; durable

Q: The nation of Newbie is establishing its monetary system and is designing its currency. The first proposal is to issue the Newbie Nugget (their new currency) in only 3 denominations of paper bills (%100, %500 and %1000 Newbie bills) but no coinage. In order to save time and resources they will print their currency on a heavy stock cardboard. The bills will be about the size of a business card so that the Newbian people will be able to easily carry it with them in their wallets. Why will the Newbie Nugget not function as a medium of exchange?
- It is too small to have value.
- It will be easy to counterfeit or destroy bills printed on cardboard.
- It is not easily divisible.
A: It is not easily divisible.

Q: An individual walks to a local sandwich shop and uses a $10 bill to pay for a $6 sandwich, receiving $4 as change for this transaction. This illustrates that as a medium of exchange this $10 bill is:
- portable
- divisible
- bartered
A: portable; divisible

Q: An individual walks to a local sandwich shop and uses a $10 bill to pay for a $6 sandwich, receiving $4 as change for this transaction. The $6 price of the sandwich:
- represents the value the seller wants for the sandwich.
- is a precise measurement of the value of the sandwich.
- is the result of a bartered transaction.
A: represents the value the seller wants for the sandwich.; is a precise measurement of the value of the sandwich.

Q: You need to have your gutters cleaned in the spring but have no ladder and are really afraid of heights. Buddy lives down the street and owns a roofing business. You contact Buddy and ask him if he will come clean out your gutters and in exchange you will make him a wreath he can hang on his door at the holidays. He agrees to the exchange of these two assets. What type of system have you used in this transaction?
- Monetary system because each thing has value.
- A mixed system because he can sell your wreath for cash but you can’t sell your clean gutters.
- A barter system because each person gets something of value.
A: A barter system because each person gets something of value.

Q: A neighbor has apple trees to harvest but no time to do it. The Peterson family has time to harvest but doesn’t want to work for apples. The Peterson’s are hoping to take a vacation next summer, so instead of apples, they agree to be paid $200 for their work. This illustrates that money:
- stores value.
- is a measure of value.
- is the only means of exchanging goods for services.
A: stores value.; is a measure of value.

Q: The federal government tracks the amount of money that is in the system at any given time using which of the following measurements?
- Only the amount of money in people’s savings accounts on January 1st.
- The number of bills printed by the US Treasury in the previous year.
- The total amount of cash held in people’s bank accounts throughout the year.
A: The total amount of cash held in people’s bank accounts throughout the year.

Q: What government entity is responsible for monitoring the U.S. money supply?
- Federal Trade Commission
- Federal Labor Relations Authority
- Federal Reserve
A: Federal Reserve

Q: The Federal Reserve System seeks to stabilize prices by:
- regulation of interest rates
- regulating the money supply
- controlling the price of goods
A: regulation of interest rates; regulating the money supply

Q: The Federal Reserve relies on what other tool(s) to conduct monetary policy besides the discount rate?
- reserve requirements
- open market operations
- banking fees
A: reserve requirements; open market operations

Q: The Federal Reserve uses a variety of monetary policy tools to achieve which of the following goal(s)?
- full employment
- price stability
- sustainable economic growth
A: full employment; price stability; sustainable economic growth

Q: The Federal Reserve raises the reserve requirement from 7 percent to 8 percent. Consequently banks must set aside more money and consequently have less money to lend. The result is that the banks will raise the interest rate they charge to their customers. These conditions make it harder and more expensive for people and businesses to borrow money. Because they can’t borrow as much, they can’t spend as much. If people aren’t spending as much, prices don’t go up. With this action, the Fed has lessened the likelihood of ________.
- recession
- free market
- inflation
A: inflation

Q: The Federal Reserve lowers the reserve requirement from 7 percent to 6 percent. Consequently banks must set aside less money to meet the reserve requirement. They have more money to lend to their customers and are able to lower the rate of interest they charge. These conditions make it less expensive for people and businesses to borrow money. Because they can borrow more, they can spend more. If people are spending more, prices go up. With this action, the Fed has lessened the likelihood of ________.
- inflation
- free market
- recession
A: recession

Q: Hometown Bank has made a significant number of loans to their customers, some of which have been very large. An audit of the bank’s records shows that as a result of this increased lending activity that the bank is now below the Federal Reserve’s minimum reserve requirement. The Fed lends the bank the amount necessary to bring its reserves up to the required level. Even though Hometown Bank is borrowing the money from the Fed, it will still have to pay interest on this money. The interest rate that is paid to the Fed on this loan is the ________.
- corporate rate
- carryover rate
- discount rate
A: discount rate

Q: Hometown Bank has made a significant number of loans to their customers, some of which have been very large. An audit of the bank’s records shows that as a result of this increased lending activity that the bank is now below the Federal Reserve’s minimum reserve requirement. A member bank, City Bank, has excess reserves, which Hometown Bank borrows. The rate of interest that Hometown Bank will pay to City Bank for the loan is the ________ rate.
- intrabank
- institutional
- federal funds
A: federal funds

Q: The purpose of a financial institution, such as a bank or credit union is to ________.
- act as an intermediary between savers and borrowers
- direct the flow of funds between savers and borrowers
- create financial products
A: act as an intermediary between savers and borrowers; direct the flow of funds between savers and borrowers

Q: A brokerage company is a nondepository institution. What are other nondepository institutions?
- finance companies
- insurance companies
- commercial banks
A: finance companies; insurance companies

Q: Institutions that accept deposits are called depository institutions. These institutions include:
- savings banks
- commercial banks
- credit unions
A: savings banks; commercial banks; credit unions

Q: The most common financial institutions in the United States, representing over 85% of the total assets held by banks are:
- credit unions
- savings banks
- commercial banks
A: commercial banks

Q: Sheila has $10,000 she wants to invest in individual company stocks she picked out after doing extensive research. What type of financial institution would best suit her needs?
- insurance company
- credit union
- brokerage firm
A: brokerage firm

Q: Financial institutions offer a variety of products and services. Some of these services include:
- debit and credit cards
- securities and financial advice
- home loans
A: debit and credit cards; securities and financial advice; home loans

Q: Rupert lives in the small town of Berwyn, PA and his bank is NOVA Bank. In September he had $200,000 in his bank account. One day at the end of October, Rupert went to withdraw $200 from the bank’s ATM and discovered that the Pennsylvania Department of Banking and Securities had closed NOVA Bank. The FDIC took over but was unable to find another financial institution to take over NOVA bank. What will happen to Rupert’s funds?
- The FDIC will not honor Rupert’s $200,000 because it is over the insurable limit.
- The Pennsylvania Department of Banking and Securities will send him a check for the full amount.
- The FDIC has insured Rupert’s $200,000 and will send him a check for the full amount.
A: The FDIC has insured Rupert’s $200,000 and will send him a check for the full amount.

Q: Technology is affecting the traditional definition of "money." Technologies currently challenging this definition are:
- tap to pay
- virtual wallets
- Bitcoin
A: tap to pay; virtual wallets; Bitcoin

Q: One technology gaining popularity is the mobile payment. It is sometimes known as tap-and-go or near field communications (NFC). This technology is:
- a method of wireless data transfer
- detects and then enables technology in close proximity to communicate
- requires an extended amount of time before the process has finished
A: a method of wireless data transfer; detects and then enables technology in close proximity to communicate

Q: Legal issues arise with digital or virtual currency such as Bitcoin. Laws which are affected by this technology include(s):
- federal tax laws.
- federal anti-money laundering laws.
- counterfeiting criminal statutes.
A: federal tax laws.; federal anti-money laundering laws.; counterfeiting criminal statutes.

Q: Issues that digital money raises include:
- the IRS has done little to address the tax implications of virtual money
- current monetary laws do not include the regulation of digital money
- suspicious and illegal transactions cannot be tracked by traditional financial institutions
A: the IRS has done little to address the tax implications of virtual money; current monetary laws do not include the regulation of digital money; suspicious and illegal transactions cannot be tracked by traditional financial institutions

Q: Mobile payment is also known as:
- mobile wallet
- mobile money transfer
- mobile computing
A: mobile wallet; mobile money transfer

Q: The oldest established securities exchange in the U.S. is the:
- S&P 500
- NASDAQ
- NYSE
A: NYSE

Q: Historically many methods and markets were used to raise capital, but the primary methods that have evolved in modern times are the:
- bond markets.
- stock markets.
- land markets.
A: bond markets.; stock markets.

Q: Stocks or equity securities are:
- shares of ownership.
- financial instruments that may include share of a company’s future profits.
- traded on stock exchanges through member brokers.
A: shares of ownership.; financial instruments that may include share of a company’s future profits.; traded on stock exchanges through member brokers.

Q: NASDAQ stands for:
- National Association of Securities and Debt Aggregation Qualifiers
- New Association of Securities Dealers and Automatic Quantities
- National Association of Securities Dealers Automated Quotations
A: National Association of Securities Dealers Automated Quotations

Q: FanTec, Inc. is a small start-up tech company that has been successful selling games in the last three years. FanTec now needs funds to expand so it is offering shares to the public. FanTec will most likely be listed on the:
- NYSE
- NASDAQ
- S&P 500
A: NYSE; NASDAQ

Q: Bonds and stocks in the U.S. are traded on these exchanges:
- NIKKEI
- DAX
- NYSE
A: NYSE

Q: An index is a collection of:
- individual stocks and bonds.
- stocks or bonds whose performance is not tracked as an indicator.
- stocks or bonds whose performance is tracked as an indicator of the performance of an entire class or type of security.
A: stocks or bonds whose performance is tracked as an indicator of the performance of an entire class or type of security.

Q: The Dow Jones Industrial Average is an index of ________ stocks of major industrial corporations.
- 100
- 75
- 30
A: 30

Q: The Standard & Poor’s (S&P) 500 is an index of the 500:
- mid sized publicly traded corporations.
- publicly traded technology corporations.
- largest publicly traded corporations.
A: largest publicly traded corporations.

Q: A university professor’s retirement portfolio is invested in a variety of mutual funds through a brokerage firm. The Standard & Poor’s (S&P) 500 index has been climbing at a steady pace and she would like a way to mimic that index and grow her retirement account. She decides to invest money in a(n):
- individual company stock.
- bond fund.
- index fund.
A: index fund.

Q: Bonds are:
- debt.
- a formal contract to repay borrowed money with interest at fixed intervals.
- a way to raise capital through borrowing (used by corporations and governments).
A: debt.; a formal contract to repay borrowed money with interest at fixed intervals.; a way to raise capital through borrowing (used by corporations and governments).

Q: To trade any kind of bond, besides a Treasury bond, you have to go through a broker. A broker provides what services?
- Acts as a principal or dealer, buying from or selling to investors.
- Acts as an agent for another buyer or seller.
- Is an issuer of a bond.
A: Acts as a principal or dealer, buying from or selling to investors.; Acts as an agent for another buyer or seller.

Q: An investor makes the decision to trade in the commodities markets. Which of the following are the types of investments available in this market?
- gold and silver
- cotton
- stock in Google or Apple
A: gold and silver; cotton

Q: A mutual fund is an investment portfolio that:
- consists of individual stocks from one corporation
- is only available for retirement accounts
- consists of diverse investments with minimal transaction costs
A: consists of diverse investments with minimal transaction costs

Q: A mutual fund is:
- a large component of individual retirement accounts and of defined contribution plans
- created and managed by mutual fund companies , brokerages or even banks
- can be purchased without having an account with a mutual fund company, brokerage or bank
A: a large component of individual retirement accounts and of defined contribution plans; created and managed by mutual fund companies , brokerages or even banks

Q: An exchange-traded fund (ETF) is:
- a mutual fund that trades like a share of stock
- valued continuously throughout the day
- executed at the market price
A: a mutual fund that trades like a share of stock; valued continuously throughout the day; executed at the market price

Q: An index fund:
- requires minimal management
- is a mutual fund designed to mimic the performance of an index
- fully consists of commodities
A: requires minimal management; is a mutual fund designed to mimic the performance of an index

Q: A university professor is planning for her retirement and is concerned about her investments providing her with income after she retires. If one of her primary goals is income production, which of the following investments will best suit her needs?
- individual company stocks that may pay a dividend
- commodity future contracts
- government bonds with a stated coupon rate
A: government bonds with a stated coupon rate

Q: When an individual makes the decision to invest in securities such as stocks and bonds, some of the goals he or she will have as an investor include(s):
- selecting investments that combine to achieve his or her return objectives.
- selecting investments that match his or her personal risk tolerance.
- purchasing only investments that are recommended by friends and family.
A: selecting investments that combine to achieve his or her return objectives.; selecting investments that match his or her personal risk tolerance.

Q: Investing can bring profits in both the long and short-term; however, there are also costs associated with investing in securities. Among these costs is/are:
- the risk you take—the risk that you won’t get it all back.
- the opportunity cost of using the cash and forgoing all uses of that cash until it is returned.
- predictions on future performance.
A: the risk you take—the risk that you won’t get it all back.; the opportunity cost of using the cash and forgoing all uses of that cash until it is returned.

Q: When investors consider their investments, they often refer to the outcome of an investment as their “return.” In this context, a return is:
- calculated as annual rates of return.
- the percentage of return created for each unit (dollar) of original value.
- only a positive increase in the value of the investment.
A: calculated as annual rates of return.; the percentage of return created for each unit (dollar) of original value.

Q: Returns are created when:
- the investment creates income
- the investment gains (or loses) value
- the investment is originally made
A: the investment creates income; the investment gains (or loses) value

Q: One year ago you invested $10,000 in a stock (you bought 1,000 shares at $10 per share). The investment is now worth $11,000 (each share is worth $11). Your investment's return is:
- 12%
- 1%
- 10%
A: 10%

Q: You purchase stock in United Sure Thing because it has shown positive growth in a stable industry for the past 20 years. You have a great deal of confidence in the leadership of the company to make sound decisions that will protect the value of the company. Despite these positive signs, what potential sources of risk are still associated with your investment?
- economic risk
- market risk
- asset class risk
A: economic risk; market risk; asset class risk

Q: Estimating the expected return is complicated because many factors (i.e., current economic conditions, industry conditions, and market conditions) may affect that estimate. Which of the following are RELIABLE methods an investor can use to predict future returns on an investment?
- Analysists opinions about how the investment might perform if the Fed raises interest rates.
- An analysis of the information provided in financial blogs and posting on the Internet.
- An analysis of the past performance of the investment as a predictor of future performance.
A: An analysis of the past performance of the investment as a predictor of future performance.