Exam
Name___________________________________
 
1. 

Financial markets and institutions 
A) 

affect the profits of businesses. 
B) 

affect the types of goods and services produced in an economy. 
C) 

involve the movement of huge quantities of money. 
D) 

do all of the above. 
E) 

do only A and B of the above. 
Answer  

D 
Explanation  

A) 
B) 
C) 
D) 
E) 
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2. 

Financial market activities affect 
A) 

spending decisions by individuals and business firms. 
B) 

the economy's location in the business cycle. 
C) 

personal wealth. 
D) 

all of the above. 
Answer  

D 
Explanation  

A) 
B) 
C) 
D) 
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3. 

Markets in which funds are transferred from those who have excess funds available to those who have a shortage of available funds are called 
A) 

commodity markets. 
B) 

funds markets. 
C) 

financial markets. 
D) 

derivative exchange markets. 
Answer  

C 
Explanation  

A) 
B) 
C) 
D) 
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4. 

The price paid for the rental of borrowed funds (usually expressed as a percentage of the rental of $100 per year) is commonly referred to as the 
A) 

aggregate price level. 
B) 

interest rate. 
C) 

exchange rate. 
D) 

inflation rate. 
Answer  

B 
Explanation  

A) 
B) 
C) 
D) 
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5. 

The bond markets are important because 
A) 

they are the markets where interest rates are determined. 
B) 

they are the markets where foreign exchange rates are determined. 
C) 

they are easily the most widely followed financial markets in the United States. 
D) 

all of the above. 
Answer  

A 
Explanation  

A) 
B) 
C) 
D) 
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6. 

Interest rates are important to financial institutions since an interest rate increase ________ the cost of acquiring funds and ________ the income from assets. 
A) 

decreases; decreases 
B) 

increases; decreases 
C) 

decreases; increases 
D) 

increases; increases 
Answer  

D 
Explanation  

A) 
B) 
C) 
D) 
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7. 

Typically, increasing interest rates 
A) 

discourages corporate investments. 
B) 

encourages corporate borrowing. 
C) 

discourages individuals from saving. 
D) 

encourages corporate expansion. 
E) 

none of the above. 
Answer  

A 
Explanation  

A) 
B) 
C) 
D) 
E) 
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8. 

Compared to interest rates on long-term U.S. government bonds, interest rates on ________ fluctuate more and are lower on average. 
A) 

three-month Treasury bills 
B) 

medium-quality corporate bonds 
C) 

low-quality corporate bonds 
D) 

high-quality corporate bonds 
E) 

none of the above 
Answer  

A 
Explanation  

A) 
B) 
C) 
D) 
E) 
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9. 

Compared to interest rates on long-term U.S. government bonds, interest rates on three-month Treasury bills fluctuate ________ and are ________ on average. 
A) 

more; higher 
B) 

more; lower 
C) 

less; higher 
D) 

less; lower 
Answer  

B 
Explanation  

A) 
B) 
C) 
D) 
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10. 

The stock market is important because 
A) 

it is where interest rates are determined. 
B) 

it is where foreign exchange rates are determined. 
C) 

it is the most widely followed financial market in the United States. 
D) 

all of the above. 
Answer  

C 
Explanation  

A) 
B) 
C) 
D) 
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11. 

Stock prices since the 1980s have been 
A) 

relatively stable, trending downward at a moderate rate. 
B) 

unstable, trending downward at a moderate rate. 
C) 

relatively stable, trending upward at a steady pace. 
D) 

extremely volatile. 
Answer  

D 
Explanation  

A) 
B) 
C) 
D) 
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12. 

The largest one-day drop in the history of the American stock markets occurred in 
A) 

2000. 
B) 

1987. 
C) 

2001. 
D) 

1929. 
Answer  

B 
Explanation  

A) 
B) 
C) 
D) 
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13. 

A declining stock market index due to lower share prices 
A) 

decreases the amount of funds that business firms can raise by selling newly issued stock. 
B) 

increases people's wealth and as a result may increase their willingness to spend. 
C) 

reduces people's wealth and as a result may reduce their willingness to spend. 
D) 

both A and C of the above. 
E) 

both B and C of the above. 
Answer  

D 
Explanation  

A) 
B) 
C) 
D) 
E) 
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14. 

Changes in stock prices 
A) 

affect firms' decisions to sell stock to finance investment spending. 
B) 

affect people's wealth and their willingness to spend. 
C) 

are characterized by considerable fluctuations. 
D) 

all of the above. 
E) 

only A and B of the above. 
Answer  

D 
Explanation  

A) 
B) 
C) 
D) 
E) 
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15. 

(I) Debt markets are often referred to generically as the bond market. 
(II) A bond is a security that is a claim on the earnings and assets of a corporation. 
A) 

(I) is true, (II) false. 
B) 

(I) is false, (II) true. 
C) 

Both are true. 
D) 

Both are false. 
Answer  

A 
Explanation  

A) 
B) 
C) 
D) 
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16. 

(I) A bond is a debt security that promises to make payments periodically for a specified period of time. (II) A stock is a security that is a claim on the earnings and assets of a corporation. 
A) 

(I) is true, (II) false. 
B) 

(I) is false, (II) true. 
C) 

Both are true. 
D) 

Both are false. 
Answer  

C 
Explanation  

A) 
B) 
C) 
D) 
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17. 

The price of one country's currency in terms of another's is called 
A) 

the Dow Jones industrial average. 
B) 

the interest rate. 
C) 

the foreign exchange rate. 
D) 

none of the above. 
Answer  

C 
Explanation  

A) 
B) 
C) 
D) 
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18. 

A stronger dollar benefits ________ and hurts ________ 
A) 

foreign businesses; American consumers. 
B) 

American consumers; American businesses. 
C) 

American businesses; American consumers. 
D) 

American businesses; foreign businesses. 
Answer  

B 
Explanation  

A) 
B) 
C) 
D) 
Comment  
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19. 

A weaker dollar benefits ________ and hurts ________ 
A) 

American businesses; foreign consumers. 
B) 

foreign businesses; American consumers. 
C) 

American businesses; American consumers. 
D) 

American consumers; American businesses. 
Answer  

C 
Explanation  

A) 
B) 
C) 
D) 
Comment  
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20. 

From 1980 to early 1985 the dollar ________ in value, thereby benefiting American ________ 
A) 

appreciated; businesses. 
B) 

depreciated; businesses. 
C) 

appreciated; consumers. 
D) 

depreciated; consumers. 
Answer  

C 
Explanation  

A) 
B) 
C) 
D) 
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21. 

Money is defined as 
A) 

bills of exchange. 
B) 

anything that is generally accepted in payment for goods and services or in the repayment of debt. 
C) 

a riskless repository of spending power. 
D) 

all of the above. 
E) 

only A and B of the above. 
Answer  

B 
Explanation  

A) 
B) 
C) 
D) 
E) 
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22. 

The organization responsible for the conduct of monetary policy in the United States is the 
A) 

U.S. Treasury. 
B) 

Bureau of Monetary Affairs. 
C) 

Federal Reserve System. 
D) 

Comptroller of the Currency. 
Answer  

C 
Explanation  

A) 
B) 
C) 
D) 
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23. 

The central bank of the United States is 
A) 

The Fed. 
B) 

Citicorp. 
C) 

Bank of America. 
D) 

The Treasury. 
E) 

none of the above. 
Answer  

A 
Explanation  

A) 
B) 
C) 
D) 
E) 
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24. 

Monetary policy is chiefly concerned with 
A) 

the level of interest rates and the nation's money supply. 
B) 

whether people have saved enough money for retirement. 
C) 

how much money businesses earn. 
D) 

how much money people pay in taxes. 
Answer  

A 
Explanation  

A) 
B) 
C) 
D) 
Comment  
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25. 

Economists group commercial banks, savings and loan associations, credit unions, mutual funds, mutual savings banks, insurance companies, pension funds, and finance companies together under the heading financial intermediaries. Financial intermediaries 
A) 

act as middlemen, borrowing funds from those who have saved and lending these funds to others. 
B) 

produce nothing of value and are therefore a drain on society's resources. 
C) 

help promote a more efficient and dynamic economy. 
D) 

do all of the above. 
E) 

do only A and C of the above. 
Answer  

E 
Explanation  

A) 
B) 
C) 
D) 
E) 
Comment  
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26. 

Economists group commercial banks, savings and loan associations, credit unions, mutual funds, mutual savings banks, insurance companies, pension funds, and finance companies together under the heading financial intermediaries. Financial intermediaries  
A) 

play an important role in determining the quantity of money in the economy. 
B) 

help promote a more efficient and dynamic economy. 
C) 

act as middlemen, borrowing funds from those who have saved and lending these funds to others. 
D) 

do all of the above. 
E) 

do only A and C of the above. 
Answer  

D 
Explanation  

A) 
B) 
C) 
D) 
E) 
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27. 

Banks are important to the study of money and the economy because they 
A) 

have been a source of financial innovation that is expanding the alternatives available to those wanting to invest their money. 
B) 

provide a channel for linking those who want to save with those who want to invest. 
C) 

are the only financial institution to play a role in determining the quantity of money in the economy. 
D) 

do all of the above. 
E) 

do only A and B of the above. 
Answer  

E 
Explanation  

A) 
B) 
C) 
D) 
E) 
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28. 

Banks, savings and loan associations, mutual savings banks, and credit unions 
A) 

have been providing services only to small depositors since deregulation. 
B) 

have been adept at innovating in response to changes in the regulatory environment. 
C) 

are no longer important players in financial intermediation. 
D) 

all of the above. 
E) 

only A and C of the above. 
Answer  

B 
Explanation  

A) 
B) 
C) 
D) 
E) 
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29. 

(I) Banks are financial intermediaries that accept deposits and make loans. 
(II) The term "banks" includes firms such as commercial banks, savings and loan associations, mutual savings banks, credit unions, insurance companies, and pension funds. 
A) 

(I) is false, (II) true. 
B) 

(I) is true, (II) false. 
C) 

Both are true. 
D) 

Both are false. 
Answer  

B 
Explanation  

A) 
B) 
C) 
D) 
Comment  
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30. 

________ was the stock market's worst one-day drop in history in the 1980s.  
A) 

Black Monday 
B) 

Black Friday 
C) 

Blackout Day 
D) 

none of the above 
Answer  

A 
Explanation  

A) 
B) 
C) 
D) 
Comment  
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31. 

The largest financial intermediaries are  
A) 

finance companies. 
B) 

insurance companies. 
C) 

banks. 
D) 

all of the above. 
Answer  

C 
Explanation  

A) 
B) 
C) 
D) 
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32. 

In recent years  
A) 

the success of financial institutions has reached levels unprecedented since the Great Depression. 
B) 

stock markets have crashed. 
C) 

interest rates have remained constant. 
D) 

all of the above.  
Answer  

B 
Explanation  

A) 
B) 
C) 
D) 
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33. 

A security  
A) 

is the price paid for the usage of funds.  
B) 

is a claim on the issuer's future income. 
C) 

promises that payments will be made periodically for a specified period of time.  
D) 

is a claim or price of property that is subject to ownership. 
Answer  

B 
Explanation  

A) 
B) 
C) 
D) 
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34. 

________ are an example of a financial institution. 
A) 

Finance companies 
B) 

All of the above 
C) 

Banks 
D) 

Insurance companies  
Answer  

B 
Explanation  

A) 
B) 
C) 
D) 
Comment  
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35. 

Monetary policy affects 
A) 

business cycles. 
B) 

interest rates.  
C) 

inflation.  
D) 

all of the above.  
Answer  

D 
Explanation  

A) 
B) 
C) 
D) 
Comment  
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36. 

A rising stock market index due to higher share prices 
A) 

increases people's wealth and as a result may increase their willingness to spend. 
B) 

increases the amount of funds that business firms can raise by selling newly issued stock. 
C) 

decreases the amount of funds that business firms can raise by selling newly issued stock. 
D) 

both A and B of the above. 
Answer  

D 
Explanation  

A) 
B) 
C) 
D) 
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37. 

From the peak of the high-tech bubble in 2000, the stock market ________ by over ________ by late 2002. 
A) 

collapsed; 30% 
B) 

collapsed; 75% 
C) 

rose; 35% 
D) 

rose; 50% 
Answer  

A 
Explanation  

A) 
B) 
C) 
D) 
Comment  
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38. 

Money is anything accepted by anyone as payment for services or goods. 
Answer  

True 

False 
Explanation  
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39. 

Interest rates are determined in the bond markets. 
Answer  

True 

False 
Explanation  
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40. 

A stock is a debt security that promises to make periodic payments for a specific period of time. 
Answer  

True 

False 
Explanation  
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41. 

Monetary policy affects interest rates but has little effect on inflation or business cycles. 
Answer  

True 

False 
Explanation  
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42. 

The government organization responsible for the conduct of monetary policy in the United States is the U.S. Treasury. 
Answer  

True 

False 
Explanation  
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43. 

Interest rates can be accurately described as the rental price of money. 
Answer  

True 

False 
Explanation  
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44. 

Holding everything else constant, as the dollar weakens vacations abroad become less attractive. 
Answer  

True 

False 
Explanation  
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45. 

In recent years, financial markets have become more stable and less risky. 
Answer  

True 

False 
Explanation  
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46. 

Financial innovation has provided more options to both investors and borrowers. 
Answer  

True 

False 
Explanation  
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47. 

A financial intermediary borrows funds from people who have saved. 
Answer  

True 

False 
Explanation  
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48. 

Holding everything else constant, as the dollar strengthens foreigners will buy more U.S. exports. 
Answer  

True 

False 
Explanation  
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49. 

In a bull market stock prices are rising, on average. 
Answer  

True 

False 
Explanation  
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50. 

Financial institutions are among the largest employers in the country and frequently pay very high salaries.  
Answer  

True 

False 
Explanation  
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51. 

Different interest rates have a tendency to move in unison.  
Answer  

True 

False 
Explanation  
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52. 

Financial markets are what makes financial institutions work.  
Answer  

True 

False 
Explanation  
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53. 

In recent years, financial markets have become more risky. However, only a limited number of tools (such as derivatives) are available to assist in managing this risk. 
Answer  

True 

False 
Explanation  
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54. 

Have interest rates been more or less volatile in recent years? Why? 
Answer  

Comment  
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Topic  
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Objective  
Question Status Previous Edition 
User2  

 
55. 

Why should consumers be concerned with movements in foreign exchange rates? 
Answer  

Comment  
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Type ES 

WS 0 

Var 1 

Page Ref  
Created On  May 23 2005 

Modified On Nov 30 2010 
Topic  
Skill  
Objective  
Question Status Previous Edition 
User2  

 
56. 

How does the value of the dollar affect the competitiveness of American businesses? 
Answer  

Comment  
Diff 0 

Type ES 

WS 0 

Var 1 

Page Ref  
Created On  May 23 2005 

Modified On Nov 30 2010 
Topic  
Skill  
Objective  
Question Status Previous Edition 
User2  

 
57. 

What is monetary policy and who is responsible for its implementation? 
Answer  

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Type ES 

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Created On  May 23 2005 

Modified On Nov 30 2010 
Topic  
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Objective  
Question Status Previous Edition 
User2  

 
58. 

What are financial intermediaries and what do they do? 
Answer  

Comment  
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Type ES 

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Created On  May 23 2005 

Modified On Nov 30 2010 
Topic  
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Question Status Previous Edition 
User2  

 
59. 

What is money? 
Answer  

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Created On  May 23 2005 

Modified On Nov 30 2010 
Topic  
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Question Status Previous Edition 
User2  

 
60. 

How does a bond differ from a stock? 
Answer  

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Type ES 

WS 0 

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Created On  May 23 2005 

Modified On Nov 30 2010 
Topic  
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Question Status Previous Edition 
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61. 

Why is the stock market so important to individuals, firms, and the economy? 
Answer  

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Type ES 

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Created On  May 23 2005 

Modified On Nov 30 2010 
Topic  
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Question Status Previous Edition 
User2  

 
62. 

What is the central bank and what does it do? 
Answer  

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Type ES 

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Created On  Nov 21 2007 

Modified On Nov 30 2010 
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Question Status Previous Edition 
User2  

 
63. 

If you are planning a vacation to Europe, do you prefer a strong dollar or weak dollar relative to the euro? Why? 
Answer  

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Created On  Nov 30 2010 

Modified On Feb  4 2011 
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Question Status New Question 
User2  

 
1. 

D 

2. 

D 

3. 

C 

4. 

B 

5. 

A 

6. 

D 

7. 

A 

8. 

A 

9. 

B 

10. 

C 

11. 

D 

12. 

B 

13. 

D 

14. 

D 

15. 

A 

16. 

C 

17. 

C 

18. 

B 

19. 

C 

20. 

C 

21. 

B 

22. 

C 

23. 

A 

24. 

A 

25. 

E 

26. 

D 

27. 

E 

28. 

B 

29. 

B 

30. 

A 

31. 

C 

32. 

B 

33. 

B 

34. 

B 

35. 

D 

36. 

D 

37. 

A 

38. 

TRUE 

39. 

TRUE 

40. 

FALSE 

41. 

FALSE 

42. 

FALSE 

43. 

TRUE 

44. 

TRUE 

45. 

FALSE 

46. 

TRUE 

47. 

TRUE 

48. 

FALSE 

49. 

TRUE 

50. 

TRUE 

51. 

TRUE 

52. 

FALSE 

53. 

FALSE 

54. 

 
55. 

 
56. 

 
57. 

 
58. 

 
59. 

 
60. 

 
61. 

 
62. 

 
63.