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Money and Banking Ch 1-5 Questions and Answers 2024.
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Money and Banking Ch 1-5 Questions and Answers 2024.
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Money and Banking Ch 1-5 Questions andAnswers 2024
money, financial instruments, financial markets, financial institutions, regulatory
agencies, central banks - ANS-What are the 6 parts of the financial system?
Time has value, Risk requires compensation, Information is the basis of decisions,
Markets determine prices and allocation of resources, Stability improves welfare -
ANS-What are the 5 core principles of money and banking?
Time affects the value of financial instruments and is tied to interests rates -
ANS-Describe the important of Time in finance
individuals will accept risk only if they are compensated. The higher the risk the bigger
the payment. - ANS-Describe the concept that Risk requires compensation
Collection and processing of
information is the foundation of the
financial system. - ANS-Describe the important of information for decisions.
Markets channel resources and minimize
the cost of gathering information and
making transactions. The better developed the market, the faster the economy will grow.
- ANS-Describe the importance of markets in financial decisions?
A stable economy grows faster than an
unstable one. One of the main roles of a central bank is to stabilize an economy.
Financial instability in the autumn of 2008 triggered the worse global downturn since
the Great Depression. - ANS-Describe the importance of financial stability.
money - ANS-an asset that is generally accepted
as payment for goods and services or
repayment of debt.
income - ANS-a flow of earnings over time
, wealth - ANS-the value of assets minus liabilities.
Unit of account, means of payment, store of value - ANS-what are the three
characteristics of money?
commodity and fiat monies, checks, electronic payments - ANS-What are the possible
methods of payment?
commodities money - ANS-Money with intrinsic value. ex: silk or salt
fiat money - ANS-money without intrinsic value that is used as money because of
government decree
automated clearinghouse transaction (ACH). - ANS-type of electric transfer fund. Used
for recurring payments like paychecks or utility bills.
Interest Rates, Economic Growth, Inflation - ANS-These affect the changes in the
quantity of money
M1 - ANS-Different definitions of money are based upon degree of liquidity. This is the
narrowest definition with only the most liquid assets.
M2 - ANS-Different definitions of money are based upon degree of liquidity. This is the
broader definition which includes assets that are not used as a means of payment.
indirect finance - ANS-An institution stands between lender and borrower.
direct finance - ANS-Borrowers sell securities directly to lenders in the financial markets.
Provides financing for
governments and corporations.
Stocks, bonds, loans and insurance. - ANS-What specific forms of money make up our
Financial instruments or securities?
Financial Markets - ANS-Examples of this: New York Stock Exchange, Nasdaq.
This is where investors trade financial instruments.
Financial Instrument - ANS-The written legal obligation
of one party to transfer something of value, usually money, to another party at some
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