Test Bank For
Money, Banking and Financial Markets 2024 Release By Stephen Cecchetti and
Kermit Schoenholtz
Chapter 1-23 Answers are At the End of Each Chapter
Chapter 1
Student name:__________
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 current mission of which one of the six parts of the financial system involves serving the
public at large?
A) financial markets
B) central banks
C) credit cards
D) financial institutions
3) Which one of the following is the central bank of the United States?
A) the Bank of America
B) the Federal Reserve System
C) the U.S. Treasury
D) Citibank
4) An important way that central banks have changed over time is to provide more
A) risk.
B) money.
C) transparency.
D) regional reserve banks.
5) More of which one of the following is an important key to the financial system?
A) risk
B) information
C) asymmetric trading
D) money
,6) Banks and insurance companies are examples of
A) central banks.
B) regulatory agencies.
C) financial institutions.
D) financial instruments.
7) Which part of the financial system is used to transfer risk to those who are best equipped to
bear it?
A) central banks
B) regulatory agencies
C) financial institutions
D) financial instruments
8) Which part of the financial system provides oversight through enforcement of rules?
A) central banks
B) regulatory agencies
C) financial institutions
D) financial instruments
9) Which of the following is not one of the five core principles of money and banking?
A) Risk requires compensation.
B) Time has value.
C) Information is the basis for decisions.
D) Stability creates risk.
10) Investing in financial instruments in today's economy:
A) is an activity practiced only by the wealthy.
B) involves costly transactions.
C) requires a sum of money larger than $100,000 to invest.
D) is made easier by the use of mutual funds.
11) Which of the following is an example of a financial market?
A) a local coffeehouse where people regularly buy and sell financial instruments.
B) a bank that only accepts deposits and issues loans.
C) an electronic network used for buying and selling textbooks.
D) a central bank used for raising taxes and borrowing on behalf of the government.
,12) Why would a new home buyer be required to purchase fire insurance before a broker
transfers funds to the seller?
A) Risk requires compensation.
B) This provides information to the lender increasing the likelihood that the loan will be
repaid.
C) Well-developed financial markets promote economic growth.
D) Increasing the use of banking services provides stability in the macroeconomy.
13) The statement "risk requires compensation" implies that 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.
14) Mutual funds have
A) been created for very wealthy individuals with a lot of money to invest.
B) increased the risks associated with constructing a portfolio.
C) reduced the costs associated with gathering information on stocks and bonds.
D) increased the transactions costs associated with participating in financial markets.
15) Which one of the following types of action by a central bank could improve the welfare of a
society?
A) serving the interests of government rather than the public at large
B) promoting regulations to slow economic growth
C) controlling prices to allocate resources in support of government objectives
D) helping to reduce the volatility of business cycles
16) In the United States, control of the quantity of money is given to the
A) president.
B) Federal Reserve System.
C) Bureau of Printing and Engraving.
D) Department of the Treasury.
17) Financial instruments can transfer
A) neither resources nor risk between people.
B) resources between people but not risk.
C) both resources and risk between people.
D) risk but not resources between people.
, 18) Financial markets
A) lower the cost and increase the speed of buying and selling financial instruments.
B) increase the speed of buying and selling, but they also increase the cost since people
are earning fees for these transactions.
C) are a good example of unregulated markets.
D) today offer fewer instruments than they did in the past.
19) Which one of the following parts of the financial system is responsible for making sure that
the elements of the system operate in a safe and reliable manner?
A) financial markets
B) money
C) financial institutions
D) regulatory agencies
20) The New York Stock Exchange is an example of a
A) financial instrument.
B) financial institution.
C) financial market.
D) bank.
21) 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
which core principle?
A) Risk requires compensation.
B) Information is the basis for decisions.
C) Markets determine prices and allocate resources.
D) Time has value.
22) Car insurance shelters drivers from the possibility of losing all their wealth in the event that
they cause an accident in which someone is seriously injured. This best illustrates which core
principle?
A) Risk requires compensation.
B) Information is the basis for decisions.
C) Markets determine prices and allocate resources.
D) Time has value.
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