Title: Financial Markets and Systems
Course: Question Banks

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 ________.
- is the result of a bartered transaction.
- is an example of commodity money.
- is the sandwich’s cost of production.
- is a precise measurement of the value of the sandwich.
A: is a precise measurement of the value of the sandwich.

Q: As a business owner you decide to hire a new employee named Maria. You decided to pay Maria $15.00 an hour for her work. At the end of the week Maria receives a paycheck for $600. The $600 Maria received is ________.
- an example of goods and services.
- the same as gold.
- her total compensation adjusted for inflation.
- a measurement of her work’s value to the company.
A: a measurement of her work’s value to the company.

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 is not backed by a national bank.
- It is too large to have value.
- It is not easily divisible.
A: It is not easily divisible.

Q: On Yap Island, in the Pacific Ocean, early inhabitants used large limestone disks, known as Rai stones, as money. Some of these disks weighed as much as a car! Everyone agreed that the stones were valuable and the people utilized them in much the same way we use money today. The weight of the stones and the fact that a Rai stone is difficult to split into smaller denominations would make Rai stones unfit to act as money today because Rai stones could not act as a ________.
- Store of Value
- Unit of Account
- Valuable form of currency
- Medium of Exchange
A: Medium of Exchange

Q: You pay your neighbor $100 in exchange for the used washing machine she is selling. Your neighbor puts that $100 into her pocket and takes her family out to the movies and a nice dinner at the end of the week. She still has $20 left after this outing and decides to put the remaining $20 into her savings account. This is an example of:
- Exchange rate
- Time value of money
- The future value of money
- Store of value
A: Store of value

Q: Although money has no intrinsic value, it is demanded throughout society. Money is demanded for all of the following reasons EXCEPT:
- It stores value.
- It’s divisible
- It’s portable.
- It’s easy to counterfeit.
A: It’s easy to counterfeit.

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 Petersons are hoping to take a vacation next summer, and agree to harvest the apples for their neighbor in exchange for a $200 payment for their work. This illustrates one of the advantages of money over bartering, which is:
- Money is difficult to counterfeit.
- Money is the only means of exchanging goods for services.
- Money is easily produced.
- Money stores value.
A: Money stores value.

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. 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.
- An equal exchange system since both offers have the exact same value
- A barter system because each person gets something of value.
A: A barter system because each person gets something of value.

Q: The reason we rarely use the barter system today is:
- Due to the specialization theory promoted by Adam Smith
- Due to the role of commercial banks.
- The government does not allow it.
- It is difficult to find two parties that have something they both want to trade.
A: It is difficult to find two parties that have something they both want to trade.

Q: Bitcoin is an example of which of the following?
- traditional currency
- mobile commerce
- regionally based currency
- cryptocurrency
A: cryptocurrency

Q: Apple Pay is an example of which of the following?
- traditional currency
- cryptocurrency
- regionally based currency
- mobile commerce
A: mobile commerce

Q: What is a reason you might be hesitant to use Bitcoin?
- It is less expensive to accumulate than other types of currency.
- I would not need to have a bank account.
- The value of Bitcoins is stagnant.
- The value of my Bitcoins can vary widely based on supply and demand.
A: The value of my Bitcoins can vary widely based on supply and demand.

Q: If the federal government wanted to find out how much M1 money is in circulation in the US, it would look at which of the following?
- Savings accounts
- Money market mutual funds
- Stock prices
- Demand deposits and other checking accounts
A: Demand deposits and other checking accounts

Q: If the federal government wanted to find out how much M2 money (excluding M1) is in circulation in the US, they would look at which of the following?
- Demand deposits and other checking accounts
- Currency
- Mutual funds
- Savings accounts
A: Savings accounts

Q: Paul would like to buy his first home (an awesome 3 bedroom on a quiet street with a beautiful tree in the front!). The home is listed for $200,000 and he needs to come up with a down payment of $40,000. Paul starts by looking at his most liquid assets to come up with the necessary down payment. Which of the following are the most “liquid” of Paul’s options:
- $20,000 in his savings account.
- $15,000 in a money market mutual fund.
- $10,000 in his certificate of deposit.
- $5,000 in his checking account.
A: $5,000 in his checking account.

Q: The purpose of a financial institution such as a bank or credit union is to ________.
- create financial products
- Help people to buy and sell stock
- Influence the inflation rate
- act as an intermediary between savers and borrowers
A: act as an intermediary between savers and borrowers

Q: Banks are a critical intermediary in what is called the ________, which helps an economy exchange goods and services for money or other financial assets.
- financial industry
- savings and loans system
- capital market system
- payment system
A: payment system

Q: On Friday, Josie receives her paycheck and goes directly to the bank after work to make a deposit into her savings account. The bank keeps the required reserve and then loans out the remaining balance to a qualified borrower named Juan as a portion of his small business loan. Juan uses the loan to buy a new copy machine for his printing business and makes small monthly payments to the bank to payback the principal balance plus interest on the loan. The bank profits from a portion of the interest payment received and also passes some of the interest back to Josie in the form of an interest payment to her savings account. In this example, the bank is acting ________.
- Illegally; the bank should not give Josie’s money away to Juan.
- As a stockbroker, by investing Josie’s money in Juan’s business.
- As a financial planner by supporting Juan’s business growth.
- As an intermediary between the saver (Josie) and the borrower (Juan).
A: As an intermediary between the saver (Josie) and the borrower (Juan).

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

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, 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
- depreciation 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, 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
- interbank
- federal funds
A: federal funds

Q: One of the ways the Federal Reserve System seeks to stabilize prices is by:
- controlling the price of goods
- engaging in trade treaties
- rewarding responsible investors
- regulation of interest rates
A: regulation of interest rates

Q: The Federal Reserve relies on what other tool to conduct monetary policy besides the discount rate?
- banking fees
- secret agents
- fiscal policy
- reserve requirements
A: reserve requirements

Q: The Federal Reserve uses a variety of monetary policy tools to achieve which of the following goal(s)?
- a bull market, new companies, and fair trade
- full employment, zero inflation and and a trade surplus
- high stock prices, rapid growth, and a trade surplus
- low unemployment, price stability and sustainable economic growth
A: low unemployment, price stability and 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
- deflation
- inflation
A: inflation

Q: What are Bonds?
- a partial ownership in a company
- Profit
- A stipend
- debt
A: debt

Q: Your business, Balcony Management, has been doing very well. In fact, you are starting to see some decent profit! You decide it is time to move to a larger office space and purchase some new office furniture and equipment. You go to the bank you have been using for your business transactions and ask for a business loan. The bank provides you with a loan. What do you have to do next for the bank?
- Write the bank a thank you note and put a positive review on Yelp
- Pay the minimum payment on the loan to the bank each month
- Pay the total interest upfront
- Repay the loan, including interest, over a predetermined amount of time
A: Repay the loan, including interest, over a predetermined amount of time

Q: You own a large company and would like to issue bonds for $12 million to pay for the construction of a new manufacturing facility. As a bond issuer, your company will need to ________.
- Find someone who would like to pay $12 million for your bond.
- Pay the interest and a portion of the principal balance to the bank each month for the duration of the bond term.
- Find an investor who will yield a higher return for your bond.
- Pay interest payments annually and repay the entire $12 million at the end of the bond term.
A: Pay interest payments annually and repay the entire $12 million at the end of the bond term.

Q: Noah’s company is privately owned. His company:
- can sell stock on the NYSE.
- can sell stock on Nasdaq.
- cannot accept funding from foreign investors.
- does not offer shares of the company to the public.
A: does not offer shares of the company to the public.

Q: Susan, Heather, and Ricky own a private company. Their company may be set up as:
- a sole proprietorship
- a direct investment
- a joint venture
- a partnership
A: a partnership

Q: Gloria just started working for GlenMack. As part of her signing bonus, she received 20 shares of GlenMack stock. Gloria is excited to contribute to the company and to track the value of her shares on the New York Stock Exchange. GlenMack must be:
- a private company
- a good company to work for
- an LLC
- a public company
A: a public company

Q: Stocks or equity securities are:
- Debt to the company
- Managed by your local commercial bank
- Solely used by large corporations
- financial instruments that may include share of a company’s future profits.
A: financial instruments that may include share of a company’s future profits.

Q: Those who buy stock become ________.
- Employees of the firm
- Legally responsible for the firm
- Liable for the firm’s debt
- Shareholders of the firm
A: Shareholders of the firm

Q: A firm will receive a major financial benefit from the sale of its stock ________ .
- each time a shareholder buys or sells the stock
- when the stock is traded on the New York Stock Exchange
- when it offers the stock as an employment benefit
- at the initial public offering
A: at the initial public offering

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

Q: Carlos has a small fashion company. He has been in business for a little over a year and the company looks like it is going to do very well. Carlos is in talks with Bloomingdale's and Nordstrom, and already has been doing some work with Calvin Klein. Carlos needs to raise some capital to help the company grow to keep up with the demand. What might be a good source of capital for Carlos to look into?
- A bond
- An initial stock offering
- A preferred stock offering
- Venture capital firm
A: Venture capital firm

Q: What is the biggest advantage of borrowing money, such as a loan or a bond, instead of issuing stock in order to raise capital?
- The interest rate is usually less
- The business owner does not have to worry about legal liability
- The business typically yields higher returns
- The current business owner retains complete ownership of the business
A: The current business owner retains complete ownership of the business