Learn: ECON-3313 Money and Banking Oklahoma state Exam #1 Study Guide

Financial markets

financial institutions through which savers can directly provide funds to borrowers

money

anything that is generally accepted as payment for goods and services in the repayments of debts

financial intermediaries

firms, such as banks, mutual funds, pension funds, and insurance companies, that borrow funds from savers and lend them to borrowers

fiscal policy

Government policy that attempts to manage the economy by controlling taxing and spending.

Nominal GDP (NGDP)

The market value (current year prices) of all final goods and services produced in a given physical area during a specific period of time.

Real GDP (RGDP)

The market value (base year prices) of all final goods and services produced in a given physical area during a specific period of time.

Function of Financial Markets

-Promotes economic efficiency by producing an efficient allocation of capital and Directly improve the well-being of consumers by allowing them to time purchases better

direct finance

Borrowers borrow funds directly from lenders in financial markets by selling them securities ( EX: borrowing money from your friend)

Financial markets promote greater economic efficiency by channeling funding from _________to_______

Savers: borrwoers

Well-functioning financial markets promote___________

A: Inflation

B: Deflation

C: Unemployment

D: Growth

D.

Channeling funds from individuals with surplus funds to those desiring funds when the saver does not purchase the borrower's security is known as__________________________

Financial intermediation

Financial institutions that accept deposits and make loans are called______

banks

What crucial role do financial intermediaries perform in an economy ?

borrow funds from People who have saved to makeloans to other individuals and businesses and thus improve the efficiency ofthe economy

The upward and downward movement of aggregate output produced in theeconomy is refereed to _________________

Business cycle

Definition of inflation

The overall increase of price level

A continuing increase in the growth of the money supply is likely followed by___

An increase in the price level

Definition of exchange rate

the rate at which one currency trades for another on the foreign exchange market

definition of aggregate output

the total value of goods and services produced in the economy during a certain period f time

The most comprehensive measure of aggregate output is

GDP（Gross Domestic Product）

Nominal GDP and real GDP. You should know the Nominal GDP is output measured in __________while real GDP is output measured in___________.

Current Prices; Fixed Prices

Every financial markets has the following characteristics

A. It determines the level of interest rates.

B. It allows common stock to be trade.

C. It allows loans to be made

D. It channels funds from lenders-savers to borrowers-spenders

D.

Securities are _________- for the person who buys them but are___________ for the individual or firm that issues them

assets, liabilities

If the maturity of a debt instrument is less than one year, the debt is called ___________

short-term debt

Primary markets versus secondary markets

-Primary markets are the markets in which corporations raise new capital.

Understand the U.S. Treasury bill.

Pay no interest but are sold at a discount, having you pay a lower purchase price than the amount you receive at maturity.

Increasing the amount of information available to investors helps to reducethe problems of ______and _________in the financial markets.

A. Adverse selection, moral hazard

B. Adverse selection; risk sharing

C. Moral hazard ; transactions costs

D. Adverse selection; economies of scale

A.

In the United States, the regulatory agency that sets reserve requirements for all banks is the ______________________

federal reserve system

To an economist, ____is anything that is generally accepted in payment forgoods or services or in the repayment of debet

A. Wealth

B. Income

C. Money

D. Credit

C.

Understand liquidity

The relative ease and speed with which an asset can be converted into a medium of exchange

The M1 measure of money includes

A. Small-denomination time deposits

B. Currency, Demand deposits, Traveler' checks, other checkable deposits

C. Money market deposit accounts

D. Money market mutual fund shares

B.

Which of the following is not included in the measure of M1

A. NOW accounts

B. Demand deposits

C. Currency

D. Savings deposits

D.

From 2004 to 2007, the growth rates of M1 and M2

A. Were identical

B. Both increased but at a different rates.

C. Both decreased but at different rates

D. Moved in opposite directions

D.

What is the present value of $500.00 to be paid in two years if the interestrate is 5 percent?

A. $453.51

B. $500.00

C. $476.25

D. $550.00

A.

A_______is bought at a price below its face value, and the____________value is repaid at the maturity date.

A. Coupon bond; discount

B. Discount bond; discount

C. Coupon bond; face

D. Discount bond; face

D.

The distinction between real and nominal Interest Rates

The fisher equation definition:

a concept in economics that describes the relationship between nominal and real interest rates under the effect of inflation

A three-year bond with $1000 face-value and 10% coupon rate is sold for$1000 today. If one year later the market interest rate increases to 15%, thenthis bond will have a market price of _______next year.

A. $1092.97

B. $1047.62

C. $956.52

D. $918.71

C.

In which of the following situations would you prefer to be the borrower?

A. The interest rate is 9 percent and the expected inflation rate is 7percent.

B. The interest rate is 4 percent and the expected inflation rate is 1percent

C. The interest rate is 13 percent and the expected inflation rate is 15percent

D. The interest rate is 25 percent and the expected inflation rate is 50percent

D.

In which of the following situations would you prefer to be the lender?

A. The interest rate is 9 percent and the expected inflation rate is 7percent.

B. The interest rate is 4 percent and the expected inflation rate is 1percent

C. The interest rate is 13 percent and the expected inflation rate is 15percent

D. The interest rate is 25 percent and the expected inflation rate is 50percent

B.

Definition of price level

average of the current price of goods and services produced in the economy

Definition of Inflation rate

The rate at which prices increase over time, resulting in a fall in the purchasing value of money

If the maturity of a debt instrument is ten years or longer, it is called a _____________

Long term debt

U.S. Treasury bills are considered the _________ of all money market instruments because there is a low probability of default.

safest

Secondary markets make financial instruments more

A) solid.

B) vapid.

C) liquid.

D) risky

C.

A financial market in which only short-term debt instruments are traded is called the________ market.

A) bond

B) money

C) capital

D) stock

B.

if bad credit risks are the ones who most actively seek loans and, therefore, receive them from financial intermediaries, then financial intermediaries face the problem of

A) moral hazard.

B) adverse selection.

C) free-riding.

D) costly state verification

B.

Banks can lower the cost of information production by applying one information resource to many different services. This process is called

A) economies of scale.

B) asset transformation.

C) economies of scope.

D) asymmetric information

C.

Investment banks underwrite securities in __________ markets

Primary

Brokers and dealers work in ____________ markets

Secondary

When money prices are used to facilitate comparisons of value, moneyis said to function as a

A) unit of account.

B) medium of exchange.

C) store of value.

D) payments-system ruler

A.

Which of the following is NOT a form of e-money?

A) a debit card

B) a credit card

C) a stored-value card

D) a smart card

B.

If an individual withdraws from savings account for currency

A) M1 stays the same and M2 decreases.

B) M1 increases and M2 increases.

C) M1 increases and M2 stays the same.

D) M1 stays the same and M2 stays the same

C.

If an individual moves money from a savings deposit account to a money market account

A) M1 stays the same and M2 decreases.

B) M1 increases and M2 increases.

C) M1 increases and M2 stays the same.

D) M1 stays the same and M2 stays the same

D.

coupon rate

the interest rate that a bond issuer will pay to a bondholder

discount rate

The interest rate on the loans that the Fed makes to banks

indirect finance

funds are loaned and borrowed through a financial intermediary (EX: you make a deposit at a bank)

Secondary markets

markets in which securities and other financial assets are traded among investors after they have been issued by corporations

wealth

the total collection of pieces of property that serve to store value

Income

flow of earnings per unit of time

commodity money

valuable, easily standardized and divisible commodities (EX: precious metals, cigarettes)

fiat money

paper money decreed by governments as legal tender

M2

everything in M1 plus savings deposits, small time deposits, money market mutual funds, and a few minor categories

Captial Markets

market that trade stocks and long term debt with maturities greater than one year

The foreign exchange market​ is:

Part 2

Where the currency of one country is converted into the currency of another country

B.the price of one​ country's currency in terms of another​ country's currency

C.where imports and exports are traded for one another

D.the amount of loans made from one​ country's bank to another​ country's bank

A.

Financial markets perform the basic function​ of:

Part 2

A.mitigating the business cycle

Providing a​ risk-free means of storing wealth

C.matching savers with funds to lend to people who want to borrow funds

D.assuring that governments need never resort to printing money to finance their expenditure

C.

Which of the following is a disadvantage of using checks as a means of​ payment?

Part 2

A.Checks are only accepted by businesses sharing a bank with the check writer.

B.All the paper shuffling required to process checks is costly.

C.Checks are seldom accepted for small to moderate purchases.

D.There is a maximum dollar amount for which checks may be used

B.

When money is used as acceptance for payment of goods and​ services, it is being used as a

Medium of exchange

he most accurate measure of interest rates is

A.current yield.

B.the coupon rate.

C.discounted present value.

D.yield to maturity.

D.