ECON 3311 Money and Banking Exam 1

savers; borrowers

Financial markets promote greater economic efficiency by channeling funds from ______ to ______

well-functioning financial markets

a key factor in producing high economic growth is

the markets where interest rates are determined

the bond markets are important because they are

the most widely followed financial market in the united states

the stock market is

earnings and assets

a share of common stock is a claim on a corporation's

financial intermediation

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

a business college

which of the following is NOT a financial institution

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

money is defined as

the average price of goods and services in an economy is called the aggregate price level

which of the following is a TRUE statement

bond; stock

when i purchase a corporate ______, i am lending the corporation funds for a specific time. when i purchase a corporation's _____, i become an owner in the corporation

gm's purchase of tires for new cars

which of the following items are NOT counted in u.s. gdp

piet=(pt-pt-1)/pt-1

if the aggregate price level at time t is denoted by pt, the inflation rate from time t-1 to t is defined as

50%

if the cpi is 120 in 1996 and 180 in 2002, then between 1996 and 2002, prices have increased by

you borrow $2500 from a friend

which of the following can be described as direct finance

5%

you can borrow $5000 to finance a new business venture. this new venture will generate annual earnings of $251. the maximum interest rate that you would pay on the borrowed funds and still increase your income is

you make a deposit at a bank

which of the following can be described as involving indirect finance

assets; liabilities

securities are _____ for the person who buys them, but are ______ for the individual or firm that issues them

they can both be long-term financial instruments

which of the following statements about the characteristics of debt and equities is TRUE

underwrites

when an investment bank _____ securities, it guarantees a price for a corporation's securities and then sells them to the public

brokers

______ work in the secondary markets matching buyers with sellers of securities

many common stocks are traded over-the-counter, although the largest corporations usually have their shares traded at organized stock exchanges such as the new york stock exchange

which of the following statements about financial markets and securities is TRUE

discount

u.s. treasury bills pay no interest but are sold at a ______. that is, you will pay a lower purchase price than the amount you receive at maturity

commercial paper

a short-term debt instrument issued by well-known corporations is called

loans made by banks to each other

federal funds are

municipal

bonds issued by state and local governments are called ______ bonds

bonds

mortgage-backed securities are similar to _______ but the interest and principal payments are backed by the individuals mortgages within the security

eurobond

if microsoft sells a bond in london and it is denominated in dollars, the bond is a

if toyota sells a $1000 bond in the united states, the bond is a

spreading the cost of writing a standardized contract over many borrowers

an example of economies of scale in the provision of financial services is

diversification

reducing risk through the purchase of asset whose returns do not always move together is

adverse selection

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

deposits

the primary liabilities of a commercial bank are

contractual savings

______ institutions are financial intermediaries that acquire funds at periodic intervals on a contractual basis

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

money is

money; wealth

_______ is used to make purchases while ______ is the total collection of pieces of property that serve to store value

income

______ is a flow of earnings per unit of time

money is a stock and income is a flow

the difference between money and income is that

money

if peanuts serve as a medium of exchange, a unit of account, and a store of value, then peanuts are

increases efficiency by reducing transactions costs

the conversion of a barter economy to one that uses money

it must deteriorate quickly

all of the following are necessary criteria for a commodity to function as money EXCEPT

medium of exchange

kevin purchasing concert tickets with his debit card is an example of the ______ function of money

6

if there are four goods in a barter economy, then one needs to know ______ prices in order to exchange one good for another

reduces the number of prices that need to be calculated

because it is a unit of account, money

is a way of saving for future purchases

as a store of value, money

liquidity

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

money

since it does not have to be converted into anything else to make purchases, _______ is the most liquid asset

currency; savings bonds; house

ranking assets from most liquid to least liquid, the correct order is

money no longer functions as a good store of value and people may resort to barter transactions on a much larger scale

during hyperinflations

commodity

________ money could be used for some other purpose other than as a medium of exchange, for example, gold coins could be melted down and turned into gold jewelry

precious metals were difficult to carry and transport

the evolution of the payments system from barter to precious metals, then to fiat money, then to checks can best be understood as a consequence of the fact that

paper; counterfeiting

although _______ currency is lighter than coins made of metals, a disadvantage arising from modern technology is the ease of _______

electronic fund transfers

an important characteristic of the modern payments system has been the rapidly increasing use of

m1 decreases and m2 decreases

if an individual uses money from a demand deposit account to purchase a u.s. savings bond

the two measures do not move together, so they cannot be used interchangeably by policymakers

which of the following statements accurately describes the two measures of the money supply

falls

the present value of an expected future payment ______ as the interest rate increases

decreases

an increase in the time to the promised future payment ______ the present value of the payment

10%

if a security pays $55 in one year and $133 in three years, its present value is $150 if the interest rate is

simple loan

a credit market instrument that provides the borrower with an amount of funds that must be repaid at the maturity date along with an interest payment is known as a

installment loans and mortgages are frequently of the fixed payment type

which of the following are TRUE of fixed payment loans

coupon bond; face

a ______ pays the owner a fixed coupon payment every year until the maturity date, when the _______ value is repaid

$37.50

if a $1,000 face value coupon has a coupon rate of 3.75%, then the coupon payment every year is

5%

an $8,000 coupon bond with a $400 coupon payment every year has a coupon rate of

pays the bondholder the face value at maturity

a discount bond

yield to maturity

the interest rate that equates the present value of payments received from a debt instrument with its value today is the

5%

if $22,050 is the amount payable in two years for $20,000 simple loan made today, the interest rate is

10%

if a security pays $110 next year and $121 the year after that, what is its yield to maturity if it sells for $200

sum

the present value of a fixed-payment loan is calculated as the _______ of the present value of all cash flow payments

when the coupon bond is priced at its face value, the yield to maturity equals the coupon rate

which of the following are TRUE for a coupon bond