Chapter 1 Why Study Money, Banking, and Financial Markets?

Financial markets promote economic efficiency by

• channeling funds from investors to savers

• creating inflation

• C) channeling funds from savers to investors

• D) reducing investment

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

• A) investors; savers

• B) borrowers; savers

• C) savers; borrowers

• D) savers; lenders

Well-functioning financial markets promote

• A) inflation.

• B) deflation.

• C) unemployment

• D) growth.

A key factor in producing high economic growth is

• A) eliminating foreign trade

• B) well-functioning financial markets

• C) high interest rates.

• D) stock market volatility

Markets in which funds are transferred from those who have excess funds available to those who have a shortage of available funds are called

• commodity markets.

• B) fund-available markets.

• C) derivative exchange markets

• D) financial markets

6) ________ markets transfer funds from people who have an excess of available funds to people who have a shortage

• A) Commodity

• B) Fund-available

• C) Financial

• D) Derivative exchange

7) Poorly performing financial markets can be the cause of

• A) wealth.

• B) poverty

• C) financial stability

• D) financial expansion.

8) The bond markets are important because they are

• A) easily the most widely followed financial markets in the United States

• B) the markets where foreign exchange rates are determined.

• C) the markets where interest rates are determined

• D) the markets where all borrowers get their funds.

9) The price paid for the rental of borrowed funds (usually expressed as a percentage of the rental of $100 per year) is commonly referred to as the

• A) inflation rate

• B) exchange rate.

• C) interest rate

• D) aggregate price level

Compared to interest rates on long-term U.S. government bonds, interest rates on three-month Treasury bills fluctuate ________ and are ________ on average

• A) more; lower

• B) less; lower

• C) more; higher

• D) less; higher