Chapter 1 Quiz – Why Study Money, Banking, and Financial Markets

Financial markets are places where:

• Goods and services are exchanged.

• Funds are transferred from people with excess funds to those who need funds.

• Banks lend money only to governments.

• Interest rates are fixed by law.

A bond is:

• A share of ownership in a company.

• A debt security promising periodic payments for a specified time.

• A type of bank account.

• A form of government tax.

The cost of borrowing funds is known as:

• Inflation rate

• Interest rate

• Exchange rate

• Deficit rate

Common stock represents:

• A company’s debt.

• Ownership in a corporation.

• A short-term loan.

• A bond issued by the government.

Financial intermediaries are institutions that:

• Print money for the government.

• Borrow from savers and lend to borrowers.

• Trade only in foreign exchange.

• Regulate interest rates.

Which of the following is not a financial intermediary?

• Commercial bank

• Insurance company

• Pension fund

• Manufacturing company

Financial innovation refers to:

E-finance means:

• Electronic delivery of financial services.

• Exchange of physical currency.

• Use of bonds in foreign markets.

• Employment of financial managers.

A financial crisis is characterized by:

• High employment and rising stock prices.

• Decline in asset prices and failures of many firms.

• Growth in GDP and low inflation.

• Stable exchange rates.

Money is defined as:

• Anything that is generally accepted as payment for goods and services.

• Government bonds.

• Only paper currency.

• Credit cards issued by banks.