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WorksheetsCharacteristics and Functions of Money
Total questions: 99
Worksheet time: 50mins
Which of the following is NOT a characteristic of money?
Portable
Durable
Easily counterfeited
Divisible
What is the primary function of money as a medium of exchange?
To store value over time
To facilitate transactions between buyer and seller
To measure unit of account
To settle debt
Which type of financial market involves the buying and selling of currencies?
Money market
Capital market
Foreign exchange market
Stock market
What does M1 represent in terms of money supply?
Broad money
Narrow money
Digital money
Capital market
Which financial asset represents ownership in a company?
Bonds
Mutual funds
Stocks
Derivatives
What is digital money primarily used for?
Physical currency transactions
Barter trade
Electronic transactions
Gold exchange
What is the main goal of a financial market?
To increase government revenue
To match buyers and sellers to allocate financial capital efficiently
To regulate international trade
To provide free financial services
Which of the following is a key role of financial markets?
To provide free education
To facilitate saving by businesses and households
To increase tax rates
To control inflation
What is the relationship between market interest rates and bond prices?
Direct relationship
Inverse relationship
No relationship
Exponential relationship
What does equity represent in a company?
A loan with fixed interest
Ownership and a share of profits
A government bond
A type of insurance
What is a characteristic of commercial banks?
They operate in capital markets
They provide traditional banking services like accepting deposits
They focus on underwriting securities
They are not regulated by governments
What is one of the primary functions of a commercial bank?
Manufacturing goods
Providing loans
Selling insurance
Offering legal advice
Which of the following is considered an asset on a commercial bank's balance sheet?
Deposits
Borrowings
Cash and Reserves
Capital
What is the fractional reserve system?
A system where banks hold all deposits in reserve
A system where banks hold a fraction of deposits as reserves
A system where banks lend out all deposits
A system where banks do not hold any reserves
What is the money multiplier effect?
The process of banks destroying money
The process of banks holding all money in reserves
The process of banks lending out funds, increasing the money supply
The process of banks reducing the money supply
What is a limitation on money creation by commercial banks?
Unlimited lending opportunities
No regulatory policies
Market forces and regulatory policies
Constant demand for loans
What is one of the main roles of a central bank?
Issuing currency for foreign countries
Supervising the financial system
Setting tax rates
Managing private investments
What does the term "lender of last resort" refer to?
A bank that provides loans to individuals
A central bank providing emergency loans to financial institutions
A private lender offering high-interest loans
A government agency managing public funds
What is the base rate?
The interest rate set by commercial banks
The main interest rate set by a nation’s central bank
The rate for savings accounts
The rate for credit cards
What is the purpose of bank reserve requirements?
To increase bank profits
To ensure banks have enough liquidity to meet customer needs
To reduce the number of loans given
To control inflation directly
Which of the following is NOT a function of a central bank?
Managing government debt
Providing advice to governments
Setting tax policies
Issuing government bonds
What is one of the main purposes of financial regulation?
To increase risky activities
To promote unfair pricing practices
To protect consumers from fraud
To encourage predatory lending
Which body is responsible for regulating financial institutions in the UK?
The Bank of England
The Financial Conduct Authority (FCA)
The Financial Policy Committee (FPC)
The Prudential Regulation Authority (PRA)
What does the Financial Policy Committee (FPC) do to assess financial stability?
Conducts market supervision
Sets consumer protection standards
Conducts stress tests
Enforces prudential standards
What is a potential consequence of a "run on the bank"?
Increased bank credit rating
Depositors panic and withdraw money
Banks gain more liquidity
Banks can borrow easily overnight
What is the purpose of a Capital Adequacy Ratio?
To measure a bank's total deposits
To ensure a bank's capital is sufficient relative to its risk exposure
To assess a bank's short-term financial obligations
To mandate cash reserves with the central bank
What is asymmetric information in the financial sector?
One party in a transaction has more information than the other
Both parties have equal information
Neither party has any information
Information is irrelevant in transactions
What is an example of adverse selection?
Borrowers with poor credit history seeking loans
Banks offering low-interest rates to all customers
Investors buying stocks based on public information
Companies issuing bonds to raise capital
What does moral hazard refer to in the financial sector?
Taking excessive risks due to perceived protection
Avoiding risks due to fear of loss
Investing in high-risk stocks for high returns
Saving money in low-interest accounts
What are negative externalities in the financial sector?
Risky practices leading to systemic risks
Efficient allocation of capital
Increased consumer spending
Higher interest rates for loans
What is market rigging?
Manipulation of financial markets for unfair advantages
Investing in diverse portfolios
Setting interest rates by central banks
Offering discounts to loyal customers
What can inadequate regulation in financial markets lead to?
Excessive risk-taking and fraud
Increased market stability
Higher consumer confidence
Lower interest rates
What is a financial crisis typically associated with?
Falling asset prices and insolvency
Rising stock prices and economic growth
Stable currency values
Increased government spending
What is the definition of globalisation?
The reversal of the process of globalisation
A slowdown in the speed of globalisation
The deepening of relationships between countries, reflected in an increasing level of cross-border trade and investment and migration
The process of reducing trade barriers
Which of the following is a characteristic of globalisation?
Decrease in global branding
Reduction in capital transfers
Increased trade to GDP ratios
Decrease in labour migration
What is one of the causes of globalisation?
Decrease in FDI flows between countries
Increasing influence of powerful corporations (MNCs/TNCs)
Reduction in the number of trading blocs
Decrease in communication and information flows
Which of the following is a benefit of globalisation?
Higher consumer prices
Slower economic growth
Freer movement of labour
Decreased awareness of global challenges
What does the term "economies of scale" refer to in the context of globalisation?
Reduction in the division of labour
Increased monopoly profits
Encouragement of both producers and consumers to reap benefits from division of labour
Decrease in productive efficiency
What is one of the costs of globalisation related to income distribution?
Increased access to foreign markets
Rising inequality
Improved productivity and innovation
Attraction of foreign investment
Which of the following is a cause of de-globalisation?
Increased access to global markets
Economic Nationalism
Improved productivity
Attraction of foreign investment
What is a systemic risk of negative global shocks?
Increased foreign investment
Geo-political shocks
Improved productivity
Attraction of foreign investment
What is a benefit of globalisation for developing countries?
Economic dependence
Increased access to knowledge and technology
Exploitation of labour
Environmental degradation
What is a cost of globalisation on developed countries?
Increased access to foreign markets
Job displacement/structural unemployment
Improved productivity and innovation
Attraction of foreign investment
What is a multinational corporation (MNC)?
A company that operates in only one country
A business that bases its operations in several countries
A local business with no international presence
A government-owned enterprise
What is one way MNCs affect globalization?
They increase local employment only
They relocate manufacturing to countries with lower unit labor costs
They focus solely on domestic markets
They avoid international trade
What is the Global Value Chain (GVC)?
A local supply chain within a single country
A network of activities for producing and delivering goods across multiple countries
A chain of retail stores in one region
A government-regulated trade agreement
Which of the following is a benefit of MNCs for a country?
They increase local taxes only
They create employment opportunities
They reduce foreign investment
They limit technological advancement
What is a potential cost of MNCs for a country?
They always increase local business profits
They may displace local businesses, leading to job losses
They ensure complete economic independence
They guarantee higher wages for all workers
What is the main reason countries engage in international trade?
To increase the availability of resources, goods, and services
To decrease consumer choice
To increase production costs
To reduce product differentiation
What is international specialization?
Focusing on producing goods with a comparative advantage
Producing all goods equally
Avoiding trade with other countries
Specializing in goods with the highest production cost
What is absolute advantage?
Producing a good at a lower direct cost
Producing a good at a higher opportunity cost
Producing fewer goods with more resources
Producing goods with no specialization
Which country has an absolute advantage in the production of Good X?
Country A
Country B
Both Country A and Country B
Neither Country A nor Country B
What is comparative advantage?
Producing a good at a lower opportunity cost
Producing a good at a higher direct cost
Producing all goods equally
Avoiding specialization
Which country has a comparative advantage in the production of Good Y?
Country A
Country B
Both Country A and Country B
Neither Country A nor Country B
What happens to the joint output of Good X after specialization?
It increases from 180 to 200
It decreases from 200 to 180
It remains the same
It decreases from 180 to 160
What is meant by "mutually beneficial terms of trade"?
Terms that benefit only one country
Terms that benefit both countries
Terms that increase trade barriers
Terms that decrease production costs
What is the opportunity cost ratio for Country A before trade?
1X:0.5Y
1Y:1.34X
1X:0.75Y
1Y:2X
Which of the following is an assumption of comparative advantage?
High transport costs
Barriers to trade
Homogenous goods
Limited factor mobility
What does "competitive advantage" refer to?
Access to cheaper labor
Access to technology or innovations
Access to more natural resources
Access to larger markets
Who developed the idea of comparative advantage?
Adam Smith
John Maynard Keynes
David Ricardo
Karl Marx
What is the pattern of trade?
The exclusive import of goods from neighboring countries
The mix of goods and services a country imports and exports in international trade
The domestic trade of goods within a country
The export of only agricultural products
Which factor does NOT influence the pattern of trade?
Absolute and comparative advantages
Exchange rate movements
Local weather conditions
Globalisation and trade agreements
What percentage of UK exports go to the European Union?
53%
46%
13%
3.6%
What is primary product dependency?
Reliance on manufactured goods for economic stability
Dependence on the export of raw materials or primary products
Importing all goods from a single country
Trading only within the European Union
What is an emerging market?
A fully developed economy with no need for further investment
An economy investing heavily in its productive capacity but not yet classified as 'developed'
A market that only trades with neighboring countries
A market that relies solely on agricultural exports
What is a tariff?
A payment by the government to reduce costs of producers
A physical limit on the quantity of imports allowed
A tax on imports
A rule for the national source of traded goods
Which of the following is an example of a non-tariff barrier (NTB)?
Subsidy
Quota
Tariff
Import quota
What is the effect of a subsidy on imports?
Increases domestic supply and reduces imports
Decreases domestic supply and increases imports
Has no effect on domestic supply
Increases both domestic supply and imports
What is the impact of a quota on the market?
It decreases the market price
It increases the market price
It has no effect on the market price
It eliminates the market price
What is the role of intellectual property laws in trade?
To reduce the costs of producers
To protect patents and copyrights
To impose tariffs on imports
To set quotas on exports
What is one of the main reasons for protecting domestic industries through trade restrictions?
To increase foreign competition
To prevent job losses and maintain national self-sufficiency
To lower consumer prices
To encourage import of goods
Which argument supports the use of tariffs to help emerging industries grow?
Sunset industry argument
National security argument
Infant industry argument
Anti-dumping measures
What is a potential problem with protectionism related to consumer choice?
It increases consumer choice
It limits or prevents some goods from being imported
It ensures a variety of imported goods
It reduces domestic product availability
How can trade restrictions improve a country's balance of payments?
By increasing imports
By reducing imports through tariffs or quotas
By encouraging foreign investment
By lowering domestic production
What is a benefit of protectionism for domestic industries?
It makes domestic industries less competitive
It protects jobs and prevents structural unemployment
It decreases tax revenue from tariffs
It reduces national security
What is a trading bloc?
A single country trading with others
A regional economic grouping or regional trade agreement
A bilateral agreement between two companies
A local market agreement
Which type of trade agreement involves free trade between members and a common external tariff on non-members?
Preferential Trading Area (PTA)
Free trade area/agreement (FTA)
Customs union
Monetary union
What is the main feature of a single (common) market?
Tariffs on all goods
Free movement of goods, services, capital, and labor
High import quotas
Strict border controls
What does trade creation involve?
Increasing tariffs between members
Removal of tariffs between members
Imposing quotas on exports
Increasing import taxes
What is an example of a monetary union?
ASEAN
Eurozone
USMCA
ACFTA
When did the UK join the European Economic Community?
1973
1983
1993
2003
What was one of the benefits of the UK's EU membership from 1973-2020?
Increased trade restrictions
Access to the Single Market
Higher membership fees
Loss of sovereignty
Which of the following was a cost of EU membership for the UK?
Access to immigrant labour
Foreign Direct Investment
Membership Fees
Trade Agreements
What did the UK vote for in the 2016 referendum?
To join the Eurozone
To leave the EU
To increase EU membership fees
To expand the Single Market
What is one impact of Brexit mentioned in the document?
Increased tax revenue
Economic growth of 10%
Economy 4-5% smaller
More trade agreements
What is one advantage of trading blocs?
Increased trade among non-member countries
Higher production costs
Trade diversion
Increased trade among member countries
Which of the following is a disadvantage of trading blocs?
Increased political cooperation
Trade diversion
Efficiency gains
Economies of scale
What is one of the key functions of the World Trade Organisation (WTO)?
Promoting trade diversion
Facilitating trade negotiations
Increasing trade barriers
Providing preferential treatment
What challenge does the WTO face due to the rise of digital trade and e-commerce?
Increased trade barriers
Trade diversion
Existing trade rules may not cover these areas
Increased political cooperation
What is a possible conflict between trading blocs and the WTO?
Increased economies of scale
Trade discrimination against non-members
Increased political cooperation
Efficiency gains
What are the three key parts of a country's balance of payments account?
Current account, capital account, financial account
Trade balance, services balance, primary income
Exports, imports, net exports
Budget deficit, trade deficit, financial deficit
What does a trade surplus indicate?
The value of imports exceeds the value of exports
The value of exports exceeds the value of imports
The value of exports equals the value of imports
The value of imports equals the value of exports
Which account records transactions related to financial assets and liabilities?
Current account
Capital account
Financial account
Trade balance
What is the primary income in the current account?
Net transfers of money or goods between countries
Net flows of earnings from investments
Balance in trade for services
Balance in trade of goods
What happens when the value of exports is less than the value of imports in the current account?
Trade surplus
Trade deficit
Current account deficit
Budget deficit
What is a current account deficit?
When the value of exports is higher than imports
When the value of exports is lower than imports
When investment incomes are higher than transfer inflows
When there is a net inflow of income
Which of the following is a method to finance a current account deficit?
Decrease foreign currency reserves
Increase domestic spending
Attract inflows of FDI and portfolio investments
Reduce interest rates
What is a consequence of a current account deficit?
Increase in GDP growth
Appreciation of the exchange rate
Depreciating exchange rate
Increase in investment and jobs
What are cyclical causes of a current account deficit?
High levels of capital investment
Low productivity and research
Rising real incomes boosting consumer spending
Decline in extractive sectors
