Copyright 2021 Pearson Education, Inc.

1 Copyright © 2021 Pearson Education, Inc.Money, Banking, and the Financial System, 4e (Hubbard/O'Brien) Chapter 1 Introducing Money and the Financial System 1.1 Key Components of the Financial System 1)The financial system is primarily a means by which

• funds are transferred from savers to borrowers.
• money is put into circulation.
• the government puts into operation its plans for the economy.
• business firms distribute their goods.

Answer: A

Diff: 1 Page Ref: 4

Topic: financial system

Objective: Identify the key components of the financial system

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AACSB: Reflective Thinking

2) Which of the following is NOT a financial asset?

• a bond issued by Google
• Wells Fargo Bank
• a home mortgage loan
• a certificate of deposit

Answer: B

Diff: 1 Page Ref: 2

Topic: financial assets

Objective: Identify the key components of the financial system

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AACSB: Reflective Thinking

3)If you buy a bond issued by Intel, the bond is a(n)

• liability to Intel and an asset to you.
• liability to you and an asset to Intel.
• liability to both you and Intel.
• asset to both you and Intel.

Answer: A

Diff: 2 Page Ref: 4

Topic: financial assets

Objective: Identify the key components of the financial system

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AACSB: Reflective Thinking

Money, Banking, and the Financial System, 4e Glenn, Hubbard, Anthony Patrick O'Brien (Test Bank All Chapters, 100% Original Verified, A+ Grade) 1 / 4

2 Copyright © 2021 Pearson Education, Inc.4) Which of the following forms the largest share of household holdings of financial assets?

• corporate stocks
• bonds
• pension entitlements
• equity in unincorporated businesses

Answer: C

Diff: 1 Page Ref: 9-10

Topic: financial assets

Special Feature: Apply the Concept: What Do People Do with Their Savings?

Objective: Identify the key components of the financial system

AACSB: Reflective Thinking

5) From 1978 to 2019, the percentage of wealth held by households decreased for all of the following categories of assets EXCEPT

• corporate stocks.
• bonds.
• deposits.
• equity in unincorporated businesses.

Answer: A

Diff: 1 Page Ref: 9-10

Topic: financial assets

Special Feature: Apply the Concept: What Do People Do with Their Savings?

Objective: Identify the key components of the financial system

AACSB: Reflective Thinking

6) Which of the following is NOT a key financial service provided by the financial system?

• risk sharing
• profitability
• liquidity
• information

Answer: B

Diff: 1 Page Ref: 12

Topic: financial system

Objective: Identify the key components of the financial system

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AACSB: Reflective Thinking

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3 Copyright © 2021 Pearson Education, Inc.7) Economists define risk as

• the difference between the interest rate borrowers pay and the interest rate lenders receive.
• the chance that the value of financial assets will change from what you expect.
• the ease with which an asset can be exchanged for other assets or for goods and services.
• the difference between the return on common stock and the return on corporate bonds.

Answer: B

Diff: 1 Page Ref: 13

Topic: financial system

Objective: Identify the key components of the financial system

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AACSB: Reflective Thinking

8) Economists define liquidity as

• the difference between the return on the asset and the return on a long-term U.S. Treasury

bond.

• the fraction the asset makes up of an investor's portfolio.
• the ease with which an asset can be exchanged for money.
• the difference between the total demand for an asset and the total supply of the asset.

Answer: C

Diff: 1 Page Ref: 13

Topic: financial system

Objective: Identify the key components of the financial system

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AACSB: Reflective Thinking

9) Which of the following assets is the most liquid?

• money market mutual fund
• computer
• washing machine
• U.S. Treasury bond

Answer: A

Diff: 2 Page Ref: 13

Topic: financial system

Objective: Identify the key components of the financial system

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AACSB: Reflective Thinking

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4 Copyright © 2021 Pearson Education, Inc.10) By providing and communicating information, the financial system

• reduces the difference between the return on three-month U.S. Treasury bills and the return

on thirty-year U.S. Treasury bonds.

• relieves individual savers from the necessity of searching out individual borrowers.
• eliminates the risk in investing in the stock market.
• guarantees investors a reasonable return on their money.

Answer: B

Diff: 2 Page Ref: 14

Topic: financial system

Objective: Identify the key components of the financial system

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AACSB: Reflective Thinking

11) Financial securities that represent partial ownership of a corporation are known as

• bonds.
• stocks.
• coupons.
• dividends.

Answer: B

Diff: 1 Page Ref: 3

Topic: financial assets

Objective: Identify the key components of the financial system

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AACSB: Reflective Thinking

12) Securitization is the process of

• issuing stocks to finance capital spending.
• issuing bonds to finance purchases of equipment and structures.
• reducing risk by decreasing corporate debt loads.
• converting loans into securities.

Answer: D

Diff: 1 Page Ref: 4

Topic: financial assets

Objective: Identify the key components of the financial system

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AACSB: Reflective Thinking

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