No TestExam Questions in Chapter 1.

Chapter_01__An_Introduction_to_Basic_Finance No Test/Exam Questions in Chapter 1.Basic Finance An Introduction to Financial Institutions, Investments, and Management, 13e Herbert Mayo, Michael Lavelle (Test Bank All Chapters, 100% Original Verified, A+ Grade) 1 / 4

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Chapter 02: The Role of Financial Markets and Financial Intermediaries

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Indicate whether the statement is true or false.

• The power to create money is given by the Constitution to the federal government.
• True
• False

• Since M2 excludes time deposits, M2 is a less comprehensive measure of the money supply than M1.
• True
• False

• When individuals withdraw cash from checking accounts, the money supply is unaffected.
• True
• False

• The yield curve relates risk and interest rates.
• True
• False

• During most historical periods, the yield curve has been positively sloped.
• True
• False

• What serves for money in France may not necessarily be money in another country.
• True
• False

• The U.S. Treasury creates most of the nation's money supply.
• True
• False

• When individuals deposit cash in a demand deposit, the money supply is reduced.
• True
• False

• M1 includes savings accounts in commercial banks.
• True
• False

• A financial intermediary transfers funds from borrowers to lenders by creating claims on itself.
• True
• False

• When cash is deposited in a checking account, the reserves of commercial banks are increased.
• True
• False

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Chapter 02: The Role of Financial Markets and Financial Intermediaries

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• When funds are deposited in a savings account, the excess reserves of banks are unaffected.
• True
• False

• Large certificates of deposit in units of $500,000 are insured by FDIC.
• True
• False

• In general, banks prefer loans that stress liquidity and safety.
• True
• False

• Insurance companies are a major source of loans to individuals.
• True
• False

• Money market mutual funds invest in short-term securities like U.S. Treasury bills.
• True
• False

• An increase in interest rates tends to reduce the earnings of money market mutual funds.
• True
• False

• A pension plan that invests in the stock of IBM or Verizon performs the function of a financial intermediary.
• True
• False

• A financial intermediary creates claims on itself when it accepts depositors' funds.
• True
• False

Indicate the answer choice that best completes the statement or answers the question.

• M1 includes coins, currency, and
• demand deposits.
• savings accounts.
• certificates of deposit.
• time deposits.

• The power to create money is given by the Constitution to
• state governments.
• Congress.
• the Federal Reserve.
• commercial banks.

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Chapter 02: The Role of Financial Markets and Financial Intermediaries

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• The term structure of interest rates relates
• risk and yields.
• yields and credit ratings.
• term and yields.
• stock and bond yields.

• The term structure of interest rates indicates the
• relationship between risk and yields.
• relationship between the time and yields.
• difference between borrowing and lending.
• difference between the yield (interest rate) on government and corporate debt.

• Money serves as a
• substitute for equity.
• precaution against inflation.
• medium of exchange.
• risk-free liability.

• M2 includes coins and currency in circulation outside of banks as well as
• demand deposits and savings accounts.
• savings accounts and small certificates of deposit.
• demand deposits and small certificates of deposit.
• demand deposits, savings accounts, and small certificates of deposit.

• Which of the following is NOT a financial intermediary?
• New York Stock Exchange
• Washington Savings and Loan
• First National City Bank
• Merchants Savings Bank

• The assets of a typical commercial bank include
• commercial loans.
• demand deposits.
• common stock.
• equity.

• Federally insured investments include
• savings accounts in national commercial banks.
• certificates of deposit in excess of $500,000.
• life insurance policies.
• commercial bank assets.

• The primary assets of life insurance companies include
• life insurance.
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