Exam 1 Flashcards
When the interest rate rises, people are:
more likely to save, that is, purchase a financial asset
A rise in interest rates will cause short-term bond prices to:
fall less than long-term bond prices
What is the most important asset category (in terms of $ value) in a money market mutual fund?
treasury bills
In the US, the economic agent responsible for providing the 2nd most surplus to the indirect financial market for transfer to the borrower/spenders is normally:
business firms
Risk that can be eliminated by diversification is referred to as:
idiosyncratic risk
You tell the bank loan officer that you would like to borrow money to purchase a car. In reality you intend to use the money to pay off your losing bets made on the Kentucky Derby race. This is an example of:
the problem of adverse selection
Which of the following agencies has some regulatory responsibility for the largest percentage of US commercial banks?
The FDIC
The US Federal Reserve lends to the US Treasury by purchasing Treasury securities in the:
secondary market
Liquidity would typically be highest for:
treasury bills
The presence of transaction costs in financial markets explains, in part, why:
financial intermediaries and direct finance play such an important role in financial markets
Whatever a society uses as money, the distinguishing characteristic is that is must
be generally acceptable as payment for goods and services or in the repayment of debt
Even economists have difficulty defining money precisely because
the “moneyness” or liquidity of an asset is a matter of degree
The currency component includes paper money and coins held in:
the hands of the nonbank public
What is not a form of e-money?
Credit cards
What are some financial intermediaries?
Insurance companies, BofA, Stock Market Index Fund
In the macro economy funds mainly flow from savers to investors:
indirectly through financial intermediaries
In the US, the lender of last resort is
the Federal Reserve
The evolution of the payments system (what we utilize as money) has allowed for specialization. The most important economic benefit from specialization is that it
leads to an increase in the standard of living in an economy
Other assets are inferior to money in the sense that
they generate transactions costs when they are exchanged for money
Fiat money
money that would have no significant value if it were not being used as money
The financial system performs the role of communicating information by
incorporating all available information into the prices of financial assets
Securitization is the process of
converting non liquid financial assets into liquid financial assets
A $2 bill is an examle of
fiat money
To be considered short-term, debt instruments have a maturity no longer than
1 year
Compared to interest rates on long-term US agency debt, interest rates on short-term US agency debt tends to fluctuate ______ and is usually _____ over time.
more: lower
The interest rate that the Fed targets to indicate its stance on monetary policy is known as:
the Fed Funds Rate
