Test 1

Question 1

what are the 6 parts of a financial system

Answer 1

1. money
2. financial instruments
3. financial markets
4. financial institutions
5. regulatory agencies
6. central banks

Question 2

can the 6 part of the financial system change

Answer 2

yes

Question 3

5 core principles of money and banking

Answer 3

1. time
2. risk
3. information
4. markets
5. stability

Question 4

can the 5 principles of money and banking change

Answer 4

no

Question 5

what is money

Answer 5

money is an asset that is used as a medium for goods and services or to repay debt

Question 6

what are the 3 characteristics of money

Answer 6

1. means of payment
2. unit of account
3. store of value

Question 7

what does something mean when it has “means of payment”

Answer 7

it can be used in a transaction of goods or services as a medium

Question 8

what does it mean to have a unit of account

Answer 8

money can be used to give prices for goods and services

Question 9

what does it mean for money to have a store of value

Answer 9

the money must be capable to be stored and transferrable from one day to the next

Question 10

what are the 2 types of liquidity

Answer 10

1. market liquidity
2. funding liquidity

Question 11

what is market liquidity

Answer 11

the ability to sell assets for money

Question 12

what is funding liquidity

Answer 12

the ability to borrow money for securities or loans

Question 13

what is fiat money

Answer 13

money that is created from government decree and not necessarily backed by anything

Question 14

what is included in M1

Answer 14

currency in the hands of the public
+demand deposits
+ other checkable deposits

Question 15

what is included in M2

Answer 15

M1
+saving deposits and money markets
+ small denominations of time deposits

Question 16

do people use M1 or M2 more

Answer 16

M2

Question 17

How does M2 track correlate with inflation

Answer 17

when the quantity of money increases then inflation increases

Question 18

what is the most common type of bond

Answer 18

coupon bond

Question 19

what is a risk free asset

Answer 19

an investment whose future is known with certainty with a certain rate of return

Question 20

what is variance

Answer 20

the spread of numbers from its average value

Question 21

how is standard deviation related to variance

Answer 21

it is the square root of variance

Question 22

what is value at risk

Answer 22

the worst possible outcome for an investment at a given probability

Question 23

what are 2 types of risk

Answer 23

1. idiosyncratic (unique)
2. systemic (economy wide)

Question 24

what are bond supply shifter

Answer 24

1. changes in government borrowing (increase will shift right)
   2.changes in business conditions
2. changes in expected inflation

Question 25

how is the dow jones valued

Answer 25

price weighted average meaning it gives more value to companies with higher priced shares

Question 26

how is the S&P valued

Answer 26

value weighted index meaning the bigger companies carry the most weight not the biggest share prices

Question 27

stocks are normally high when

Answer 27

1. dividends are high
   2.dividend growth is rapid
   3.interest rate is low

Question 28

what are most world stock markets weighted by

Answer 28

value weighted