Unit 4 Test

Question 1

Which describes the type of exchange that does not use money?

Answer 1

bartering

Question 2

Which statement accurately describes the relationship between commodity money and fiat money?

Answer 2

Commodity money has value in itself while fiat money has value only because it is given value.

Question 3

Which accurately describes the requirements banks must meet under a fractional reserve banking system?

Answer 3

Banks must keep a specific percentage of deposits on hand.

Question 4

Which is the purpose of the Federal Reserve Bank?

Answer 4

manage the growth of the U.S. economy

Question 5

Which can the Fed accomplish by raising or lowering the required reserve ratio?

Answer 5

increase or decrease the money supply

Question 6

Which explains how Treasury bonds can have an effect on the size of the money supply?

Answer 6

The Federal Reserve Bank can buy and sell Treasury bonds to raise or lower bank deposits.

Question 7

Which describes the most likely effect of the sale of a new batch of Treasury bonds?

Answer 7

decrease in the money supply

Question 8

Which describes someone’s expected outcome from investing in the stock market?

Answer 8

making profit from savings

Question 9

Which is a risk of being a stockholder?

Answer 9

may not get an increase in the amount of one’s investment

Question 10

Which is traded in a currency exchange market?

Answer 10

foreign money

Question 11

Which of the following accurately describes socially responsible investing?

Answer 11

Investors buy into companies with ethical practices they support.

Question 12

On which does technical analysis of the stock market focus?

Answer 12

overall trends in the market

Question 13

Which accurately explains the difference between the stock market and the bond market?

Answer 13

Equity is bought and sold in the stock market while debt is bought and sold in the bond market.

Question 14

A company that wanted to increase its capital through debt financing could trade in which market?

Answer 14

bond market

Question 15

In which would wheat be purchased?

Answer 15

commodity market

Question 16

A commodity futures market exists within the broader commodities market for which reason?

Answer 16

Contracts setting the price and date for a commodity purchase are transferable.

Question 17

Which best explains how bondholders and banks serve a similar function?

Answer 17

both are holders of someone else’s debt

Question 18

Which is the act of buying and selling money using other types of money?

Answer 18

exchanging currency

Question 19

Which accurately explains what an exchange rate of 1:9 between the European euro and Mexican pesos means?

Answer 19

It takes only one euro to buy nine pesos.

Question 20

Which does buying on margin involve?

Answer 20

traders borrowing money from their brokers

Question 21

Because banks are often unwilling to loan money to a business in its early stages of development, startup businesses have a difficult time doing which of the following?

Answer 21

getting debt financing

Question 22

Which must businesses generally have to have to get loans from a private bank?

Answer 22

a history of profitable operation

Question 23

Which best describes the meaning of “going public”?

Answer 23

when a company begins selling shares of its stock to the public

Question 24

Which describes a condition that is LEAST favorable for conducting an IPO?

Answer 24

a recession

Question 25

Which can a company do to secure additional capital without going into debt?

Answer 25

going public