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Glossary of Finance - E1

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Which is most liquid?
a. money & antiques
b. bonds & real estate
c. savings & checking accounts
d. stocks & bonds
c. savings & checking accounts
M-1 includes coins, currency, & _____.
demand deposits
Typical commercial banks assets include:
a. commercial loans
b. demand deposits
c. common stock
d. equity
a. commercial loans
A pension plan that grants mortgage loans
a. example of fin. intermediary
b. can't suffer losses
c. is called a S&L association
d. is Not a fin. intermediary
a. example of fin. intermediary
A fin. intermediary transfers
a. savings to households
b. savings to borrowers
c. stocks to brokers
d. new stock issues to buyers
b. savings to borrowers
W/drawing cash from checking does not decrease
a. the money supply
b. demand deposits
c. total reserves
d. excess reserves
a. the money supply
When commercial banks grant loans,
a. money supply is reduced
b. money supply is increased
c. total reserves increase
d. total reserves decrease
b. money supply is increased
When a commercial bank receives a cash deposit,
1. required reserves increase
2. required reserves decrease
3. total reserves increase
4. total reserves decrease
1 & 3
1. required reserves increase
3. total reserves increase
Federal Reserve increases reserves by
a. selling securities
b. buying securities
c. raising reserve reqs
d. raising discount rate
b. buying securities
The Federal Reserve
a. is part of U.S. Treasury
b. is owned by member banks
c. is nation's largest commercial bank
d. lends funds to corporations
b. is owned by member banks
By lowering discount rate, Fed Reserve
a. discourages commercial banks from lending
b. encourages commercial banks to borrow reserves
c. discourages depositors from withdrawing funds
d. contracts the money supply
b. encourages commercial banks to borrow reserves
Fed Reserve may contract money supply by
1. selling securities
2. buying securities
3. raising reserve reqs
4. lowering reserve reqs
2? & 3
2. buying securities
3. raising reserve reqs
If fed govt runs deficit & borrows from commercial banks,
1. total deposits are not affected
2. total deposits are increased
3. excess reserves are reduced
4. excess reserves are decreased
1 & 3
1. total deposits are not affected
3. excess reserves are reduced
(T/F) When individuals w/draw cash from checking accounts, the money supply is unaffected.
TRUE
(T/F) The yield curve relates risk & interest rates.
FALSE
An asset is liquid if it is easily:
a. converted into cash
b. marketed
c. converted into cash w/out loss
d. sold
c. converted into cash w/out loss
Money serves as
a. a substitute for equity
b. a precaution against inflation
c. a medium of exchange
d. a risk-free liability
c. a medium of exchange
(T/F) The underwriting of an issue of securities guarantees the firm issuing the securities a specified amount of money.
TRUE
(T/F) In an underwriting the managing house forms the syndicate.
FALSE
If the initial offer price is too low,
1. supply will exceed demand
2. demand will exceed supply
3. the price of the security will rise
4. the price of the security will decline

a. 1 & 3
b. 1 & 4
c.
c. 2 & 3
The Securities Investor Protection Corporation protects individuals from
a. fraud by corporations
b. making poor investment decisions
c. other investors who fail to make delivery
d. brokerage firm failures
d. brokerage firm failures
(T/F) Short sellers profit when security prices decline.
TRUE
(T/F) The SEC sets the margin requirement.
FALSE
American Depository Receipts
1. represent American securities traded abroad
2. represent foreign stocks traded in the US
3. facilitate trading in foreign stocks
4. facilitate trading US securites

a. 1 & 3
b.
c. 2 & 3
An investor may place a limit order that
a. limits the amount of commissions
b. specifies when the stock will be purchased
c. establishes the exchange on which the security is to be bought or sold
d. states a price at which the in
d. states a price at which the investor seeks to buy or sell stock
The liabilities of a typical commercial bank include
a. commercial loans
b. demand deposits
c. common stock
d. equity
b. demand deposits
Federally insured investments include
a. savings accounts in national commercial banks greater than $100K
b. demand deposits in national banks that are less than $100K
c. life insurance policies
d. commercial bank assets
b. demand deposits in national banks that are less than $100K
The power to create money is given by the Constitution to
a. state govts
b. Congress
c. the Fed Reserve
d. commercial banks
b. Congress
M-2 includes
1. demand deposits
2. savings accounts
3. negotiable certificates of deposit

a. 1 & 2
b. 2 & 3
c. 1 & 3
d. all three
a. 1 & 2
If the fed. Govt. runs a deficit,
a. taxes exceed expenditures
b. expenditures exceed taxes
c. receipts exceed taxes
d. taxes exceed revenues
b. expenditures exceed taxes
The tools of monetary policy include
a. open mkt operations
b. the purchase of corporate stock
c. the fed govt. deficit
d. taxation
a. open mkt operations
Anticipation of inflation discourages
1. saving
2. borrowing
3. lending
4. purchasing goods

a. 1 & 2
b. 1 & 3
c. 2 & 3
d. 3 & 4
b. 1 & 3
The Fed Reserve may increase the money supply by
1. selling securities
2. buying securities
3. raising reserve requirements
4. lowering reserve requirements

a. 1 & 3
b. 1 & 4
c. 2 & 3
d. 2
d. 2 & 4

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