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Exam 20: Money, Financial Institutions, and the Federal Reserve

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Question 151

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Wyatt keeps $25,000 in an interest-bearing time deposit with the Bigbux Bank. While earning a relatively attractive rate of interest, Wyatt had to agree to not withdraw any of the funds until the end of a three-year period. Wyatt's investment represents a(n)

A) passbook savings account.
B) negotiable order of withdrawal (NOW) account.
C) individual deferred earnings account (IDEA) .
D) certificate of deposit (CD) .

E) A) and B)
F) A) and C)

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Question 152

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To reduce inflation, the Federal Reserve increases the discount rate.

A) True
B) False

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Question 153

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A barter exchange is a system where you input into a system the goods and services that you are willing to trade, and receive trade credit.

Nora is an investment specialist for the Teamsters Union Central States Pension Fund. Her job involves deciding how to invest the contributions paid into the fund. Which of the following statements about Nora's job are true?

________ includes anything that people generally accept as payment for goods and services.

The ________ rate represents the interest rate charged by the Fed when loaning funds to member banks.

A central bank allows individual banks to deposit and to borrow funds.

Great news! The Fed just announced that the discount rate will rise by as much as 1% over the next three months. This will make it easier for Sean, the owner of a laser engraving business, to borrow money for that new piece of equipment he needs.

The Fed Chairman is in control of

Which of the following explains why online banks often offer their customers better interest rates than traditional banks?

A ________ is a profit-seeking organization that receives deposits from individuals and corporations and uses some of these deposits to make loans.

When the value of the euro increases compared to the U.S. dollar, the price of U.S. exports to Europe will decrease.

The currencies of some countries, although durable and portable, are relatively unstable, which makes international exchanges difficult.

The Savings Association Insurance Fund insures the holders of accounts in savings and loan associations.

Mini-Case The Bank of Bramblewood survived the Great Depression through the dedication, hard work, and conservative practices of its first president, Red E. Kash. Indeed, Red's personal drive and business skills helped the Bank of Bramblewood thrive during his 50-year tenure as president. After his retirement, his granddaughter, Patty, took a position with the bank. Patty inherited her grandfather's business skills and by 1994 she had risen to become the second member of the Kash family to head the bank. Patty admits she owes a great deal to her grandfather's leadership and advice, but she also quickly points out that the banking industry has changed significantly since Red retired. Patty graduated from college with a degree in finance, and also holds several certifications with the American Institute of Banking. "What Granddad achieved during his era was truly remarkable," Patty points out. "But times have changed, and banking regulations and bank competitors have certainly changed. If we hope to prosper in this century, we have to adjust to new competition, learn to work with new technologies, and take advantage of new opportunities. The Bank of Bramblewood has always operated for the benefit of our customers and we will continue to do so. But we must serve them more efficiently and creatively than in the past." -Since the Great Depression, the Bank of Bramblewood has the FDIC designation. What does this mean?

By the time of the Civil War, the U.S. banking system operated

Historically, coins and paper money complicated the exchange process.

In the early 2000s, banks took the mortgages that they owned, created mortgage-backed securities out of them, and sold them as safe investments.

The Fed plans to raise the discount rate to 7%. This indicates that

A direct payment is a preauthorized electronic payment.