Money, Banking, and the Financial System Test Questions Solved Correctly Latest Version 2025
Security - Answers Tradable financial asset
Subprime Lending - Answers Making loans to people who may have difficulty paying
Leverage - Answers Use of borrowed funds to magnify returns and losses
Lender of Last Resort - Answers An institution, usually a country's central bank, that offers loans to
banks that are at a high risk of failing/near collapse.
Derivative - Answers A security with a price that is dependent upon or derived from one or more
underlying assets.
Money - Answers Anything that is generally accepted in payment for goods and services
Functions of money - Answers 1. Medium of exchange
2. Unit of Account
3. Store of Value
M1 - Answers Assets that are clearly used as a medium of exchange (Currency, Traveler's checks,
demand deposits)
M2 - Answers M1 + other assets that provide limited check-writing privileges or are extremely liquid.
(CDs, RPs, Savings deposits, MMDAs)
Blockchain - Answers A record/ ledger of all bitcoin transactions that has ever taken place
Fiat Money - Answers Money backed by confidence only
Commodity money - Answers A commodity with intrinsic value (gold, silver, cigarettes)
Gresham's Law - Answers "Bad money drives out good"
Seignorage - Answers The difference between the value of money and the cost to produce it.
Demand Deposit - Answers Consists of funds held in an account from which deposited funds can be
withdrawn at any time
Time deposit - Answers An interest bearing bank deposit account that has a specified date of maturity,
i.e. savings and CDs
Money Market Mutual Fund - Answers An investment whose objective is to earn interest for
shareholders. Comprised of short term securities.
Barter - Answers Goods traded for goods
Security - Answers Tradable financial asset
Subprime Lending - Answers Making loans to people who may have difficulty paying
Leverage - Answers Use of borrowed funds to magnify returns and losses
Lender of Last Resort - Answers An institution, usually a country's central bank, that offers loans to
banks that are at a high risk of failing/near collapse.
Derivative - Answers A security with a price that is dependent upon or derived from one or more
underlying assets.
Money - Answers Anything that is generally accepted in payment for goods and services
Functions of money - Answers 1. Medium of exchange
2. Unit of Account
3. Store of Value
M1 - Answers Assets that are clearly used as a medium of exchange (Currency, Traveler's checks,
demand deposits)
M2 - Answers M1 + other assets that provide limited check-writing privileges or are extremely liquid.
(CDs, RPs, Savings deposits, MMDAs)
Blockchain - Answers A record/ ledger of all bitcoin transactions that has ever taken place
Fiat Money - Answers Money backed by confidence only
Commodity money - Answers A commodity with intrinsic value (gold, silver, cigarettes)
Gresham's Law - Answers "Bad money drives out good"
Seignorage - Answers The difference between the value of money and the cost to produce it.
Demand Deposit - Answers Consists of funds held in an account from which deposited funds can be
withdrawn at any time
Time deposit - Answers An interest bearing bank deposit account that has a specified date of maturity,
i.e. savings and CDs
Money Market Mutual Fund - Answers An investment whose objective is to earn interest for
shareholders. Comprised of short term securities.
Barter - Answers Goods traded for goods
