Quiz Questions On Financial System! Trivia

The most likely explanation for the correct answer is that higher interest rates typically indicate higher risk. In this case, the 10 percent bond offers a higher interest rate than the 5 percent bond, suggesting that it carries more risk. This is a common principle in finance, where investors expect to be compensated with higher returns for taking on higher levels of risk.

Financial intermediaries are financial institutions that act as intermediaries between savers and borrowers. They facilitate the flow of funds from savers to borrowers by accepting deposits from savers and then lending those funds to borrowers. This allows savers to indirectly provide funds to borrowers, as they do not directly lend money to them. Examples of financial intermediaries include banks, credit unions, insurance companies, and pension funds.

The correct answer is capital investment. When opening a construction company, purchasing trucks, tools, and storage sheds are considered capital investments. Capital investments refer to the expenditure made on acquiring long-term assets that are essential for the business's operations and are expected to generate future returns. These investments contribute to the company's growth and productivity by enhancing its capacity to produce goods or services.

The correct answer is "supply money to the financial system; borrowers demand money from the financial system." This answer correctly identifies the roles of savers and borrowers in the financial system. Savers provide money to the financial system by depositing their savings in banks or investing in financial assets. On the other hand, borrowers demand money from the financial system by taking loans or accessing credit. This answer accurately reflects the relationship between savers and borrowers in the financial system.

When people buy stock in a corporation like Starbucks, they are providing equity finance. This means that they are investing in the company by purchasing shares, and in return, they become part owners of Starbucks. As part owners, they have a claim on the company's assets and earnings. They also have the potential to benefit from any increase in the value of the stock. Therefore, the correct answer is that people who buy stock in Starbucks provide equity finance and become part owners of the company.

The financial system refers to the institutions in the economy that facilitate the transfer of funds from savers to borrowers. These institutions include banks, financial markets, and other intermediaries that help match one person's saving with another person's investment. The Federal Reserve System is the central banking system of the United States and is responsible for regulating the country's monetary policy. While the banking system is a part of the financial system, it does not encompass the entirety of it. The monetary system refers to the system of money and currency in an economy. Therefore, the correct answer is the financial system.

The term of a bond refers to the length of time until the bond matures. This means that it is the period during which the bondholder will hold the bond and receive periodic interest payments. At the end of the term, the bondholder will also receive the principal amount of the bond. The interest rate of the bond and the credit risk rating are important factors to consider when investing in a bond, but they are not synonymous with the term of the bond.

The correct answer is the financial markets and financial intermediaries. Financial markets refer to the platforms where individuals and organizations trade financial assets such as stocks, bonds, and currencies. These markets provide liquidity and facilitate the allocation of capital. On the other hand, financial intermediaries are institutions that act as intermediaries between borrowers and lenders. They collect funds from savers and channel them to borrowers in the form of loans or investments. Examples of financial intermediaries include banks, insurance companies, and mutual funds. Together, financial markets and intermediaries play a crucial role in the functioning of the overall financial system.

Long term bonds are generally riskier than short-term bonds because they have a longer maturity period, which means there is a higher chance for market fluctuations and changes in interest rates to affect their value. To compensate for this higher risk, long-term bonds offer higher interest rates to investors. This is because investors require a higher return to offset the increased risk associated with holding the bond for a longer period of time.

If the tax revenue of the federal government exceeds spending, it means that the government is collecting more money through taxes than it is spending on various programs and services. This results in a budget surplus, as there is a surplus of funds available after covering all expenses.

The correct answer is "to raise money is called equity finance, while the sale of bonds to raise funds is called debt finance." This answer accurately describes the terms used to refer to the sale of stocks and bonds for raising funds. Equity finance refers to raising money by selling stocks, which represent ownership in a company. Debt finance, on the other hand, refers to raising money by selling bonds, which represent borrowing money that needs to be repaid with interest.

The correct answer is "is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds." This answer accurately describes a mutual fund as an institution that raises money from the public through the sale of shares and then uses that money to invest in a diversified portfolio of stocks, bonds, or both.

A higher interest rate induces people to save more because they can earn more money on their savings. This increase in saving leads to a higher supply of loanable funds, as individuals have more money available to lend. Therefore, the supply of loanable funds slopes upward.

When the government finds a major defect in a company's product and demands it to be taken off the market, it creates a negative perception about the company and its product among consumers. This leads to a decrease in the demand for the company's stock as investors become less confident in its future profitability. As a result, the price of the stock falls due to the decrease in demand.

In a closed economy, the total income that remains after paying for consumption and government purchases is referred to as national saving. This represents the portion of income that is not spent on immediate consumption or used by the government, and is instead saved for future investment or other purposes. National saving is an important measure of a country's ability to finance investment and contribute to economic growth.

National saving is calculated by subtracting consumption and government expenditures from GDP. In this case, consumption is 5,000 and government expenditures are 1,000. Therefore, national saving would be 8,000 - 5,000 - 1,000 = 2,000.

The real interest rate is the nominal interest rate corrected for inflation. Inflation erodes the purchasing power of money, so by subtracting the inflation rate from the nominal interest rate, we get the real interest rate. Therefore, both options a and c are correct because they both describe the real interest rate in different ways.

The correct answer is "equality holds due to the way the variables are defined." This means that the equation Y = C + I + G + NX is an identity because the right-hand and left-hand sides are equal. The variables C, I, G, and NX represent different components of total output (Y), and the equation shows that the sum of these components equals the total output. This holds true regardless of the specific values assigned to each variable, as long as they are defined consistently.

The slope of the demand for loanable funds curve represents the negative relationship between the real interest rate and investment. This means that as the real interest rate increases, the demand for loanable funds decreases, leading to a decrease in investment. Conversely, as the real interest rate decreases, the demand for loanable funds increases, leading to an increase in investment. This negative relationship between the real interest rate and investment is due to the fact that higher interest rates increase the cost of borrowing, making investment less attractive for businesses and individuals.