Money and Banking: Master the Fundamentals of Finance

Question 1

Which of the following is NOT a function of money?

Accepted Answer

Means of production

Answer

Medium of exchange

Answer

Store of value

Answer

Unit of account

Question 2

Quantitative easing is a monetary policy tool employed to:

Accepted Answer

Increase the money supply

Answer

Decrease the money supply

Answer

Stabilize inflation

Answer

Control interest rates

Question 3

'Liquidity' in the financial context refers to:

Accepted Answer

The ease with which an asset can be converted into cash

Answer

The ability of an asset to generate income

Answer

The value of an asset relative to its cost

Answer

The riskiness of an investment

Question 4

The term 'monetary base' refers to:

Accepted Answer

The amount of money created by the central bank

Answer

The total amount of money in circulation in an economy

Answer

The amount of money held by commercial banks

Answer

The amount of money invested in financial markets

Question 5

The 'Phillips Curve' is a graphical representation of the relationship between:

Accepted Answer

Inflation and unemployment

Answer

Economic growth and interest rates

Answer

Money supply and inflation

Answer

Investment and consumption

Question 6

Which of the following is NOT considered a primary function of money?

Accepted Answer

Investment asset

Answer

Medium of exchange

Answer

Store of value

Answer

Unit of account

Question 7

What is the process by which the Bank of England buys and sells government securities to influence the money supply called?

Accepted Answer

Open market operations

Answer

Quantitative easing

Answer

Discount window lending

Answer

Reserve requirements

Question 8

Which of the following is NOT a type of financial market?

Accepted Answer

Real estate market

Answer

Stock market

Answer

Bond market

Answer

Foreign exchange market

Question 9

What is the primary role of commercial banks in the financial system?

Accepted Answer

To accept deposits and make loans

Answer

To issue currency

Answer

To regulate the money supply

Answer

To provide insurance

Question 10

What is the fundamental distinction between a direct and an indirect tax?

Accepted Answer

A direct tax is paid directly to the government, while an indirect tax is passed on to consumers.

Answer

An indirect tax is paid directly to the government, while a direct tax is passed on to consumers.

Answer

Direct taxes are always regressive, while indirect taxes are always progressive.

Answer

Indirect taxes are always regressive, while direct taxes are always progressive.

Question 11

Which of the following statements accurately defines the function of money as a medium of exchange?

Accepted Answer

It facilitates transactions by eliminating the need for barter

Answer

It serves as a basis for comparing the value of different goods and services

Answer

It allows individuals to store their wealth over time without losing value

Answer

It acts as a legal tender for the payment of debts

Question 12

Which of the following institutions is responsible for conducting monetary policy in the United Kingdom?

Accepted Answer

Bank of England

Answer

Office for Budget Responsibility

Answer

Financial Conduct Authority

Answer

Her Majesty's Treasury

Question 13

Open market operations are a tool of monetary policy that involve:

Accepted Answer

Buying or selling government bonds in the financial market

Answer

Adjusting the bank rate (discount rate)

Answer

Changing the reserve requirement for banks

Answer

Providing direct loans to businesses

Question 14

What is a fundamental difference between banks and non-bank financial intermediaries?

Accepted Answer

Banks can create money through the process of fractional reserve banking

Answer

Banks are typically more heavily regulated than non-bank intermediaries

Answer

Non-bank intermediaries offer a wider variety of financial services

Answer

There is no significant difference between banks and non-bank intermediaries

Question 15

Inflation affects the real value of savings by:

Accepted Answer

Decreasing the real value of savings over time

Answer

Increasing the real value of savings over time

Answer

Increasing the nominal value of savings over time

Answer

Having no impact on the real value of savings

Question 16

Which of the following is NOT a primary function of money?

Accepted Answer

Medium of speculation

Answer

Store of value

Answer

Medium of exchange

Answer

Unit of account

Question 17

Which of the following is an example of an expansionary monetary policy measure?

Accepted Answer

Purchasing government bonds in the open market

Answer

Raising interest rates

Answer

Selling Treasury bills

Answer

Increasing reserve requirements for banks

Question 18

The financial market where short-term debt instruments with maturities of less than one year, such as Treasury bills and commercial paper, are traded is called the:

Accepted Answer

Money market

Answer

Capital market

Answer

Foreign exchange market

Answer

Stock market

Question 19

Which of the following is a widely used measure of price level changes in an economy?

Accepted Answer

Consumer Price Index (CPI)

Answer

Gross Domestic Product (GDP)

Answer

Unemployment rate

Answer

Balance of payments

Question 20

The process by which banks create money by lending out a portion of the deposits they hold is called:

Accepted Answer

Fractional reserve banking

Answer

Quantitative easing

Answer

Open market operations

Answer

Government spending

Question 21

The Basel Accords are a set of international agreements that establish capital requirements for banks in order to:

Accepted Answer

Strengthen the banking sector and reduce the risk of financial crises

Answer

Promote economic growth

Answer

Control inflation

Answer

Regulate the insurance industry

Question 22

Which of the following is NOT a primary function of money?

Accepted Answer

Source of income

Answer

Medium of exchange

Answer

Store of value

Answer

Unit of account

Question 23

The central bank responsible for monetary policy in the United Kingdom is:

Accepted Answer

Bank of England

Answer

Federal Reserve Bank

Answer

European Central Bank

Answer

Bank of International Settlements

Question 24

The primary market for securities is where:

Accepted Answer

Newly issued securities are sold

Answer

Existing securities are traded

Answer

Investors purchase securities from the government

Answer

Banks lend money to businesses

Question 25

The velocity of circulation measures:

Accepted Answer

The frequency of money changing hands

Answer

The pace at which money is created

Answer

The value of money relative to goods and services

Answer

The quantity of money in the economy

Question 26

Which of the following is a potential risk associated with fractional reserve banking?

Accepted Answer

Bank runs

Answer

Inflation

Answer

Deflation

Answer

High interest rates

Question 27

How does inflation typically affect economic growth over an extended period?

Accepted Answer

High inflation can initially stimulate growth but harms it in the long run.

Answer

Inflation consistently boosts economic growth.

Answer

Inflation has no significant impact on economic growth.

Answer

Economic growth always causes inflation.

Question 28

Which of the following is NOT a primary function of money?

Accepted Answer

Temporary investment

Answer

Medium of exchange

Answer

Store of value

Answer

Unit of account

Question 29

Which of the following is NOT a traditional store of value?

Accepted Answer

Store of power

Answer

Bonds

Answer

Gold

Answer

Real estate

Question 30

The central bank of the United Kingdom is the:

Accepted Answer

Bank of England

Answer

Federal Reserve

Answer

Bank of Canada

Question 31

What is the main difference between a commercial bank and an investment bank?

Accepted Answer

Commercial banks primarily accept deposits and make loans, while investment banks primarily engage in underwriting and trading securities.

Answer

Investment banks are larger than commercial banks.

Question 32

What is the main purpose of the shadow banking system?

Accepted Answer

To provide financial services outside the traditional banking sector.

Answer

To regulate the traditional banking sector.

Answer

To insure deposits in traditional banks.

Question 33

Which of the following is a potential risk associated with cryptocurrency?

Accepted Answer

Volatility, hacking, and lack of regulation

Answer

Slow transaction times

Answer

High transaction fees

Answer

Difficulty in accessing

Question 34

The central bank responsible for monetary policy in the United Kingdom is the:

Accepted Answer

Bank of England

Answer

Reserve Bank of India

Answer

European Central Bank

Answer

Federal Reserve Bank

Question 35

Which of the following is a tool of monetary policy used by central banks?

Accepted Answer

Open market operations

Answer

Currency devaluation

Answer

Price controls

Answer

Fiscal policy

Question 36

The primary purpose of financial markets is to:

Accepted Answer

Facilitate the flow of funds between borrowers and lenders

Answer

Control inflation

Answer

Regulate the banking industry

Question 37

Which of the following is considered a characteristic of a sound and effective financial system?

Accepted Answer

Stability, efficiency, and accessibility

Answer

Lack of regulation

Answer

High levels of inflation

Answer

Government intervention

Question 38

The quantity theory of money proposes that:

Accepted Answer

Changes in the money supply lead to proportional changes in the price level.

Answer

Monetary policy is ineffective in controlling inflation.

Answer

Fiscal policy is more important than monetary policy in managing the economy.

Question 39

The Basel Accords are a set of international banking regulations designed to:

Accepted Answer

Improve the stability of the banking system

Answer

Reduce interest rates

Answer

Increase lending to small businesses

Answer

Promote economic growth

Question 40

Which of the following factors can influence the demand for money?

Accepted Answer

Interest rates, inflation, and income

Answer

Tax policy

Answer

Government spending

Answer

Exchange rates