Chapter 10, 11 Test

Which of the following statement is true about the use of money?

• A. Money is used as a medium of exchange

• B. Money is used as a unit of account

• C. Money is used as a store of value

• D. All are correct

The safety way to use a credit card is to .

• pay the full amount before its due
• pay the minimum balance

• charge regularly and pay the minimum

• none are correct

What happens when you make a purchase using a credit card?

• The amount of the purchase is deducted from a prepaid account.

• The bank pays the store.

• The place where you made the purchase receives the money within 24 hours.

• The money is immediately deducted from your account.

What condition is necessary for a fiat money system to work?

• Customers with checking accounts cannot earn interest on those accounts.

• Banks must hold sufficient gold to cover any paper money they give out.

• The government must control the money supply.

• Money owed must be paid on time.

You decide to open a savings account, and you notice a sign in your bank that indicates deposits are FDIC insured. What protection does that give you?

• Your deposits are guaranteed a certain rate of interest if you have at least $250,000 in the bank.

• If you accidentally withdraw more money than you have in your account, you will not have to pay a penalty.

• If the bank fails, your deposits are protected up to $250,000.

• If you accidentally injure someone, they cannot claim any of the first $250,000 of your bank deposits as compensation.

What is the purpose of the Federal Deposit Insurance Corporation (FDIC)?

• to make sure that banks charge a fair amount of interest on loans

• to make sure that the government has enough gold to cover its expenses

• to make sure that banks do not fail

• to make sure that customers do not lose money if a bank fails

The reason of diversification as you invest your money is that it

• reduces risk to investors.

• offsets the effects of inflation on investments.

• increases investors’ access to their money.

• guarantees a fixed rate of return on an investment.

John has $1,000 to invest for a 5 year period. He wants to earn maximum interest with minimum risk. How should he invest his money?

• Certificate of Deposit

• Stocks

• Savings Account

• All are correct

Since Certificate of Deposits are a low risk investment, you would expect that they would

• have higher interest rates.

• have lower interest rates.

Your neighbor asks you to invest $500 at 5 percent interest in her catering business. She insists that with all the working parents in the neighborhood, a business that provides home-cooked meals has the potential for making huge profits. You want to invest but are concerned because your neighbor has not had any business experience. How can you offset your risk?

• Use the $500 to open a savings account.

• Lend your neighbor the $500 and keep your fingers crossed.

• Ask for a higher interest rate.

• Invest your $500 in a certificate of deposit.