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Chapter 18
Student: ___________________________________________________________________________
1. Economic growth and job creation depend on the availability of money.

True False
2. Metal coins and paper bills, which generally are called currency, are the objects most commonly used for
money.
True False
3. Money serves as a measure of value when it is used as a yardstick to measure or compare values of
products, services, or resources.
True False
4. The government agency responsible for regulating the supply of money in Canada is the Bank of
Canada.
True False
5. The primary function of the Bank of Canada is to maintain a healthy economy by regulating the supply of
money.
True False
6. The M1++ supply of money consists of currency, chequing accounts, and current accounts.
True False
7. The M2 supply of money consists of all the components of M1 plus savings accounts and term
deposits.
True False
8. With proper monetary policy you can keep the economy growing but also cause inflation.
True False
9. The tool most frequently used by the Bank of Canada to control inflation is interest rates.
True False
10. Banks charge the prime rate only to their high-risk customers.
True False
11. One of the ways that changes in interest rates affect various kinds of economic activity is through changes
in the prices of various assets.
True False
12. One of the functions of the Bank of Canada is to provide liquidity to the financial system.
True False
13. The financing service sector in the Canadian economy is widely recognized as one of the safest and
healthiest in the world.
True False
14. The CDIC (Canada Deposit Insurance Corporation) insures individual bank deposits up to $500,000 per
depositor.
True False
15. The CDIC insures all accounts in each member Canadian financial institution for up to $6000 per
individual at one bank.
True False
16. In Canada, a single body regulates the entire financial services industry.
True False
17. Today, due to competition, it is increasingly difficult to distinguish financial firms by type of
function.
True False
18. Of Canada's six major banks the top five account for about 80% of the national financial institution
market.
True False
19. The major problem with automated teller machines is that they are available only during regular banking
hours.
True False
20. When investing in a term deposit, an investor must be aware that `the length of time the money is left
on deposit and the interest rate can affect the dollar value the investor receives at the end of a specified
time.
True False
21. Commercial banks typically are not-for-profit organizations.
True False
22. Credit unions generally pay higher interest to depositors while providing loans at lower cost than
commercial banks.
True False
23. Non-banks do not accept deposits, but offer many services not provided by regular banks.
True False
24. Life insurance companies are an example of a Non-bank financial institution.
True False
25. Messages about a transaction sent from one computer to another are called ATMs.
True False
26. A smart card combines a credit card, debit card and other cards.
True False
27. The financial markets consist of markets for money, bonds, equities, derivatives, and foreign
exchange.
True False
28. A securities dealer is an organization that helps corporations sell new security issues.
True False
29. Primary markets handle the sale of new securities.
True False
30. A prospectus is a corporation's annual report on its operations.
True False
31. To avoid paying a commission to the investment banking firm, a corporation may sell a new security
issue directly to investors.
True False
32. Canada's provinces and territories are responsible for the securities regulations within their respective
borders.
True False
33. Canada has a national securities regulator.
True False
34. A registered representative who works as a market intermediary to buy and sell securities for clients is
known as a trader.
True False
35. Most stock orders take a few minutes to confirm that they have been made.
True False
36. When Kathy completed her training she expected to be given a stockbroker's position. Instead, she is
called an account administrator. This is a better descriptive term than stockbroker because she actually
buys and sells all types of securities, not just stock.
True False
37. Investors who trade online do much of their own research.
True False
38. When choosing an investment strategy, a person nearing retirement can better afford to invest in high-risk
investment options.
True False
39. Spreading the risk among several different types of investments is known as a growth strategy.
True False
40. An individual who purchases 75 shares of XYZ company at $1.00 a share, then later sells these shares at
$5.00 a share has a capital gain.
True False
41. The type of order which tells a broker to buy or to sell a stock immediately is known as a limit order.
True False
42. A high-risk investment is made in the hope of earning a fairly large profit in a short time span.
True False
43. Stocks are a good way to satisfy the growth factor in personal investing.
True False
44. A limit order is a request that a stock be bought or sold at a price equal to or better than some specified
price.
True False
45. A stock split immediately increases the value of an investor's holdings.
True False
46. Stock indexes measure the trend of different stock exchanges.
True False
47. The largest Canadian index is the S&P/TSX Composite Index.
True False
48. Buying stocks on margin is a risky investment strategy.
True False
49. Federal regulators set margin rates.
True False
50. The P/E ratio is the price of the stock divided by the firm's per share earnings.
True False
51. A stock's degree of risk can be measured by its alpha.
True False
52. Bonds are a risk free investment.
True False
53. Bond prices generally fluctuate inversely with current market interest rates.
True False
54. John purchased a corporate bond with a face value of $1,000 and a stated interest rate of 4 percent; if
interest rates go up he may be forced to sell the bond at a discount.
True False
55. Mutual funds can help an investor diversify.
True False
56. Mutual funds provide professional investment management.
True False
57. With mutual funds it is typically difficult to change your investment focus if your financial objectives
change.
True False
58. Load funds generally charge commissions and no-load funds do not.
True False
59. ETFs resemble both stocks and bonds.
True False
60. ETFs provide diversification to investors.
True False
61. FMIs play an important role in enhancing financial stability.
True False
62. Provincial regulators are responsible for the oversight of the financial market infrastructure (FMI).
True False
63. What critical issue in Canada today depends on the ready availability of money?
A. the aging of the workforce
B. economic growth
C. trade deficits with emerging countries such as China
D. privatization
64. Along with stability, all of the following are characteristics of money except:
A. durability.
B. profitability.
C. divisibility.
D. portability.
65. Anything accepted by a society to purchase goods and services or resources is called:
A. money.
B. barter.
C. capital.
D. cash.
66. Kelly will give a report in her college economics class on money as a medium of exchange. The title
of her paper is "Money: It Doesn't Disintegrate When Handled or Melt in the Sun." Which of the five
essential elements of money will she talk most about?
A. Divisibility
B. Portability
C. Stability
D. Durability
67. During periods of high inflation, money loses which essential characteristic?
A. Divisibility
B. Portability
C. Stability
D. Durability
68. A system of exchange in which goods and services are traded directly for other goods and services is
called a(n) _________ system.
A. monetary
B. barter
C. exchange
D. mercantile
69. The primary function of the Bank of Canada is to:
A. charter new banks.
B. regulate the supply of money in the world to support capitalism.
C. appoint its board members.
D. regulate the supply of money in Canada to help maintain a healthy economy.
70. All of the following are functions of the Bank of Canada except to:
A. set the bank rate.
B. insure bank depositors' deposits against bank failure.
C. control and inspect Canadian currency.
D. control inflation.
71. When the amount of goods and services that you can buy with a dollar goes up, what condition do you
have?
A. a rising dollar
B. monetary policy failure
C. a lower overnight rate
D. a falling dollar
72. When the economy is strong, the demand for dollars is ______.
A. low
B. high
C. linked to interest rate deposits
D. steady
73. Which of the following would not be included in the M1++ definition of money?
A. coins
B. paper currency
C. term deposits
D. personal cheques
74. Amounts held on deposit in savings accounts are:
A. term deposits.
B. included in the M2 supply of money.
C. included in the M1 supply of money.
D. near-monies.
75. The amount of money that the Bank of Canada makes available for people to buy goods and services is
known as what?
A. recession
B. deflation
C. term deposits
D. money supply
76. If the bank of Canada took some of the money out of the economy, which of the following may occur?
A. deflation
B. recession
C. inflation
D. falling dollar value
77. What would happened if the Bank of Canada takes too much money out of the economy?
A. inflation would take hold
B. jobs would be lost
C. the economy would continue to grow
D. term deposits would grow
78. Who controls monetary policy in Canada?
A. the Ontario Securities Commission
B. the Bank of Canada
C. the political party in the leadership position
D. the six major banks in Canada
79. One method the Bank of Canada uses to slow the economy is to:
A. sell government bonds to banks and other businesses.
B. raise the prime rate.
C. raise the overnight rate.
D. lower the overnight rate.
80. If the Bank of Canada wished to increase economic activity, it would be likely to:
A. sell government securities.
B. decrease the overnight rate.
C. increase the overnight rate.
D. increase the prime rate.
81. When the prime rate is high:
A. there is more money for banks to lend.
B. there is an increase in the overall money supply.
C. there is increased economic activity.
D. there is an economic slowdown.
82. When the Bank of Canada lowers the bank rate:
A. lending stops.
B. money is easier to obtain.
C. money is harder to obtain.
D. money cannot be obtained.
83. The interest rate that the Bank of Canada charges for loans to chartered banks is called the:
A. reserve requirement.
B. overnight rate.
C. margin requirement.
D. prime rate.
84. Which of the following is NOT a channel by which changes in the Bank of Canada's policy interest rate
work their way through the economy?
A. commercial interest rates
B. asset prices
C. margin requirements
D. exchange rates
85. An increase in interest rates can _______ the prices of bonds, stocks, and houses.
A. decrease
B. increase
C. not affect
D. keep steady
86. The financial system includes financial institutions, the financial markets, and ________.
A. banks
B. credit unions
C. clearing and settlements systems
D. pension funds
87. The regulations in the financial services sector are time consuming and costly to complete because:
A. this sector has been very slow to implement technological improvements.
B. these regulations are designed to protect investors.
C. there are numerous sets of regulations that exist, and no one is sure which set represents the rules that
are currently in force.
D. the regulators are trying to justify their existence.
88. The CDIC insures all accounts in each member bank for up to _________ per depositor.
A. $20,000
B. $40,000
C. $60,000
D. $100,000
89. The function of the CDIC (Canada Deposit Insurance Corporation) is to:
A. provide life insurance for all Canadians.
B. insure individual deposits in banks and trust companies.
C. provide a depository for surplus cash held by chartered banks.
D. to insure safety deposit boxes.
90. Who monitors the day-to-day operations of financial institutions with respect to their financial
soundness?
A. OFSI
B. OSC
C. CDIC
D. the Bank of Canada
91. The responsibility for insuring deposits against bank failures is held by:
A. the Bank of Canada.
B. the Canadian Deposit Insurance Corporation.
C. the elected officials of the Canadian government.
D. the Canadian Treasury Board.
92. Canada's "four pillar" system included banks, trust companies, insurance companies, and ______.
A. credit unions
B. savings and loan associations
C. securities dealers
D. pension funds
93. Organizations which perform banking functions for consumers in Canada include all of the following
except:
A. trust companies.
B. credit unions.
C. the Bank of Canada.
D. insurance companies.
94. Like other businesses, a commercial bank's primary mission is to:
A. store money.
B. supply money.
C. give financial advice.
D. earn a profit.
95. Canada's largest bank in terms of total assets is:
A. Royal Bank of Canada.
B. CIBC.
C. Scotiabank.
D. Toronto Dominion Bank.
96. A machine that provides almost any service a human teller can provide is called a(n):
A. ATM
B. EFT
C. ACH
D. POS
97. A document stating that the bank will pay the depositor a guaranteed interest rate for money left on
deposit for a specified period of time is a:
A. certificate of deposit.
B. check.
C. line of credit.
D. revolving credit agreement.
98. In order to purchase a new sweater, Mike Evans pulled his bank card through a magnetic card reader and
entered his personal identification number. He is using a(n):
A. automated teller machine.
B. automated clearinghouse.
C. bill payment by telephone.
D. point-of-sale terminal.
99. Sally wants to leave her money ($1,000) with a bank for a set period of time to earn a higher rate of
interest. She does not plan to make an early withdrawal, because early withdrawals are subject to
penalties. The best investment in her case is a:
B. passbook savings account.
C. foreign currency deposit.
D. commercial draft.
100.Judy Martin, owner of Judy's Fashions, received a $12,000 tax refund. She deposited the money in the
Toronto Dominion Bank. The terms of the agreement are that she must leave the money on deposit for
three years and the bank will pay her 3 percent interest. Her account is a(n):
A. chequing account.
B. RRSP.
D. certificate of deposit.
101.Banks distribute a good portion of their income to ___________.
A. managers
B. shareholders
C. CEOs
D. customers
102.Credit union members usually are:
A. depositors who buy membership.
B. employees of a particular professional company or organization.
C. those who live in a particular community.
D. Companies that specialize in credit card offerings.
103.A financial institution that is owned by its depositors is called a(n):
A. common stock bank.
B. credit union.
C. insurance company.
D. savings and loan association.
104.Banks differ from trust companies in that trust companies have what?
A. a fiduciary role
B. private ownership
C. lower savings rates
D. a non-profit status
105.Contributions to pension funds come from whom?
A. employees
B. employers
C. both employees and employers
D. government
106.A business that collects premiums from policyholders and then often provides long-term financing for
real estate development projects is a(n):
A. commercial bank.
B. credit union.
D. crown corporation.
107.A preauthorized electronic payment is known as what?
A. a direct payment
B. a debit
C. a credit
D. a smart card
108.Tangerine is an example of what?
A. a credit union
B. a pension fund
C. an insurance company
D. an Internet bank
109.A negotiable financial instrument that represents some type of financial value is known as a ______.
A. stock
B. bond
C. security
D. prospectus
110.A firm that trades securities for its clients is called a(n):
A. agent.
B. securities dealer.
C. financial planner.
D. financial advisor.
111.Marston Manufacturing is going to sell $75 million of common stocks. In this situation, the firm will
need the services of:
A. a savings and loan association.
B. a commercial bank.
C. a securities dealer.
D. the Canadian government.
112.It is mainly through the ___________ that the Bank of Canada's key policy rate influences interest rates
and the exchange rate.
A. prime lending rate
B. overnight rate
C. financial markets
D. stock brokers
113.Which of the following is NOT a function of financial markets?
A. providing financial advice to investors and executing trades on their behalf
B. raising all forms of capital for new and expanding businesses
C. creating markets by trading on their own accounts
D. setting interest rates
114.An organization whose members can meet to buy and sell securities is called:
A. a brokerage house.
B. the Ontario Securities Commission.
C. a stock exchange.
D. a commodities exchange.
115.A network of stockbrokers who buy and sell the securities of corporations that are on a securities
exchange is called:
A. a regional exchange.
B. a futures market.
C. the over-the-counter market.
D. a stock exchange.
116.The sale of new securities are handled by _______.
A. a regional exchange
B. a futures market
C. primary markets
D. secondary markets
117.______ handles the trading of securities between investors, with the proceeds of the sale going to the
investor selling the stock, not to the company whose stock is sold.
A. Regional exchange
B. Futures market
C. Primary market
D. Secondary market
118.The _________ market is a market in which an investor purchases financial securities (via an investment
bank or other representative) with the proceeds going to the investor selling the stock, not to the
corporation whose stocks are sold.
A. over-the-counter
B. primary
C. secondary
D. broker's
119.A detailed written description of a new security, the issuing corporation, and the corporation's top
management is called a(n):
A. stock issue.
B. annual report.
C. investor's analysis.
D. prospectus.
120.Companies seeking public financing must issue a:
A. Document of Ownership.
B. Statement of Ethics.
C. Prospectus.
D. Securities Report.
121.A government agency that administers provincial securities legislation is known as what?
A. a securities commission
B. a regional exchange
C. a futures market
D. a commodities exchange
122.The umbrella organization of Canada's provincial and territorial securities regulators is known as the
______.
A. CFA
B. CSA
C. MTA
D. OSC
123.Within the area of securities regulation, for many years, the federal government has been working on
what?
A. the creation of a national securities regulator
B. improving the image of the stock market
C. closing down smaller brokerage houses
D. merging the primary and secondary markets
124.A registered representative who works as a market intermediary to buy and sell securities for clients is
known as what?
A. a stockbroker
B. a day trader
C. a market broker
D. a market regulator
125.Typically an order with a stockbroker can be confirmed how quickly?
A. in seconds
B. in minutes
C. the same day
D. by the next day
126.An advantage of online brokers compared to traditional stockbrokers is what?
A. more investment research
B. lower fees
C. help in making financial decisions
D. access to the secondary market
127.Younger investors typically look for ______ over time.
A. income
B. growth in value
C. tax advantages
D. more investment advice
128.Which of the following is NOT a key criteria to consider when selecting investment options?
A. the chance that an investment will be worth less at some future time than it is worth now
B. yield
C. the length of time your money is committed to an investment
D. interest rates
129.Spreading the risk of investing over several different types of investments is known as what?
A. value investing
B. diversification
C. being bullish on the stock market
D. growth investing
130.Which of the following would be considered to be the safest investment?
A. growth stocks.
B. blue-chip stocks.
C. income stocks.
D. penny stocks.
131.An investor who believes that stock prices will rise is called what?
A. bull
B. bear
C. blue-chip investor
D. penny stock investor
132.A request that a stock be purchased or sold at the current market price is called a:
A. market order.
B. limit order.
C. margin order.
D. spot trade.
133.When an investor sets a maximum price a broker can spend per share or a minimum price to accept when
selling a stock, the investor is issuing a:
A. market order.
B. price option.
C. limit order.
D. discretionary order.
134.Stan Donalds, president of Covell Corporation, requested that ten shares of his XYZ stock be sold at a
price equal to or better than $70. Stan placed a(n) ________ order with his broker.
A. market
B. structured
C. account
D. executive
135.A market that is declining is known as what?
A. a bull market
B. an oversold market
C. a bear market
D. an overconfident market
136.The positive difference between the price at which an investor buys a stock and the price they sell it for is
known as ________.
A. a bull market
B. a capital gain
C. a limit order
D. a price option
137.An order to buy or sell a stock immediately at the best price available is called a:
A. market order.
B. price option.
C. limit order.
138.Which of the following is a growth stock?
A. a biotechnology stock
B. a public utility stock
C. an oil exploration stock
D. a natural gas stock
139.Which of the following is an income stock?
140.The board of directors for Ballard Energy Systems declared a two for one stock split. If Sally owned 400
shares before the split, how many shares does she own after the split?
A. 200
B. 400
C. 600
D. 800
141.The division of each outstanding share of a corporation's stock into a greater number of shares is
called:
A. a stock split.
B. a stock conversion.
C. a stock dividend.
D. a cash dividend.
142.Why do companies sometimes split their stock?
A. It increases the price of each share.
B. The firm's ownership structure increases.
C. Stock prices may go down in the near future.
D. Demand for the stock may become greater.
143.The reason for choosing to invest in an index is:
A. you get to choose which specific company stocks to buy.
B. the rates of return earned from the index are no worse than what can be earned by picking specific
stocks.
C. you have a lot of expertise when it comes to investing in an index.
D. you want to concentrate your investments in a particular industry.
144.The largest Canadian index is the ________.
A. S&P/TSX Composite Index
B. Dow Jones Industrial Average
C. TSE 60 Index
D. Standard and Poor's 500 Index
145.Borrowing some of the cost of a stock from a brokerage firm is known as what?
A. investing
B. speculating
C. having a capital gain
D. buying on margin
146.If an investor's margin account goes down in value, what may a stockbroker do?
A. close the account
B. move the account to another brokerage house
C. issue a margin call
D. ask the investor to co-sign a loan
147.Darlene Law has enough money to purchase 1,000 shares of stock in ABC Corporation. If she buys on
margin, she can purchase an additional 1,000 shares. What is the margin?
A. 40 percent
B. 60 percent
C. 70 percent
D. 50 percent
148.Ralph bought 100 shares of IBM stock on margin. At the time he made his purchase, which amounted
to $10,000, the margin requirement was 60 percent. How much of the purchase amount could Ralph
borrow?
A. $5,000
B. $4,000
C. $6,000
D. $10,000
149.A stock's trading during the day is known as what?
A. P/E ratio
B. intraday trading
C. day trading
D. dividend yield
150.A measure of a stock's degree of risk is its ______.
A. alpha
B. beta
C. gamma
D. sigma
151.For investors who desire low risks and guaranteed income, ____________ are a secure investment.
A. corporate bonds
B. penny stocks
C. government bonds
D. growth stocks
152.A bond selling at a price above its face value is selling at:
A. a quote.
B. dollars and cents.
C. a premium.
D. a par value.
153.A bond selling above its face value is known as what?
A. priced at a premium
B. priced at a discount to par value
C. priced at par value
D. priced at a discount
154.Where can an investor find information on the investment risk of a particular bond issue?
A. through the Dow Jones
B. through Moody's Investors Service
C. through the Financial Post
D. through MSN Money
155.Which of the following statements about mutual funds is true?
A. the fees and charges of different funds can vary significantly
B. all mutual funds come without a fee
C. mutual funds can only invest in stocks
D. mutual funds are only for highly sophisticated investors
156.Most financial advisers recommend buying ___________ for small or beginning investors.
A. mutual funds
B. bonds
C. common shares
D. preferred shares
157.The type of investment that combines and invests the money of many individual investors under the
guidance of professional managers is called a:
A. GIC account.
B. securities exchange.
C. prospectus.
D. mutual fund.
158.An individual who pays no commission every time he or she invests in a mutual fund is investing in a(n)
_________ fund.
A. closed-end
B. no-load
C. load
D. open-end
159.Exchange traded funds resemble both stocks and what other type of investment?
A. common shares
B. preferred shares of utilities
C. mutual funds
D. bonds
160.Financial advisors are highly likely to recommend an investment in exchange traded funds (ETFs) for
what type of investor?
A. an investor with experience in direct investments in stocks
B. a first time investor
C. an investor who has an extensive portfolio of investments in bonds and stocks
D. an investor who was previously a stock broker
161.The Bank of Canada is responsible for the oversight of the financial market infrastructure under what
Act?
A. The Securities Act
B. The Bank of Canada Act
C. The Bank Act
D. The Payment Clearing and Settlement Act
162.How many types of financial market infrastructure (FMIs) are there?
A. 2
B. 3
C. 5
D. 7
163.How did coins meet all the standards of a useful form of money?
164.What would happen if governments or nongovernmental organizations were to generate twice as much
money as exists now?
165.Explain how the Bank of Canada manages the money supply. Identify the duties and responsibilities of
the Bank of Canada.
166.What is the objective of the Bank of Canada's monetary policy?
167.Give some examples of other products offered by banks to creditworthy customers.
168.Who are the primary customers of commercial and consumer finance companies?
169.How can new Internet banks offer high interest rates and low fees?
170.If you decide to invest in the market, it's important to remember what five key investment criteria?
171.Compare stocks and bonds as investments in terms of their potential return and the risk involved.
Chapter 18 Key
1. Economic growth and job creation depend on the availability of money.
TRUE
Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 18-01 Explain what money is and what makes it useful.
Nickels - Chapter 18 #1
Topic: 18-01 Why Money is Important
2. Metal coins and paper bills, which generally are called currency, are the objects most commonly used
for money.
TRUE
Difficulty: Easy
Topic: 18-02 What Is Money?
3. Money serves as a measure of value when it is used as a yardstick to measure or compare values of
products, services, or resources.
TRUE
Difficulty: Easy
4. The government agency responsible for regulating the supply of money in Canada is the Bank of
Canada.
TRUE
Difficulty: Easy
Learning Objective: 18-02 Discuss how the Bank of Canada controls the money supply.
Topic: 18-03 The Bank of Canada
5. The primary function of the Bank of Canada is to maintain a healthy economy by regulating the
supply of money.
TRUE
Difficulty: Easy
Topic: 18-05 What Is the Money Supply?
6. The M1++ supply of money consists of currency, chequing accounts, and current accounts.
TRUE
Difficulty: Medium
7. The M2 supply of money consists of all the components of M1 plus savings accounts and term
deposits.
TRUE
Difficulty: Hard
8. With proper monetary policy you can keep the economy growing but also cause inflation.
FALSE
Difficulty: Hard
Topic: 18-06 Managing Inflation and the Money Supply
9. The tool most frequently used by the Bank of Canada to control inflation is interest rates.
TRUE
Difficulty: Easy
Topic: 18-07 Control of the Money Supply
10. Banks charge the prime rate only to their high-risk customers.
FALSE
Difficulty: Hard
11. One of the ways that changes in interest rates affect various kinds of economic activity is through
changes in the prices of various assets.
TRUE
Difficulty: Medium
Topic: 18-08 Transmission of Monetary Policy
12. One of the functions of the Bank of Canada is to provide liquidity to the financial system.
TRUE
Difficulty: Easy
Learning Objective: 18-03 List the three components of the Canadian financial system; and explain how it is regulated.
Topic: 18-09 The Canadian Financial System
13. The financing service sector in the Canadian economy is widely recognized as one of the safest and
healthiest in the world.
TRUE
Difficulty: Hard
14. The CDIC (Canada Deposit Insurance Corporation) insures individual bank deposits up to $500,000
per depositor.
FALSE
Difficulty: Easy
Topic: 18-10 Regulating the Financial System
15. The CDIC insures all accounts in each member Canadian financial institution for up to $6000 per
individual at one bank.
FALSE
Difficulty: Medium
16. In Canada, a single body regulates the entire financial services industry.
FALSE
Difficulty: Medium
17. Today, due to competition, it is increasingly difficult to distinguish financial firms by type of
function.
TRUE
Difficulty: Easy
Learning Objective: 18-04 Discuss the role that financial institutions play in providing services.
Topic: 18-11 The Canadian Financial System: Financial Institutions
18. Of Canada's six major banks the top five account for about 80% of the national financial institution
market.
TRUE
Difficulty: Medium
Topic: 18-12 Commercial Banks
19. The major problem with automated teller machines is that they are available only during regular
banking hours.
FALSE
Difficulty: Easy
20. When investing in a term deposit, an investor must be aware that `the length of time the money is left
on deposit and the interest rate can affect the dollar value the investor receives at the end of a specified
time.
TRUE
Difficulty: Medium
21. Commercial banks typically are not-for-profit organizations.
FALSE
Difficulty: Medium
22. Credit unions generally pay higher interest to depositors while providing loans at lower cost than
commercial banks.
TRUE
Difficulty: Easy
Topic: 18-13 Credit Unions and Trust Companies
23. Non-banks do not accept deposits, but offer many services not provided by regular banks.
FALSE
Difficulty: Hard
Topic: 18-14 Other Financial Institutions (Nonbanks)
24. Life insurance companies are an example of a Non-bank financial institution.
TRUE
Difficulty: Easy
25. Messages about a transaction sent from one computer to another are called ATMs.
FALSE
Difficulty: Medium
Topic: 18-15 Using Technology To Improve Efficiency
26. A smart card combines a credit card, debit card and other cards.
TRUE
Difficulty: Easy
27. The financial markets consist of markets for money, bonds, equities, derivatives, and foreign
exchange.
TRUE
Difficulty: Easy
Learning Objective: 18-05 Describe the role of the financial markets.
Topic: 18-16 The Canadian Financial System: Financial Markets
28. A securities dealer is an organization that helps corporations sell new security issues.
TRUE
Difficulty: Easy
29. Primary markets handle the sale of new securities.
TRUE
Difficulty: Medium
Topic: 18-17 The Function of Stock Exchanges
30. A prospectus is a corporation's annual report on its operations.
FALSE
Difficulty: Easy
Topic: 18-18 Securities Regulations
31. To avoid paying a commission to the investment banking firm, a corporation may sell a new security
issue directly to investors.
FALSE
Difficulty: Medium
32. Canada's provinces and territories are responsible for the securities regulations within their respective
borders.
TRUE
Difficulty: Easy
33. Canada has a national securities regulator.
FALSE
Difficulty: Easy
known as a trader.
FALSE
Difficulty: Easy
Topic: 18-19 How Investors Buy Securities
35. Most stock orders take a few minutes to confirm that they have been made.
FALSE
Difficulty: Medium
36. When Kathy completed her training she expected to be given a stockbroker's position. Instead, she is
called an account administrator. This is a better descriptive term than stockbroker because she actually
buys and sells all types of securities, not just stock.
FALSE
Difficulty: Medium
37. Investors who trade online do much of their own research.
TRUE
Difficulty: Easy
Topic: 18-20 Investing Through Online Brokers
38. When choosing an investment strategy, a person nearing retirement can better afford to invest in high-
risk investment options.
FALSE
Difficulty: Medium
Topic: 18-21 Choosing the Right Investment Strategy and Diversification
39. Spreading the risk among several different types of investments is known as a growth strategy.
FALSE
Difficulty: Easy
40. An individual who purchases 75 shares of XYZ company at $1.00 a share, then later sells these shares
at $5.00 a share has a capital gain.
TRUE
Difficulty: Hard
Topic: 18-22 Investing in Stocks
41. The type of order which tells a broker to buy or to sell a stock immediately is known as a limit
order.
FALSE
Difficulty: Medium
42. A high-risk investment is made in the hope of earning a fairly large profit in a short time span.
TRUE
Difficulty: Easy
43. Stocks are a good way to satisfy the growth factor in personal investing.
TRUE
Difficulty: Easy
44. A limit order is a request that a stock be bought or sold at a price equal to or better than some
specified price.
TRUE
Difficulty: Medium
45. A stock split immediately increases the value of an investor's holdings.
FALSE
Difficulty: Medium
Topic: 18-23 Stock Splits
46. Stock indexes measure the trend of different stock exchanges.
TRUE
Difficulty: Easy
Topic: 18-24 Stock Indexes
47. The largest Canadian index is the S&P/TSX Composite Index.
TRUE
Difficulty: Medium
48. Buying stocks on margin is a risky investment strategy.
TRUE
Difficulty: Easy
Topic: 18-25 Buying Stock on Margin
49. Federal regulators set margin rates.
FALSE
Difficulty: Hard
50. The P/E ratio is the price of the stock divided by the firm's per share earnings.
TRUE
Difficulty: Medium
Topic: 18-26 Understanding Stock Quotations
51. A stock's degree of risk can be measured by its alpha.
FALSE
Difficulty: Medium
52. Bonds are a risk free investment.
FALSE
Difficulty: Easy
Topic: 18-27 Investing in Bonds
53. Bond prices generally fluctuate inversely with current market interest rates.
TRUE
Difficulty: Hard
54. John purchased a corporate bond with a face value of $1,000 and a stated interest rate of 4 percent; if
interest rates go up he may be forced to sell the bond at a discount.
TRUE
Difficulty: Hard
55. Mutual funds can help an investor diversify.
TRUE
Difficulty: Easy
Topic: 18-28 Investing in Mutual Funds
56. Mutual funds provide professional investment management.
TRUE
Difficulty: Easy
57. With mutual funds it is typically difficult to change your investment focus if your financial objectives
change.
FALSE
Difficulty: Easy
58. Load funds generally charge commissions and no-load funds do not.
TRUE
Difficulty: Hard
59. ETFs resemble both stocks and bonds.
FALSE
Difficulty: Easy
Topic: 18-29 Investing in Exchange-Traded Funds
60. ETFs provide diversification to investors.
TRUE
Difficulty: Easy
61. FMIs play an important role in enhancing financial stability.
TRUE
Difficulty: Easy
Learning Objective: 18-06 Outline the role of the clearing and settlement systems.
Topic: 18-30 The Canadian Financial System: Clearing and Settlement Systems
62. Provincial regulators are responsible for the oversight of the financial market infrastructure (FMI).
FALSE
Difficulty: Easy
63. What critical issue in Canada today depends on the ready availability of money?
A. the aging of the workforce
B. economic growth
C. trade deficits with emerging countries such as China
D. privatization
Difficulty: Easy
Topic: 18-01 Why Money is Important
64. Along with stability, all of the following are characteristics of money except:
A. durability.
B. profitability.
C. divisibility.
D. portability.
Difficulty: Easy
65. Anything accepted by a society to purchase goods and services or resources is called:
A. money.
B. barter.
C. capital.
D. cash.
Difficulty: Easy
66. Kelly will give a report in her college economics class on money as a medium of exchange. The title
of her paper is "Money: It Doesn't Disintegrate When Handled or Melt in the Sun." Which of the five
essential elements of money will she talk most about?
A. Divisibility
B. Portability
C. Stability
D. Durability
Difficulty: Easy
67. During periods of high inflation, money loses which essential characteristic?
A. Divisibility
B. Portability
C. Stability
D. Durability
Difficulty: Easy
68. A system of exchange in which goods and services are traded directly for other goods and services is
called a(n) _________ system.
A. monetary
B. barter
C. exchange
D. mercantile
Difficulty: Hard
69. The primary function of the Bank of Canada is to:
A. charter new banks.
B. regulate the supply of money in the world to support capitalism.
C. appoint its board members.
D. regulate the supply of money in Canada to help maintain a healthy economy.
Difficulty: Easy
70. All of the following are functions of the Bank of Canada except to:
A. set the bank rate.
B. insure bank depositors' deposits against bank failure.
C. control and inspect Canadian currency.
D. control inflation.
Difficulty: Easy
71. When the amount of goods and services that you can buy with a dollar goes up, what condition do you
have?
A. a rising dollar
B. monetary policy failure
C. a lower overnight rate
D. a falling dollar
Difficulty: Easy
Topic: 18-04 The Global Exchange of Money
72. When the economy is strong, the demand for dollars is ______.
A. low
B. high
C. linked to interest rate deposits
D. steady
Difficulty: Easy
Topic: 18-04 The Global Exchange of Money
73. Which of the following would not be included in the M1++ definition of money?
A. coins
B. paper currency
C. term deposits
D. personal cheques
Difficulty: Medium
74. Amounts held on deposit in savings accounts are:
A. term deposits.
B. included in the M2 supply of money.
C. included in the M1 supply of money.
D. near-monies.
Difficulty: Hard
75. The amount of money that the Bank of Canada makes available for people to buy goods and services
is known as what?
A. recession
B. deflation
C. term deposits
D. money supply
Difficulty: Easy
76. If the bank of Canada took some of the money out of the economy, which of the following may occur?
A. deflation
B. recession
C. inflation
D. falling dollar value
Difficulty: Hard
77. What would happened if the Bank of Canada takes too much money out of the economy?
A. inflation would take hold
B. jobs would be lost
C. the economy would continue to grow
D. term deposits would grow
Difficulty: Hard
78. Who controls monetary policy in Canada?
A. the Ontario Securities Commission
B. the Bank of Canada
C. the political party in the leadership position
D. the six major banks in Canada
Difficulty: Easy
79. One method the Bank of Canada uses to slow the economy is to:
A. sell government bonds to banks and other businesses.
B. raise the prime rate.
C. raise the overnight rate.
D. lower the overnight rate.
Difficulty: Easy
80. If the Bank of Canada wished to increase economic activity, it would be likely to:
A. sell government securities.
B. decrease the overnight rate.
C. increase the overnight rate.
D. increase the prime rate.
Difficulty: Easy
81. When the prime rate is high:
A. there is more money for banks to lend.
B. there is an increase in the overall money supply.
C. there is increased economic activity.
D. there is an economic slowdown.
Difficulty: Easy
82. When the Bank of Canada lowers the bank rate:
A. lending stops.
B. money is easier to obtain.
C. money is harder to obtain.
D. money cannot be obtained.
Difficulty: Easy
83. The interest rate that the Bank of Canada charges for loans to chartered banks is called the:
A. reserve requirement.
B. overnight rate.
C. margin requirement.
D. prime rate.
Difficulty: Easy
84. Which of the following is NOT a channel by which changes in the Bank of Canada's policy interest
rate work their way through the economy?
A. commercial interest rates
B. asset prices
C. margin requirements
D. exchange rates
Difficulty: Medium
85. An increase in interest rates can _______ the prices of bonds, stocks, and houses.
A. decrease
B. increase
C. not affect
D. keep steady
Difficulty: Medium
86. The financial system includes financial institutions, the financial markets, and ________.
A. banks
B. credit unions
C. clearing and settlements systems
D. pension funds
Difficulty: Easy
87. The regulations in the financial services sector are time consuming and costly to complete
because:
A. this sector has been very slow to implement technological improvements.
B. these regulations are designed to protect investors.
C. there are numerous sets of regulations that exist, and no one is sure which set represents the rules
that are currently in force.
D. the regulators are trying to justify their existence.
Difficulty: Medium
88. The CDIC insures all accounts in each member bank for up to _________ per depositor.
A. $20,000
B. $40,000
C. $60,000
D. $100,000
Difficulty: Medium
89. The function of the CDIC (Canada Deposit Insurance Corporation) is to:
A. provide life insurance for all Canadians.
B. insure individual deposits in banks and trust companies.
C. provide a depository for surplus cash held by chartered banks.
D. to insure safety deposit boxes.
Difficulty: Easy
90. Who monitors the day-to-day operations of financial institutions with respect to their financial
soundness?
A. OFSI
B. OSC
C. CDIC
D. the Bank of Canada
Difficulty: Easy
91. The responsibility for insuring deposits against bank failures is held by:
A. the Bank of Canada.
B. the Canadian Deposit Insurance Corporation.
C. the elected officials of the Canadian government.
D. the Canadian Treasury Board.
Difficulty: Medium
92. Canada's "four pillar" system included banks, trust companies, insurance companies, and ______.
A. credit unions
B. savings and loan associations
C. securities dealers
D. pension funds
Difficulty: Easy
93. Organizations which perform banking functions for consumers in Canada include all of the following
except:
A. trust companies.
B. credit unions.
C. the Bank of Canada.
D. insurance companies.
Difficulty: Easy
94. Like other businesses, a commercial bank's primary mission is to:
A. store money.
B. supply money.
C. give financial advice.
D. earn a profit.
Difficulty: Easy
95. Canada's largest bank in terms of total assets is:
A. Royal Bank of Canada.
B. CIBC.
C. Scotiabank.
D. Toronto Dominion Bank.
Difficulty: Hard
96. A machine that provides almost any service a human teller can provide is called a(n):
A. ATM
B. EFT
C. ACH
D. POS
Difficulty: Easy
97. A document stating that the bank will pay the depositor a guaranteed interest rate for money left on
deposit for a specified period of time is a:
B. check.
C. line of credit.
D. revolving credit agreement.
Difficulty: Medium
98. In order to purchase a new sweater, Mike Evans pulled his bank card through a magnetic card reader
and entered his personal identification number. He is using a(n):
A. automated teller machine.
B. automated clearinghouse.
C. bill payment by telephone.
D. point-of-sale terminal.
Difficulty: Medium
99. Sally wants to leave her money ($1,000) with a bank for a set period of time to earn a higher rate of
interest. She does not plan to make an early withdrawal, because early withdrawals are subject to
penalties. The best investment in her case is a:
B. passbook savings account.
D. commercial draft.
Difficulty: Medium
100. Judy Martin, owner of Judy's Fashions, received a $12,000 tax refund. She deposited the money in the
Toronto Dominion Bank. The terms of the agreement are that she must leave the money on deposit for
three years and the bank will pay her 3 percent interest. Her account is a(n):
A. chequing account.
B. RRSP.
D. certificate of deposit.
Difficulty: Hard
101. Banks distribute a good portion of their income to ___________.
A. managers
B. shareholders
C. CEOs
D. customers
Difficulty: Hard
102. Credit union members usually are:
A. depositors who buy membership.
B. employees of a particular professional company or organization.
C. those who live in a particular community.
D. Companies that specialize in credit card offerings.
Difficulty: Easy
103. A financial institution that is owned by its depositors is called a(n):
A. common stock bank.
B. credit union.
D. savings and loan association.
Difficulty: Easy
104. Banks differ from trust companies in that trust companies have what?
A. a fiduciary role
B. private ownership
C. lower savings rates
D. a non-profit status
Difficulty: Medium
105. Contributions to pension funds come from whom?
A. employees
B. employers
C. both employees and employers
D. government
Difficulty: Medium
106. A business that collects premiums from policyholders and then often provides long-term financing for
real estate development projects is a(n):
A. commercial bank.
B. credit union.
D. crown corporation.
Difficulty: Hard
107. A preauthorized electronic payment is known as what?
A. a direct payment
B. a debit
C. a credit
D. a smart card
Difficulty: Easy
108. Tangerine is an example of what?
A. a credit union
B. a pension fund
C. an insurance company
D. an Internet bank
Difficulty: Medium
109. A negotiable financial instrument that represents some type of financial value is known as a
______.
A. stock
B. bond
C. security
D. prospectus
Difficulty: Easy
110. A firm that trades securities for its clients is called a(n):
A. agent.
B. securities dealer.
C. financial planner.
D. financial advisor.
Difficulty: Medium
111. Marston Manufacturing is going to sell $75 million of common stocks. In this situation, the firm will
need the services of:
A. a savings and loan association.
B. a commercial bank.
C. a securities dealer.
D. the Canadian government.
Difficulty: Hard
112. It is mainly through the ___________ that the Bank of Canada's key policy rate influences interest
rates and the exchange rate.
A. prime lending rate
B. overnight rate
C. financial markets
D. stock brokers
Difficulty: Medium
113. Which of the following is NOT a function of financial markets?
A. providing financial advice to investors and executing trades on their behalf
B. raising all forms of capital for new and expanding businesses
C. creating markets by trading on their own accounts
D. setting interest rates
Difficulty: Medium
114. An organization whose members can meet to buy and sell securities is called:
A. a brokerage house.
B. the Ontario Securities Commission.
C. a stock exchange.
D. a commodities exchange.
Difficulty: Easy
115. A network of stockbrokers who buy and sell the securities of corporations that are on a securities
exchange is called:
A. a regional exchange.
B. a futures market.
C. the over-the-counter market.
D. a stock exchange.
Difficulty: Easy
116. The sale of new securities are handled by _______.
A. a regional exchange
B. a futures market
C. primary markets
D. secondary markets
Difficulty: Easy
117. ______ handles the trading of securities between investors, with the proceeds of the sale going to the
investor selling the stock, not to the company whose stock is sold.
A. Regional exchange
B. Futures market
C. Primary market
D. Secondary market
Difficulty: Easy
118. The _________ market is a market in which an investor purchases financial securities (via an
investment bank or other representative) with the proceeds going to the investor selling the stock, not
to the corporation whose stocks are sold.
A. over-the-counter
B. primary
C. secondary
D. broker's
Difficulty: Easy
119. A detailed written description of a new security, the issuing corporation, and the corporation's top
management is called a(n):
A. stock issue.
B. annual report.
C. investor's analysis.
D. prospectus.
Difficulty: Easy
120. Companies seeking public financing must issue a:
A. Document of Ownership.
B. Statement of Ethics.
C. Prospectus.
D. Securities Report.
Difficulty: Medium
121. A government agency that administers provincial securities legislation is known as what?
A. a securities commission
B. a regional exchange
C. a futures market
D. a commodities exchange
Difficulty: Easy
122. The umbrella organization of Canada's provincial and territorial securities regulators is known as the
______.
A. CFA
B. CSA
C. MTA
D. OSC
Difficulty: Hard
123. Within the area of securities regulation, for many years, the federal government has been working on
what?
A. the creation of a national securities regulator
B. improving the image of the stock market
C. closing down smaller brokerage houses
D. merging the primary and secondary markets
Difficulty: Medium
known as what?
A. a stockbroker
B. a day trader
C. a market broker
D. a market regulator
Difficulty: Easy
125. Typically an order with a stockbroker can be confirmed how quickly?
A. in seconds
B. in minutes
C. the same day
D. by the next day
Difficulty: Easy
126. An advantage of online brokers compared to traditional stockbrokers is what?
A. more investment research
B. lower fees
C. help in making financial decisions
D. access to the secondary market
Difficulty: Easy
Topic: 18-20 Investing Through Online Brokers
127. Younger investors typically look for ______ over time.
A. income
B. growth in value
C. tax advantages
D. more investment advice
Difficulty: Medium
128. Which of the following is NOT a key criteria to consider when selecting investment options?
A. the chance that an investment will be worth less at some future time than it is worth now
B. yield
C. the length of time your money is committed to an investment
D. interest rates
Difficulty: Easy
129. Spreading the risk of investing over several different types of investments is known as what?
A. value investing
B. diversification
C. being bullish on the stock market
D. growth investing
Difficulty: Easy
130. Which of the following would be considered to be the safest investment?
A. growth stocks.
B. blue-chip stocks.
C. income stocks.
D. penny stocks.
Difficulty: Easy
131. An investor who believes that stock prices will rise is called what?
A. bull
B. bear
C. blue-chip investor
D. penny stock investor
Difficulty: Easy
132. A request that a stock be purchased or sold at the current market price is called a:
A. market order.
B. limit order.
C. margin order.
D. spot trade.
Difficulty: Easy
133. When an investor sets a maximum price a broker can spend per share or a minimum price to accept
when selling a stock, the investor is issuing a:
A. market order.
B. price option.
C. limit order.
Difficulty: Easy
134. Stan Donalds, president of Covell Corporation, requested that ten shares of his XYZ stock be sold at a
price equal to or better than $70. Stan placed a(n) ________ order with his broker.
A. market
B. structured
C. account
D. executive
Difficulty: Hard
135. A market that is declining is known as what?
A. a bull market
B. an oversold market
C. a bear market
D. an overconfident market
Difficulty: Easy
136. The positive difference between the price at which an investor buys a stock and the price they sell it
for is known as ________.
A. a bull market
B. a capital gain
C. a limit order
D. a price option
Difficulty: Medium
137. An order to buy or sell a stock immediately at the best price available is called a:
A. market order.
B. price option.
C. limit order.
Difficulty: Medium
138. Which of the following is a growth stock?
Difficulty: Hard
139. Which of the following is an income stock?
Difficulty: Hard
140. The board of directors for Ballard Energy Systems declared a two for one stock split. If Sally owned
400 shares before the split, how many shares does she own after the split?
A. 200
B. 400
C. 600
D. 800
Difficulty: Medium
141. The division of each outstanding share of a corporation's stock into a greater number of shares is
called:
A. a stock split.
B. a stock conversion.
C. a stock dividend.
D. a cash dividend.
Difficulty: Medium
142. Why do companies sometimes split their stock?
A. It increases the price of each share.
B. The firm's ownership structure increases.
C. Stock prices may go down in the near future.
D. Demand for the stock may become greater.
Difficulty: Hard
143. The reason for choosing to invest in an index is:
A. you get to choose which specific company stocks to buy.
B. the rates of return earned from the index are no worse than what can be earned by picking specific
stocks.
C. you have a lot of expertise when it comes to investing in an index.
D. you want to concentrate your investments in a particular industry.
Difficulty: Medium
144. The largest Canadian index is the ________.
A. S&P/TSX Composite Index
B. Dow Jones Industrial Average
C. TSE 60 Index
D. Standard and Poor's 500 Index
Difficulty: Medium
145. Borrowing some of the cost of a stock from a brokerage firm is known as what?
A. investing
B. speculating
C. having a capital gain
D. buying on margin
Difficulty: Easy
146. If an investor's margin account goes down in value, what may a stockbroker do?
A. close the account
B. move the account to another brokerage house
C. issue a margin call
D. ask the investor to co-sign a loan
Difficulty: Medium
147. Darlene Law has enough money to purchase 1,000 shares of stock in ABC Corporation. If she buys on
margin, she can purchase an additional 1,000 shares. What is the margin?
A. 40 percent
B. 60 percent
C. 70 percent
D. 50 percent
Difficulty: Hard
148. Ralph bought 100 shares of IBM stock on margin. At the time he made his purchase, which amounted
to $10,000, the margin requirement was 60 percent. How much of the purchase amount could Ralph
borrow?
A. $5,000
B. $4,000
C. $6,000
D. $10,000
Difficulty: Hard
149. A stock's trading during the day is known as what?
A. P/E ratio
B. intraday trading
C. day trading
D. dividend yield
Difficulty: Hard
150. A measure of a stock's degree of risk is its ______.
A. alpha
B. beta
C. gamma
D. sigma
Difficulty: Hard
151. For investors who desire low risks and guaranteed income, ____________ are a secure
investment.
A. corporate bonds
B. penny stocks
C. government bonds
D. growth stocks
Difficulty: Hard
152. A bond selling at a price above its face value is selling at:
A. a quote.
B. dollars and cents.
C. a premium.
D. a par value.
Difficulty: Medium
153. A bond selling above its face value is known as what?
A. priced at a premium
B. priced at a discount to par value
C. priced at par value
D. priced at a discount
Difficulty: Easy
154. Where can an investor find information on the investment risk of a particular bond issue?
A. through the Dow Jones
B. through Moody's Investors Service
C. through the Financial Post
D. through MSN Money
Difficulty: Hard
155. Which of the following statements about mutual funds is true?
A. the fees and charges of different funds can vary significantly
B. all mutual funds come without a fee
C. mutual funds can only invest in stocks
D. mutual funds are only for highly sophisticated investors
Difficulty: Medium
156. Most financial advisers recommend buying ___________ for small or beginning investors.
A. mutual funds
B. bonds
C. common shares
D. preferred shares
Difficulty: Hard
157. The type of investment that combines and invests the money of many individual investors under the
guidance of professional managers is called a:
A. GIC account.
B. securities exchange.
C. prospectus.
D. mutual fund.
Difficulty: Medium
158. An individual who pays no commission every time he or she invests in a mutual fund is investing in
a(n) _________ fund.
A. closed-end
B. no-load
C. load
D. open-end
Difficulty: Hard
159. Exchange traded funds resemble both stocks and what other type of investment?
A. common shares
B. preferred shares of utilities
C. mutual funds
D. bonds
Difficulty: Easy
160. Financial advisors are highly likely to recommend an investment in exchange traded funds (ETFs) for
what type of investor?
A. an investor with experience in direct investments in stocks
B. a first time investor
C. an investor who has an extensive portfolio of investments in bonds and stocks
D. an investor who was previously a stock broker
Difficulty: Medium
161. The Bank of Canada is responsible for the oversight of the financial market infrastructure under what
Act?
A. The Securities Act
B. The Bank of Canada Act
C. The Bank Act
D. The Payment Clearing and Settlement Act
Difficulty: Medium
162. How many types of financial market infrastructure (FMIs) are there?
A. 2
B. 3
C. 5
D. 7
Difficulty: Medium
163. How did coins meet all the standards of a useful form of money?
Portability, divisibility, stability, durability, and uniqueness.
Difficulty: Medium
164. What would happen if governments or nongovernmental organizations were to generate twice as much
money as exists now?
Prices would go up because more people would try to buy goods and services with their money and
would bid up the price to get what they wanted.
Difficulty: Medium
165. Explain how the Bank of Canada manages the money supply. Identify the duties and responsibilities
of the Bank of Canada.
The money supply is the amount of money the Bank of Canada makes available for Canadians to buy
goods and services. There are different measures of the money supply. There is the M1 money supply
that includes all currency in circulation (bank notes and coins) plus personal chequing accounts and
current accounts at banks. The M2 money supply includes term deposits, personal savings accounts
and other chequing accounts and non-personal deposits requiring notice before withdrawal. The M2++
money supply includes all deposits at non-bank deposit-taking institutions, money-market mutual
funds and individual annuities at life insurance companies. The M2++ money supply includes all
types of mutual funds and Canada Savings Bonds.
The Bank of Canada also sets the monetary policy for the country. The objective of the Bank of
Canada's monetary policy is to support a level of spending by Canadians that is consistent with the
Bank's goal of price stability. The Bank wants to keep inflation between 1 and 3 percent. The Bank
can influence the rate of inflation by the influence it has over short-term interest rates. When interest
rates rise, consumers and businesses are less likely to borrow money as it is more expensive to pay
back the loan. By decreasing the amount of borrowing it also decreases the amount of spending. The
Bank of Canada controls the interest rates by making changes to the Target for the Overnight Rate.
The chartered banks in Canada borrow money from the Bank of Canada and then lend money to their
customers at a higher rate called the prime rate. Only the best customers get charged the prime rate,
most customers get charged the prime rate plus 1 or 2 percent.
Difficulty: Medium
166. What is the objective of the Bank of Canada's monetary policy?
To support a level of spending by Canadians that is consistent with the Bank's goal of price stability.
Difficulty: Hard
167. Give some examples of other products offered by banks to creditworthy customers.
Examples of credit products include credit cards, lines of credit, loans, mortgages, and overdraft
protection on chequing accounts.
Difficulty: Easy
168. Who are the primary customers of commercial and consumer finance companies?
The primary customers of these companies are new businesses and individuals with no credit history.
Difficulty: Hard
169. How can new Internet banks offer high interest rates and low fees?
Internet banks can offer high interest rates and low fees because they do not have the costs of physical
overhead that traditional banks have.
Difficulty: Hard
170. If you decide to invest in the market, it's important to remember what five key investment criteria?
Investment risk, yield, duration, liquidity, and tax consequences.
Difficulty: Medium
171. Compare stocks and bonds as investments in terms of their potential return and the risk involved.
Government bonds are one of the safest investments. The government, whether it is municipal,
provincial or federal, will loan money to consumers at an interest rate that can be paid in intervals or
compounded so the investor receives it all when he cashes it in at the end of the term of the bond.
Corporate bonds are a bit more risky. The interest rates corporate bonds offer have to be a bit higher
than those offered by the government as corporations have more likelihood of not being able to pay
back the loan than does the government. Corporate bonds also fluctuate in value, if your bonds have
features that other investors like, such as a high interest rate or early maturity date then investors will
pay a premium on the bond's face value. However if investors do not like the features of the corporate
bond then they will only buy it at a discount.
Investing in stocks is more risky then investing in bonds but they also have a higher potential payoff.
There are various types of stocks that one can invest in.
Growth stocks are stocks of corporations whose earnings are expected to grow at a faster rate than
other stocks in the market. Growth stocks are also more likely to lose their value than other stocks
in the market if there is a sudden change in the industry. Growth stocks are often from emerging
industries like technology or bio-technology.
Income stocks are safer than growth stocks, they offer are a high dividend yield or stream of income
but they do not appreciate in value like growth stocks. Public utilities are often considered good
income stocks that will keep pace with inflation and also offer security for the investor.
Blue-chip stocks are stocks in the largest corporations, these are considered very safe as these large
multinational companies are unlikely to go bankrupt overnight. They generally pay a decent dividend
and appreciate at a modest level.
Penny stocks are stocks that sell for less than $2. These stocks represent ownership in firms, such as
mining or oil exploration companies that compete in very high-risk industries. Penny stocks offer a
chance at a very high return but are also extremely risky.
Difficulty: Easy
Chapter 18 Summary
Category # of Questions
Accessibility: Keyboard Navigation 162
Difficulty: Easy 82
Difficulty: Hard 35
Difficulty: Medium 54
Learning Objective: 18-01 Explain what money is and what makes it useful. 10
Learning Objective: 18-02 Discuss how the Bank of Canada controls the money supply. 28
Learning Objective: 18- 11
03 List the three components of the Canadian financial system; and explain how it is regulated.
Learning Objective: 18-04 Discuss the role that financial institutions play in providing services. 30
Learning Objective: 18-05 Describe the role of the financial markets. 88
Learning Objective: 18-06 Outline the role of the clearing and settlement systems. 4
Nickels - Chapter 18 171
Topic: 18-01 Why Money is Important 2
Topic: 18-02 What Is Money? 8
Topic: 18-03 The Bank of Canada 3
Topic: 18-04 The Global Exchange of Money 2
Topic: 18-05 What Is the Money Supply? 7
Topic: 18-06 Managing Inflation and the Money Supply 5
Topic: 18-07 Control of the Money Supply 9
Topic: 18-08 Transmission of Monetary Policy 3
Topic: 18-09 The Canadian Financial System 3
Topic: 18-10 Regulating the Financial System 8
Topic: 18-11 The Canadian Financial System: Financial Institutions 3
Topic: 18-12 Commercial Banks 13
Topic: 18-13 Credit Unions and Trust Companies 4
Topic: 18-14 Other Financial Institutions (Nonbanks) 5
Topic: 18-15 Using Technology To Improve Efficiency 5
Topic: 18-16 The Canadian Financial System: Financial Markets 7
Topic: 18-17 The Function of Stock Exchanges 6
Topic: 18-18 Securities Regulations 9
Topic: 18-19 How Investors Buy Securities 5
Topic: 18-20 Investing Through Online Brokers 2
Topic: 18-21 Choosing the Right Investment Strategy and Diversification 6
Topic: 18-22 Investing in Stocks 16
Topic: 18-23 Stock Splits 4
Topic: 18-24 Stock Indexes 4
Topic: 18-25 Buying Stock on Margin 6
Topic: 18-26 Understanding Stock Quotations 4
Topic: 18-27 Investing in Bonds 8
Topic: 18-28 Investing in Mutual Funds 8
Topic: 18-29 Investing in Exchange-Traded Funds 4
Topic: 18-30 The Canadian Financial System: Clearing and Settlement Systems 4

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Chapter 18

1. Economic growth and job creation depend on the availability of money.

166.What is the objective of the Bank of Canada's monetary policy?

167.Give some examples of other products offered by banks to creditworthy customers.

Portability, divisibility, stability, durability, and uniqueness.

Investment risk, yield, duration, liquidity, and tax consequences.

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