7 August 2008 
Practice Test for Using Accounting Information and Understanding Money, Banking and Credit
Practice Test for Chapters 18 and 19, and Business Law.
Also use Accounting Quiz and Understanding Money, Banking & Credit Quiz
Test # 4; 18 & 19 Practice-no key.doc
5 August 2008
Understanding Money, Banking & Credit Quiz
1) Discuss the importance of credit and and credit management.
Credit is the immediate purchasing power that is exchanged for the promise to repay borrowed money at a later date.
2) What are the five Cs of credit?
character
capacity
capital
collateral
conditions
3) What does the Federal Reserve System do? .
The Federal Reserve System is responsible for regulating the U.S. banking industry and maintaining a sound economic environment through controlling the money supply.
4) What are three tools the Federal Reserve uses to influence monetary policy?
1) To control the supply of money, the Federal Reserve System regulates the reserve requirement — the percentage of deposits a bank must keep on hand.
2) The Federal Reserve regulates the discount rate — the interest rate the Fed charges member banks for loans from the Federal Reserve.
3) The Fed engages in open-market operations — where it buys and sells government securities — to affect the federal funds rate.
5) How does deposit insurance protect customers?
The Federal Deposit Insurance Corporation FDIC and the National Credit Union Association NCUA insure accounts in member commercial banks. Typically accounts are insured up to $100,000.