QCM : Fundamentals of Money and Banking — 9 questions

Explication

Money primarily functions as a medium of exchange, facilitating transactions by eliminating the need for barter. It also serves as a unit of account and a store of value, but its main role is to enable exchange.

Explication

Bonds are debt instruments that pay periodic interest and are redeemable at face value, known as par, making this statement correct.

Explication

Commodity money is backed by a physical commodity like gold or silver. It has intrinsic value, unlike fiat money, which is government-issued currency not backed by a physical commodity.

Explication

The gold standard backed currency with gold, which limited the money supply to gold reserves, unlike fiat money.

Explication

Bonds provide fixed interest payments and do not dilute ownership, making them a safer and more predictable way for entities to raise capital compared to issuing stocks, which involve giving up ownership.

Explication

Central banks regulate the money supply, provide emergency loans to banks, and supervise the banking system, fulfilling multiple critical roles.

Explication

A bear market describes a period when prices are falling, often indicating economic downturns or investor pessimism.

Explication

Yield inversely relates to bond price; when bond prices fall, yields rise, reflecting higher returns for new investors.

Explication

Diversification reduces risk by spreading investments across different assets, though it cannot eliminate all risks.