How Money Works — Module Assessment

Question 1

Which set correctly lists the three classic functions of money?

Accepted Answer

Medium of exchange, store of value, unit of account

Answer

Savings, spending, borrowing

Answer

Gold backing, legal tender, taxation

Answer

Income, expenses, profit

Question 2

What best describes fiat money?

Accepted Answer

Money that has value because of government recognition and public trust rather than intrinsic material worth

Answer

Money whose value comes from the metal it is made of

Answer

Money that can always be exchanged for a fixed amount of gold

Answer

Money issued only by private companies without any government role

Question 3

In a modern economy, how is most money created?

Accepted Answer

By commercial banks creating new deposits when they make loans

Answer

By governments physically printing banknotes to match economic growth

Answer

By central banks handing cash directly to every citizen

Answer

By savers depositing gold that banks then reissue as notes

Question 4

What is maturity transformation, and why does it create risk?

Accepted Answer

Borrowing short-term (deposits) while lending long-term (loans), which risks a shortfall if many depositors withdraw at once

Answer

Converting foreign currency into domestic currency, which risks exchange-rate losses

Answer

Turning old banknotes into new ones, which risks counterfeiting

Answer

Raising interest rates over time, which risks reducing borrowing

Question 5

Which best describes the primary tool a central bank uses to influence the economy?

Accepted Answer

Adjusting a short-term policy interest rate that influences borrowing costs

Answer

Setting the wages paid across private companies

Answer

Directly setting the price of every good and service

Answer

Choosing which businesses receive loans

Question 6

What is meant by monetary policy trying to 'smooth the business cycle'?

Accepted Answer

Leaning against swings by easing when activity is weak and tightening when it overheats

Answer

Guaranteeing the economy never contracts again

Answer

Keeping interest rates fixed at one level permanently

Answer

Eliminating inflation entirely

Question 7

In price discovery on an exchange, how is the current price of a share determined?

Accepted Answer

It emerges from buyers and sellers meeting through supply and demand

Answer

The exchange's board votes on a fair value each morning

Answer

The issuing company sets it based on its profits

Answer

A government regulator fixes it daily

Question 8

Which statement correctly distinguishes the primary from the secondary market?

Accepted Answer

The primary market is where securities are first issued to raise new money, while the secondary market is where they later change hands between investors

Answer

The primary market is where existing shares trade between investors

Answer

Both markets always send money to the issuing company

Answer

The secondary market only exists for bonds, not shares

Question 9

Which statement best describes a blockchain as used by a typical cryptocurrency?

Accepted Answer

A shared ledger copied across many computers that agree on records by rules, with no central authority

Answer

A private database that a single central bank owns and controls

Answer

A government guarantee that protects deposits up to a set limit

Answer

A method that makes every transaction fully anonymous and untraceable

Question 10

Why is the irreversibility of most cryptocurrency transactions described as both a feature and a risk?

Accepted Answer

It removes the need for a middleman to undo payments, but also means scams and errors usually cannot be reversed

Answer

It guarantees the price will stay stable over time

Answer

It means a bank can always reverse a mistaken payment for you

Answer

It makes holdings automatically covered by deposit protection

Question 11

What does an exchange rate represent?

Accepted Answer

The price of one currency expressed in terms of another

Answer

The total value of a country's exports in a year

Answer

A guaranteed return paid on foreign bank deposits

Answer

The amount of gold a central bank is required to hold

Question 12

Which best explains why financial crises can spread across borders?

Accepted Answer

Because institutions lend to and invest in one another, so losses and fear travel through those links

Answer

Because every country uses exactly the same currency

Answer

Because governments deliberately synchronise their downturns

Answer

Because exchange rates are permanently fixed and cannot move

Question 13

Which statement best describes a central bank digital currency (CBDC)?

Accepted Answer

A digital form of a country's official money, issued by its central bank

Answer

A cryptocurrency with no central issuer, like the ones traded on open markets

Answer

The balance a commercial bank shows in a customer's ordinary account

Answer

A private company's loyalty-points scheme used at partner shops

Question 14

According to the lesson, why is relying on a single payment method a form of fragility?

Accepted Answer

Because a single outage, frozen account, or dead battery can leave you unable to pay at all

Answer

Because digital payments are always more expensive than using cash

Answer

Because newer technology is inherently less secure than older technology

Answer

Because central banks will eventually ban private payment apps