Exam 1 FIN 350 study guide PDF

Preview

Summary

Study materials for the first exam of fin 350...

Description

Question 1 The six principles of finance include all of the following except:

a .

Money has a time value.

b .

Higher returns are expected for taking on more risk

c .

Diversification of investments can reduce risk

d .

Larger capital amounts are charged higher interest

Answer:

D

Question 2 The ______________ is a term used to describe the financial system, institutions, markets, businesses, individuals, and global interactions that help the economy operate efficiently

a .

financial environment

b .

regulatory environment

c .

international environment

d .

operating environment

Answer:

A

Question 3 Two risky assets can be combined to lower the overall risk of a portfolio. This principle is commonly referred to as

a .

blending

b .

asset allocation

c .

diversification

d .

portfolio segmentation

Answer:

c

Question 4 The primary goal of the financial manager of a profit-seeking organization is to:

a .

maximize market share

b .

maximize the owners’ wealth

c .

increase sales and profit

d .

have healthy cash flow

Answer:

b

Question 5 All of the following are normally categorized as financial institutions except

a .

commercial banks

b .

brokerage firms

c .

S&Ls

d .

credit unions

Answer:

b

Question 6 The function of money that expresses prices and contracts for deferred payments in terms of the monetary unit is referred to as

a .

store of purchasing power

b .

standard of value

c .

medium of exchange

d .

credit money

Answer:

b

Question 7 Money market mutual funds do which of the following?

a .

issue shares to customers

b .

invest in liquid instruments

c .

invest in interest-bearing debt instruments

d .

all the above

Answer:

d

Question 8 _______________ are for profit organizations that exist primarily to provide customers with consumer credit, including the financing of automobiles and the purchase of durable goods.

a .

Commercial banks

b .

Finance companies

c .

Savings banks

d .

Brokerage firms

Answer:

b

Question 9 The three functions of money are:

a .

medium of exchange, store of value, and measure of liquidity

b .

conduit for international trade, store of value, and standard of value

c .

medium of exchange, store of value, and standard of value

d .

inflation hedge, measure of liquidity, and medium of exchange

Answer:

c

Question 10 The most basic functions of depository institutions are

a .

safekeeping for depositors.

b .

record keeping for depositors.

c .

efficient and economical transfer of payments.

d .

accepting deposits and granting loans.

Answer:

d

Question 11 The chairman of the Federal Reserve System

a .

is appointed by the Secretary of the Treasury.

b .

serves a life term.

c .

is the president of the New York Federal Reserve Bank.

d .

is appointed by the President of the United States.

Answer:

d

Question 12 The savings-investment process

a .

involves the transfer of business funds to individuals for investing in stocks and bonds

b .

involves the transfer of business funds to individuals for investing in homes

c .

involves the transfer in individual savings to the Federal Government.

d .

involves the transfer in individual savings to business firms in exchange for their securities.

Answer:

d

Question 13 Rational investors would consider an investment in a risky business venture only if they feel the expected return is high enough to justify the

a .

greater risk.

b .

higher cost.

c .

longer useful life.

d .

more complex designs.

Answer:

a

Question 14 Money decreed to be  legal tender for the payment of debts is money backed by

a .

precious metals

b .

commodities

c .

government creditworthiness

d .

gold or silver

Answer:

c

Question 15 Finance is:

a .

the study of how individuals, institutions, governments, and businesses acquire, spend, and manage money and other financial assets

b .

the study of how businesses acquire, spend, and manage money and other financial assets

c .

the study of how governments, and businesses acquire, spend, and manage money and other financial assets

d .

the study of how money is used to purchase goods and services

Answer:

a

Question 16 Creating and transferring money are integral parts of the:

a .

investment process

b .

capital formation process

c .

savings process

d .

treasury process

Answer:

b

Question 17 The financial crisis of 2007-2009 resulted from a number of negative economic and financial trends including:

a .

an increase in housing prices

b .

an increase in stock prices

c .

more credit cards

d .

high debt levels

Answer:

d

Question 18 The issuing of new securities, mortgages, and other claims to wealth takes place in the:

a .

secondary market

b .

money market

c .

primary market

d .

securities market

Answer:

c

Question 19 The item on the liabilities and equity section of a bank’s balance sheet that represents the smallest proportion of bank’s assets is

a .

deposits.

b .

owner’s capital.

c .

securities.

d .

federal funds.

Answer:

b

Question 20 Commercial banks obtain the bulk of their loanable funds from

a .

depositors.

b .

the issue of certificates of deposit.

c .

sale of bank stock.

d .

sale of subordinated debenture bonds.

Answer:

a

Question 21 If $5,000 is borrowed on a discount basis and the rate is 10 percent, the annual percentage interest rate on this loan would be

a .

10 percent.

b .

10.1 percent.

c .

11 percent.

d .

11.1 percent.

Answer:

d

Question 22 Credit unions are

a .

for profit organizations.

b .

made up of individuals who possess common bonds of association.

c .

institutions that derive funds from investment activities.

d .

generally larger than most commercial banks.

Answer:

b

Question 23 The value of money results from

a .

its backing

b .

rates set by the Federal Reserve

c .

its purchasing power

d .

its backing by gold

Answer:

c

Question 24 A(n) _______________ mortgage is a home loan made to a borrower with a relatively low credit score indicating the likelihood that loan payments might be missed when due.

a .

adjustable rate

b .

subprime

c .

credit swap

d .

high performance

Answer:

b

Question 25 Financial markets encourage investment by:

a .

providing capital at lower rates than provided by banks

b .

providing electronic execution of transactions which are faster and cheaper than other methods

c .

providing the means for savers to easily and quickly convert financial assets into cash when needed

d .

encouraging people not to buy goods and services

Answer:

c

Question 26 Finance has its origins in:

a .

economics and statistics

b .

accounting and sociology

c .

accounting and economics

d .

psychology and mathematics

Answer:

c

Question 27 A ____________ is a short-term debt instrument issued by commercial banks in denominations of $100,000 or more with typical maturities ranging from one month to one year that have an active secondary market that allows shortterm investors to easily match their cash or liquidity needs when they arise.

a .

negotiable certificate of deposit (NCD)

b .

A repurchase agreement

c .

government bond

d .

money market security

Answer:

a

Question 28 Which of the following financial institutions market seasoned  instruments and securities?

a .

brokerage firms

b .

finance companies

c .

mortgage lenders

d .

commercial banks

Answer:

a

Question 29 If the interest rate is greater than 0%, then a dollar today is worth

a .

more than a dollar tomorrow

b .

the same as a dollar tomorrow

c .

less than a dollar tomorrow

d .

there is not sufficient information to tell

Answer:

a

Question 30 The possible conflict between managers and owners is sometimes called the

a .

principal-subordinate problem

b .

principal-agent problem

c .

boss-subordinate problem

d .

boss-agent problem

Answer:

b...