Question 1

Define what cost of capital is and describe why it is important.

Accepted Answer

Cost of capital is the minimum required rate of return on capital investments.It is important because it helps an organization differentiate between investments that will increase or decrease the value of the organization.

Question 2

Which one of the following is the biggest provider of payment mechanisms?

Accepted Answer

A) hedge funds 
B) banks 
C) mutual funds 
D) insurance companies 
A) hedge funds 
B) banks 
C) mutual funds 
D) insurance companies B

Question 3

Short-term financing decisions commonly occur in the:

Accepted Answer

A) primary markets. 
B) secondary markets. 
C) capital markets. 
D) money markets. 
A) primary markets. 
B) secondary markets. 
C) capital markets. 
D) money markets. D

Question 4

A share of Canadian Tire stock is purchased by an individual investor for $75 and later sold to another investor for $125.Who profits from this sale?

Accepted Answer

A) Canadian Tire 
B) the first investor 
C) the second investor 
D) Canadian Tire and both investors 
A) Canadian Tire 
B) the first investor 
C) the second investor 
D) Canadian Tire and both investors

Question 5

Which one of these assists in shifting an individual's consumption forward in time?

Accepted Answer

A) a bank line of credit 
B) a bank savings account 
C) a life insurance policy 
D) a retirement savings plan 
A) a bank line of credit 
B) a bank savings account 
C) a life insurance policy 
D) a retirement savings plan

Question 6

Which of the following actions does not help reduce risk?

Accepted Answer

A) extending the service warranty for your notebook 
B) converting your money market account to a mutual fund account 
C) contracting to sell your farm produce to the neighborhood grocery 
D) buying Japanese yen now when you plan to study in Japan next year 
A) extending the service warranty for your notebook 
B) converting your money market account to a mutual fund account 
C) contracting to sell your farm produce to the neighborhood grocery 
D) buying Japanese yen now when you plan to study in Japan next year

Question 7

Which of the following information is not provided by the financial markets?

Accepted Answer

A) the price of six ounces of gold 
B) the cost of borrowing $500,000 for 5 years 
C) Microsoft's earnings in 2013 
D) the cost of one million yen in U.S.dollars 
A) the price of six ounces of gold 
B) the cost of borrowing $500,000 for 5 years 
C) Microsoft's earnings in 2013 
D) the cost of one million yen in U.S.dollars

Question 8

Foreign currencies are traded:

Accepted Answer

A) only by banks in New York and London. 
B) over the counter. 
C) on both the NYSE and NASDAQ. 
D) on the Intercontinental Exchange. 
A) only by banks in New York and London. 
B) over the counter. 
C) on both the NYSE and NASDAQ. 
D) on the Intercontinental Exchange.

Question 9

The markets for long-term debt and equity are called capital markets.

Accepted Answer

A) True 
 B)False

Question 10

Smaller businesses are especially dependent upon internally generated funds.

Accepted Answer

A) True 
 B)False

Question 11

A bond differs from a share of stock in that a bond:

Accepted Answer

A) represents a claim on the firm. 
B) has more risk. 
C) has guaranteed dividend payments. 
D) has a maturity date. 
A) represents a claim on the firm. 
B) has more risk. 
C) has guaranteed dividend payments. 
D) has a maturity date.

Question 12

Which type of financial institution generally does not accept deposits but does underwrite stock offerings?

Accepted Answer

A) Insurance company 
B) Mutual fund 
C) Commercial bank 
D) Investment bank 
A) Insurance company 
B) Mutual fund 
C) Commercial bank 
D) Investment bank

Question 13

NINJA stands for

Accepted Answer

A) No income, No Job, No Assets 
B) No income, No job, Assets 
C) No interest rate, No Job, No Assets 
D) No insider information, No Jeopardy, No Assets 
A) No income, No Job, No Assets 
B) No income, No job, Assets 
C) No interest rate, No Job, No Assets 
D) No insider information, No Jeopardy, No Assets

Question 14

The main cause of the financial crisis of 2007-2009 was caused by which financial market factor?

Accepted Answer

A) Corporate greed 
B) Agency 
C) Poor economic advice 
D) Lack of understanding about who financial markets operate 
A) Corporate greed 
B) Agency 
C) Poor economic advice 
D) Lack of understanding about who financial markets operate

Question 15

Excess cash held by a firm should be:

Accepted Answer

A) reinvested by the firm in projects offering the lowest rate of return. 
B) reinvested by the firm in projects offering rates of return higher than the cost of capital. 
C) reinvested by the firm in the financial markets. 
D) distributed to bondholders in the form of extra coupon payments. 
A) reinvested by the firm in projects offering the lowest rate of return. 
B) reinvested by the firm in projects offering rates of return higher than the cost of capital. 
C) reinvested by the firm in the financial markets. 
D) distributed to bondholders in the form of extra coupon payments.

Question 16

Describe the difference between the stock market and the fixed income market.Provide one example of each type of security that is traded in each market.

Accepted Answer

Stock market - buy a

Question 17

Long-term financing decisions commonly occur in the:

Accepted Answer

A) option markets. 
B) secondary markets. 
C) capital markets. 
D) money markets. 
A) option markets. 
B) secondary markets. 
C) capital markets. 
D) money markets.

Question 18

A mother in a developing country wants to borrow the equivalent of $20 to enable her to start a small restaurant run by her family.Which type of financing is she looking to obtain?

Accepted Answer

A) public bond issue 
B) IPO 
C) micro loan 
D) futures contract on a commodity 
A) public bond issue 
B) IPO 
C) micro loan 
D) futures contract on a commodity

Question 19

Which one of these may provide a financial return to some investors while not providing any financial return to other investors?

Accepted Answer

A) Mutual funds 
B) Pension funds 
C) Insurance companies 
D) Hedge fund 
A) Mutual funds 
B) Pension funds 
C) Insurance companies 
D) Hedge fund

Question 20

Describe the difference between the money and the capital market.Provide one example of each type of security that is traded in each market.

Accepted Answer

Money market - short term fina

Exam 2: Financial Markets and Institutions

Define what cost of capital is and describe why it is important.

Which one of the following is the biggest provider of payment mechanisms?

Short-term financing decisions commonly occur in the:

A share of Canadian Tire stock is purchased by an individual investor for $75 and later sold to another investor for $125.Who profits from this sale?

Which one of these assists in shifting an individual's consumption forward in time?

Which of the following actions does not help reduce risk?

Which of the following information is not provided by the financial markets?

Foreign currencies are traded:

The markets for long-term debt and equity are called capital markets.

Smaller businesses are especially dependent upon internally generated funds.

A bond differs from a share of stock in that a bond:

Which type of financial institution generally does not accept deposits but does underwrite stock offerings?

NINJA stands for

The main cause of the financial crisis of 2007-2009 was caused by which financial market factor?

Excess cash held by a firm should be:

Describe the difference between the stock market and the fixed income market.Provide one example of each type of security that is traded in each market.

Long-term financing decisions commonly occur in the:

A mother in a developing country wants to borrow the equivalent of $20 to enable her to start a small restaurant run by her family.Which type of financing is she looking to obtain?

Which one of these may provide a financial return to some investors while not providing any financial return to other investors?

Describe the difference between the money and the capital market.Provide one example of each type of security that is traded in each market.

Goals and Governance of the Firm

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, Ipos, and Seasoned Offerings

Debt Policy

Leasing

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters