Question 1

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

Accepted Answer

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

Question 2

The possible conflict between managers and owners is sometimes called the

Accepted Answer

A)  principal-subordinate problem 
B)  principal-agent problem 
C)  boss-subordinate problem 
D)  boss-agent problem

Question 3

The _________________ is primarily responsible for the amount of money that is created, although most of the money is actually created by depository institutions.

Accepted Answer

A)  Securities Exchange Commission 
B)  Federal Treasury 
C)  Federal Reserve System 
D)  Financial Asset Oversight Board

Question 4

Involves marketing and selling or leasing residential or commercial property.

Accepted Answer

A)  Insurance broker 
B)  Research analyst 
C)  Real estate broker 
D)  Mortgage analyst

Question 5

The principle of finance that "lower returns are expected for taking on less risk" implies that rational investors would choose a risky investment only if they feel the expected return is high enough to justify the greater risk.

Accepted Answer

A) True 
 B)False

Question 6

Finance has its origins in:

Accepted Answer

A)  economics and statistics 
B)  accounting and sociology 
C)  accounting and economics 
D)  psychology and mathematics

Question 7

Among the six principles of finance, all are included except:

Accepted Answer

A)  All decisions are ultimately financial decisions. 
B)  Higher returns are expected for taking on more risk 
C)  Diversification of investments can reduce risk 
D)  Financial markets are efficient in pricing securities

Question 8

The saving-investment process involves which of the following financial functions:

Accepted Answer

A)  creating and transferring money 
B)  accumulating savings and lending and investing money 
C)  marketing and transferring financial assets 
D)  selling non-financial assets

Question 9

The principle of finance that "management objectives may differ from owner objectives" implies that owner returns may suffer as a result of manager objectives.

Accepted Answer

A) True 
 B)False

Question 10

An area of finance that involves financial planning, asset management and fund-raising decisions to enhance the value of businesses is called:

Accepted Answer

A)  financial management 
B)  investments 
C)  financial institutions 
D)  Financial Markets: Characteristics and Types

Question 11

_________________________________________ are crucial elements of the financial environment and well-developed financial systems.

Accepted Answer

A)  Businesses and the federal government 
B)  International organizations such as the World Bank and International Monetary Fund 
C)  Well-developed barter systems 
D)  Financial institutions, financial markets, and investment and financial management

Question 12

The six principles of finance include (1) Money has a time value, (2) Higher returns are expected for taking on more risk, (3) Diversification of investments can reduce risk, (4) Financial markets are efficient in pricing securities, (5) Manager and stockholder objectives may differ, and (6) Reputation matters.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

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

Question 14

Involves conducting financial analysis and valuation of new securities being issued.

Accepted Answer

A)  Stockbroker 
B)  Security analyst 
C)  Investment banking analyst 
D)  Financial planner assistant

Question 15

The principle of finance that "financial markets are efficient in pricing securities" implies that the prices of securities reflect some information available to the public and that when new information becomes available, prices change over time to reflect that information.

Accepted Answer

A) True 
 B)False

Question 16

___________________ are intermediaries, such as banks, insurance companies, and investment companies that engage in financial activities to aid the flow of funds from savers to borrowers or investors.

Accepted Answer

A)  Financial Institutions 
B)  Financial market organizations 
C)  Federal agencies 
D)  International financial organizations

Question 17

Some risk can be removed by investing in several different assets or securities.

Accepted Answer

A) True 
 B)False

Question 18

Capital markets are markets where equity securities and debt securities with maturities of greater than one year are traded.

Accepted Answer

A) True 
 B)False

Question 19

Crucial elements of well-developed financial systems include all of the following except:

Accepted Answer

A)  government control of the economy 
B)  financial intermediaries 
C)  Financial Markets: Characteristics and Types 
D)  an efficient monetary system

Question 20

An economy's _____________________ is the interaction of policy makers, a monetary system, financial institutions, and financial markets to expedite the flow of financial capital from savings into investment:

Accepted Answer

A)  banking system 
B)  stock market 
C)  capital market 
D)  financial system

Exam 1: The Financial Environment

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

The possible conflict between managers and owners is sometimes called the

The _________________ is primarily responsible for the amount of money that is created, although most of the money is actually created by depository institutions.

Involves marketing and selling or leasing residential or commercial property.

The principle of finance that "lower returns are expected for taking on less risk" implies that rational investors would choose a risky investment only if they feel the expected return is high enough to justify the greater risk.

Finance has its origins in:

Among the six principles of finance, all are included except:

The saving-investment process involves which of the following financial functions:

The principle of finance that "management objectives may differ from owner objectives" implies that owner returns may suffer as a result of manager objectives.

An area of finance that involves financial planning, asset management and fund-raising decisions to enhance the value of businesses is called:

_________________________________________ are crucial elements of the financial environment and well-developed financial systems.

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

Involves conducting financial analysis and valuation of new securities being issued.

The principle of finance that "financial markets are efficient in pricing securities" implies that the prices of securities reflect some information available to the public and that when new information becomes available, prices change over time to reflect that information.

___________________ are intermediaries, such as banks, insurance companies, and investment companies that engage in financial activities to aid the flow of funds from savers to borrowers or investors.

Some risk can be removed by investing in several different assets or securities.

Capital markets are markets where equity securities and debt securities with maturities of greater than one year are traded.

Crucial elements of well-developed financial systems include all of the following except:

An economy's _____________________ is the interaction of policy makers, a monetary system, financial institutions, and financial markets to expedite the flow of financial capital from savings into investment: