Question 1

An area of finance that involves the study of organizations or intermediaries that help the financial system operate efficiently and transfer funds from savers and investors to individuals, businesses, and governments that seek to spend or invest the funds in physical assets (inventories, buildings, and equipment) is called:

Accepted Answer

A)  financial management
B)  investments
C)  financial institutions
D)  financial markets
E)  none of the above C

Question 2

Major participants in the secondary mortgage markets include all of the following except:

Accepted Answer

A)  mortgage companies
B)  depository institutions such as banks and credit unions
C)  Ginnie Mae
D)  Fannie Mae
E)  all of the above are participants E

Question 3

Brokerage firms do not perform which of the following functions?

Accepted Answer

A)  handle shares of ownership
B)  create money
C)  market existing securities
D)  they perform all the above functions B

Question 4

The financial environment:

Accepted Answer

A)  encompasses the financial markets and global interactions that contribute to an efficiently operating economy.
B)  encompasses the financial institutions and financial markets that contribute to an efficiently operating economy.
C)  encompasses the financial system, financial institutions, financial markets, business firms, individuals, and global interactions that contribute to an efficiently operating economy.
D)  none of the above.

Question 5

Intermediaries that help the financial system operate efficiently and transfer funds from savers and investors to individuals, businesses, and governments that seek to spend or invest the funds are known as:

Accepted Answer

A)  financial markets
B)  financial institutions
C)  securities markets
D)  government organizations

Question 6

A credit score is a number that indicates the creditworthiness or likelihood that a borrower will make loan payments when due

Accepted Answer

A) True 
 B)False

Question 7

_______________ is the study of how growth-driven, performance-focused, early-stage (from development through early rapid growth) firms raise financial capital and manage their operations and assets.

Accepted Answer

A)  Personal finance
B)  Corporate finance
C)  Entrepreneurial finance
D)  Investment banking
E)  none of the above

Question 8

________________ involves making decisions relating to issuing and investing in stocks and bonds.

Accepted Answer

A)  Financial economics
B)  Financial management
C)  Investment management
D)  Asset allocation
E)  none of the above

Question 9

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 10

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 11

Derivative securities may be used to speculate on the future price direction of the underlying financial assets or to reduce price risk associated with holding the underlying financial assets.

Accepted Answer

A) True 
 B)False

Question 12

A mortgage-backed security is an investment created by using a house as collateral for a loan.

Accepted Answer

A) True 
 B)False

Question 13

Which statement best describes the six principles of finance?

Accepted Answer

A)  Money has a time value; Higher returns are expected for taking on more risk; Diversification of investments does not impact risk; Financial markets are efficient in pricing securities; Manager and stockholder objectives may differ; Reputation matters.
B)  Money has a time value; Higher returns are expected for taking on more risk; Diversification of investments can reduce risk; Financial markets are efficient in pricing securities; Manager and stockholder objectives may differ; Reputation matters.
C)  Money has a time value; Higher returns are expected for taking on more risk; Diversification of investments can reduce risk; Financial markets are inefficient in pricing securities; Manager and stockholder objectives may differ; Reputation matters.
D)  Money has a time value; Higher returns are expected for taking on more risk; Diversification of investments can reduce risk; Financial markets are efficient in pricing securities; Manager and stockholder objectives may differ; Reputation doesn't matter.

Question 14

An effective financial system is a complex mix of government and policy makers, a monetary system, financial institutions, and financial markets that interact to expedite the flow of financial capital from savings into investment.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A)  greater risk.
B)  higher cost.
C)  longer useful life.
D)  more complex designs.
E)  none of the above.

Question 16

The principle of finance that "reputation matters" sometimes is harmed by the different objectives of owners and managers.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is false?

Accepted Answer

A)  During the past couple of decades, generally high fixed-rate mortgage loan interest rates and the desire to extend housing ownership to more individuals in the U.S., the use of adjustable-rate mortgages grew in usage.
B)  An adjustable-rate mortgage (ARM)  has an interest rate that changes or varies over time with market-determined interest rates on a U.S.treasury bill or other debt security.
C)  The interest rate on an ARM is often adjusted annually to reflect changes in treasury bill rates (or other interest rate benchmark) .
D)  Lenders typically offer ARMs with variable interest rates for one to five years with a provision to switch to a fixed-rate over the remaining life of the ARM.
E)  all of the above statements are true

Question 18

Finance has its origins in:

Accepted Answer

A)  economics and statistics
B)  accounting and mathematics
C)  management and operations
D)  economics and accounting

Question 19

Career opportunities in finance involving both treasury and control functions are generally associated with:

Accepted Answer

A)  business financial management
B)  financial intermediaries
C)  securities markets
D)  government organizations

Question 20

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

Accepted Answer

A)  blending
B)  asset allocation
C)  diversification
D)  portfolio segmentation
E)  none of the above

Exam 1: The Financial Environment

Major participants in the secondary mortgage markets include all of the following except:

Brokerage firms do not perform which of the following functions?

The financial environment:

Intermediaries that help the financial system operate efficiently and transfer funds from savers and investors to individuals, businesses, and governments that seek to spend or invest the funds are known as:

A credit score is a number that indicates the creditworthiness or likelihood that a borrower will make loan payments when due

_______________ is the study of how growth-driven, performance-focused, early-stage (from development through early rapid growth) firms raise financial capital and manage their operations and assets.

________________ involves making decisions relating to issuing and investing in stocks and bonds.

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.

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

Derivative securities may be used to speculate on the future price direction of the underlying financial assets or to reduce price risk associated with holding the underlying financial assets.

A mortgage-backed security is an investment created by using a house as collateral for a loan.

Which statement best describes the six principles of finance?

An effective financial system is a complex mix of government and policy makers, a monetary system, financial institutions, and financial markets that interact to expedite the flow of financial capital from savings into investment.

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

The principle of finance that "reputation matters" sometimes is harmed by the different objectives of owners and managers.

Which of the following statements is false?

Finance has its origins in:

Career opportunities in finance involving both treasury and control functions are generally associated with:

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