1. The primary goal of the financial manager of a profit-seeking organization should be to:
a. maximize market share
b. maximize the owners' wealth
c. increase sales and profit
d. have healthy cash flow
: b, while this SHOULD be their goal sometimes they have their own goals
2. Finance has its origins in:
a. economics and statistics
b. accounting and sociology
c. accounting and economics
d. psychology and mathematics
: c
3. 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 o
: a
4. Crucial elements of the three areas of finance include:
a. financial institutions
b. financial markets
c. investments and financial management
d. all of the above
: d
5. An area of finance that involves the sale or marketing of securities, the analysis of securities, and the management of investment risk through portfolio diversification is referred to as:
a. financial management
b. investments
c. financial institution
: b, definition of investment
6. 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
: c, from the definition of primary markets, initial offering of new securities
7. Select ALL of the following statements that an effective financial system must have:
a. several sets of policy makers who pass laws and make decisions relating to fiscal and monetary policies
b. an efficient monetary system for creating and transferrin
: it must have a, b, and c
8. An area of finance that refers to the physical locations or electronic forums that facilitate the flow of funds among investors, businesses, and governments is called:
a. financial management
b. investments
c. financial institutions
d. financial market
: d, definition of financial markets
9. An area of finance that involves financial planning, asset management and fund-raising decisions to enhance the value of businesses is called:
a. financial management
b. investments
c. financial institutions
d. financial markets
e. none of the above
: a 4 (5) definition of financial management
10. 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
: c
11. An area of finance that involves the study of government institutions and their involvement in rescuing private firms is called:
a. financial management
b. investments
c. financial institutions
d. financial markets
e. none of the above
: e 4 (5) not an area of finance, opinions differ about government rescuing private firms
12. 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
: a 4 (5)
13. The primary securities markets are
a. the markets for previously issued securities such as the New York Stock Exchange (secondary markets)
b. the markets where financial assets such as stocks and bonds are initially issued
c. the three most important
[: b 15 (16)
14. Finance has its origins in:
a. economics and statistics
b. accounting and mathematics
c. management and operations
d. economics and accounting
d 4 (5)
15. Economists use a ___________________ framework to explain how the prices and quantities of goods and services are determined in a free-market economic system.
a. opportunity
b. marginal cost
c. supply-and-demand
d. anti-monopoly
e. none of the above
: c 4 (5)
16. ____________________ provide the record-keeping mechanism for showing ownership of the financial instruments used in the flow of financial funds between savers and borrowers and record revenues, expenses, and profitability of organizations that produc
: b 4 (5-6) Finance has its origins in economics and accounting
17. _____________________________ are crucial elements of the three areas of finance.
a. Businesses and the federal government
b. International organizations such as the World Bank and International Monetary Fund
c. Well-developed barter systems
d. Financ
: d 5 (5-6) & Fig 1.1 and slide 2
18. ___________________ 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.
a. Financial Institutions
b. Financial market orga
: a 14, 16 (5, 8) being efficient is important for businesses to be successful
19. ____________________ in business involves making decisions relating to the efficient use of financial resources in the production and sale of goods and services.
a. Financial management
b. Financial economics
c. Federal agencies
d. International finan
: a 4 (5)
20. Maximizing _____________________ is accomplished through effective financial planning and analysis, asset management, and the acquisition of financial capital.
a. the value of perquisites.
b. the owners' wealth.
c. the firm's profits
d. the firm's ear
: b 5 (6) owners' wealth maximization should be the goal of financial decision makers
21. Successful businesses typically progress through a series of life-cycle stages-from the idea stage to exiting the business; these five stages include the:
a. development stage, startup stage, survival stage, rapid growth stage, and maturity stage.
b.
: a 6 (7) statement on this page, this is the terminology commonly used for these stages
22. _______________ 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.
a. Personal finance
b. Corporate finance
c. Entrepr
: c 6 (7)
23. _______________ is the study of how individuals prepare for financial emergencies, protect against premature death and the loss of property, and accumulate wealth over time.
a. Personal finance
b. Corporate finance
c. Entrepreneurial finance
d. Invest
: a 6 (7)
24. Reasons we study finance include all of the following except:
a. To make informed economic decisions
b. To make informed personal and business investment decisions
c. To make informed career decisions based on a basic understanding of business finance
: d 6-7 (7-8)
25. Select ALL of the following that are among the six principles of finance:
a. Money has a time value.
b. Higher returns are expected for taking on more risk.
c. Diversification of investments most of the time increases risk.
d. Financial markets are ef
: a, b, and d 8 (10)
26. Select ALL of the following that are not among the six principles of finance:
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
: a and e 8 (10)
27. Which statement best describes the six principles of finance?
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; M
: b 8-11 (10-12)
28. Select ALL of the following that an effective financial system needs:
a. an efficient monetary system
b. to be able to create capital by channeling savings into investment
c. markets in which to buy and sell claims to wealth
d. coins made of either go
: an effective financial system needs a, b, and c 11-12 (13-14)
29. Crucial elements of well-developed financial systems include all of the following except:
a. government control of the economy (not in capitalism)
b. financial intermediaries (institutions)
c. financial markets
d. all of the above
: a 11-12 (13-14) & Fig 1.2 and 1.3 in a capitalistic economic system government should not
control the economy
30. Financial functions in the U.S. financial system include:
a. transferring financial assets
b. creating money
c. accumulating savings
d. all of the above
: d 12-13 (13-14) and Fig 1.3
31. $1,000 invested today at 6% interest would be worth ________ one year from now.
a. $1,600
b. $1,060
c. $1,160
d. $1,006
: b $1,000(1.06) = $1,060
32. 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
: a 8 (10)
33. If the interest rate is equal to 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
: b 8 (10) see example with 6% interest
34. A basic financial function of an effective financial system is a monetary system that performs which of the following?
a. transferring money
b. storing gold and silver to back up money
c. creating jobs
d. transferring real assets
: a 11-12 (13-14) & Fig 1.3
35. 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.
e. none of the abo
:a, since people are risk averse ? they will require a higher expected return to get them to voluntarily take on greater risk
36. Two risky assets can be combined to lower overall risk. This principle is commonly referred to as
a. blending
b. asset allocation
c. diversification
d. portfolio segmentation
e. none of the above
: c, the technical term for this is diversification, studied in more detail in Chapter 12
37. In the United States, most money is created by:
a. depository institutions
b. the United States Treasury
c. capital markets
d. None of the above
: a, "the Federal Reserve System is primarily responsible for the amount of money created although most of the money is created by depository institutions", we will explore this in greater detail in chapters 4 and 5
38. Basic financial functions of an effective financial system include:
a. creating money
b. transferring money
c. accumulating savings
d. all of the above
e. none of the above
: d 11-13 (13, 16) & Fig 1.2 and 1.3
39. The theory of ___________________ implies that information is quickly embedded in prices making it difficult for investors to "beat the market."
a. stock investing
b. efficient markets
c. portfolio management
d. asset allocation
e. none of the above
: b 9 (11) another way of saying the statement on this page
40. The basic components of an effective financial system in a developed economy include:
a. a monetary system
b. a savings-investment process
c. markets for the transfer of financial assets
d. all of the above
: d 11-13 (13-16) & Fig 1.2 and 1.3
41. 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
e. none of the above
: b 10 (12)
42. ______________ behavior refers to how an individual or organization treats others legally, fairly, and honestly.
a. Principal-agent
b. Stakeholder
c. Responsible
d. Ethical
e. none of the above
: d 10 (12)
43. Career opportunities in finance involving both treasury and control functions are generally associated with:
a. business financial management
b. financial intermediaries
c. securities markets
d. government organizations
: a 16 (8) corporations separate these functions, small firms combine them
44. 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. financial markets
b. financial instituti
: b 12 (13-14) both a & c are markets, not intermediaries, intermediaries operation within markets
45. 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:
a. banking system
b. stock market
c. capit
: d 11 (13-14) & Fig 1.2
46. An efficient ______________ that is comprised of a central bank and a banking system that is able to create and transfer a stable medium of exchange called money.
a. allocation system
b. banking system
c. monetary system
d. market system
e. none of th
: c 12 (13-14) & Fig 1.2
47. An effective financial system must have:
a. financial markets that facilitate the transfer of financial assets among individuals, institutions, businesses, and governments.
b. financial institutions or intermediaries that support capital formation eit
: e 11-12 (13-14) & Fig 1.2
48. ________________ facilitate the transfer of financial assets among individuals, institutions, businesses, and governments.
a. Financial markets
b. Government institutions
c. Regulatory authorities
d. none of the above
: a 12 (13-14) & Fig 1.2 and 1.3
49. The _________________ is primarily responsible for the amount of money that is created, although most of the money is actually created by depository institutions.
a. Securities Exchange Commission
b. Federal Treasury
c. Federal Reserve System
d. Finan
: c 13 (14)
50. Functions of the monetary system include all of the following except
a. creating money
b. transferring money
c. accumulating savings
d. all of the above are included as functions of a monetary system
: c 12 (14) & Fig 1.3 accumulating savings is a function of financial institutions
51. markets are where debt securities with maturities of one year or less are issued and traded.
a. Money
b. Capital
c. Primary
d. Secondary
: a 14 (16)
52. markets are where debt instruments or securities with maturities longer than one year and corporate stocks or equity securities are issued and traded.
a. Money
b. Capital
c. Primary
d. Secondary
: b 15 (16)
53. markets are where the initial offering or origination of debt and equity securities takes place.
a. Money
b. Capital
c. Primary
d. Secondary
: c 15 (16)
54. __________ markets are physical locations or electronic forums where debt (bonds and mortgages) and equity.
a. Money
b. Capital
c. Primary
d. Secondary
d 15 (16)
1. The primary goal of the financial manager of a profit-seeking organization should be to:
a. maximize market share
b. maximize the owners' wealth
c. increase sales and profit
d. have healthy cash flow
: b, while this SHOULD be their goal sometimes they have their own goals
2. Finance has its origins in:
a. economics and statistics
b. accounting and sociology
c. accounting and economics
d. psychology and mathematics
: c
3. 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 o
: a
4. Crucial elements of the three areas of finance include:
a. financial institutions
b. financial markets
c. investments and financial management
d. all of the above
: d
5. An area of finance that involves the sale or marketing of securities, the analysis of securities, and the management of investment risk through portfolio diversification is referred to as:
a. financial management
b. investments
c. financial institution
: b, definition of investment
6. 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
: c, from the definition of primary markets, initial offering of new securities
7. Select ALL of the following statements that an effective financial system must have:
a. several sets of policy makers who pass laws and make decisions relating to fiscal and monetary policies
b. an efficient monetary system for creating and transferrin
: it must have a, b, and c
8. An area of finance that refers to the physical locations or electronic forums that facilitate the flow of funds among investors, businesses, and governments is called:
a. financial management
b. investments
c. financial institutions
d. financial market
: d, definition of financial markets
9. An area of finance that involves financial planning, asset management and fund-raising decisions to enhance the value of businesses is called:
a. financial management
b. investments
c. financial institutions
d. financial markets
e. none of the above
: a 4 (5) definition of financial management
10. 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
: c
11. An area of finance that involves the study of government institutions and their involvement in rescuing private firms is called:
a. financial management
b. investments
c. financial institutions
d. financial markets
e. none of the above
: e 4 (5) not an area of finance, opinions differ about government rescuing private firms
12. 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
: a 4 (5)
13. The primary securities markets are
a. the markets for previously issued securities such as the New York Stock Exchange (secondary markets)
b. the markets where financial assets such as stocks and bonds are initially issued
c. the three most important
[: b 15 (16)
14. Finance has its origins in:
a. economics and statistics
b. accounting and mathematics
c. management and operations
d. economics and accounting
d 4 (5)
15. Economists use a ___________________ framework to explain how the prices and quantities of goods and services are determined in a free-market economic system.
a. opportunity
b. marginal cost
c. supply-and-demand
d. anti-monopoly
e. none of the above
: c 4 (5)
16. ____________________ provide the record-keeping mechanism for showing ownership of the financial instruments used in the flow of financial funds between savers and borrowers and record revenues, expenses, and profitability of organizations that produc
: b 4 (5-6) Finance has its origins in economics and accounting
17. _____________________________ are crucial elements of the three areas of finance.
a. Businesses and the federal government
b. International organizations such as the World Bank and International Monetary Fund
c. Well-developed barter systems
d. Financ
: d 5 (5-6) & Fig 1.1 and slide 2
18. ___________________ 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.
a. Financial Institutions
b. Financial market orga
: a 14, 16 (5, 8) being efficient is important for businesses to be successful
19. ____________________ in business involves making decisions relating to the efficient use of financial resources in the production and sale of goods and services.
a. Financial management
b. Financial economics
c. Federal agencies
d. International finan
: a 4 (5)
20. Maximizing _____________________ is accomplished through effective financial planning and analysis, asset management, and the acquisition of financial capital.
a. the value of perquisites.
b. the owners' wealth.
c. the firm's profits
d. the firm's ear
: b 5 (6) owners' wealth maximization should be the goal of financial decision makers
21. Successful businesses typically progress through a series of life-cycle stages-from the idea stage to exiting the business; these five stages include the:
a. development stage, startup stage, survival stage, rapid growth stage, and maturity stage.
b.
: a 6 (7) statement on this page, this is the terminology commonly used for these stages
22. _______________ 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.
a. Personal finance
b. Corporate finance
c. Entrepr
: c 6 (7)
23. _______________ is the study of how individuals prepare for financial emergencies, protect against premature death and the loss of property, and accumulate wealth over time.
a. Personal finance
b. Corporate finance
c. Entrepreneurial finance
d. Invest
: a 6 (7)
24. Reasons we study finance include all of the following except:
a. To make informed economic decisions
b. To make informed personal and business investment decisions
c. To make informed career decisions based on a basic understanding of business finance
: d 6-7 (7-8)
25. Select ALL of the following that are among the six principles of finance:
a. Money has a time value.
b. Higher returns are expected for taking on more risk.
c. Diversification of investments most of the time increases risk.
d. Financial markets are ef
: a, b, and d 8 (10)
26. Select ALL of the following that are not among the six principles of finance:
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
: a and e 8 (10)
27. Which statement best describes the six principles of finance?
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; M
: b 8-11 (10-12)
28. Select ALL of the following that an effective financial system needs:
a. an efficient monetary system
b. to be able to create capital by channeling savings into investment
c. markets in which to buy and sell claims to wealth
d. coins made of either go
: an effective financial system needs a, b, and c 11-12 (13-14)
29. Crucial elements of well-developed financial systems include all of the following except:
a. government control of the economy (not in capitalism)
b. financial intermediaries (institutions)
c. financial markets
d. all of the above
: a 11-12 (13-14) & Fig 1.2 and 1.3 in a capitalistic economic system government should not
control the economy
30. Financial functions in the U.S. financial system include:
a. transferring financial assets
b. creating money
c. accumulating savings
d. all of the above
: d 12-13 (13-14) and Fig 1.3
31. $1,000 invested today at 6% interest would be worth ________ one year from now.
a. $1,600
b. $1,060
c. $1,160
d. $1,006
: b $1,000(1.06) = $1,060
32. 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
: a 8 (10)
33. If the interest rate is equal to 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
: b 8 (10) see example with 6% interest
34. A basic financial function of an effective financial system is a monetary system that performs which of the following?
a. transferring money
b. storing gold and silver to back up money
c. creating jobs
d. transferring real assets
: a 11-12 (13-14) & Fig 1.3
35. 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.
e. none of the abo
:a, since people are risk averse ? they will require a higher expected return to get them to voluntarily take on greater risk
36. Two risky assets can be combined to lower overall risk. This principle is commonly referred to as
a. blending
b. asset allocation
c. diversification
d. portfolio segmentation
e. none of the above
: c, the technical term for this is diversification, studied in more detail in Chapter 12
37. In the United States, most money is created by:
a. depository institutions
b. the United States Treasury
c. capital markets
d. None of the above
: a, "the Federal Reserve System is primarily responsible for the amount of money created although most of the money is created by depository institutions", we will explore this in greater detail in chapters 4 and 5
38. Basic financial functions of an effective financial system include:
a. creating money
b. transferring money
c. accumulating savings
d. all of the above
e. none of the above
: d 11-13 (13, 16) & Fig 1.2 and 1.3
39. The theory of ___________________ implies that information is quickly embedded in prices making it difficult for investors to "beat the market."
a. stock investing
b. efficient markets
c. portfolio management
d. asset allocation
e. none of the above
: b 9 (11) another way of saying the statement on this page
40. The basic components of an effective financial system in a developed economy include:
a. a monetary system
b. a savings-investment process
c. markets for the transfer of financial assets
d. all of the above
: d 11-13 (13-16) & Fig 1.2 and 1.3
41. 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
e. none of the above
: b 10 (12)
42. ______________ behavior refers to how an individual or organization treats others legally, fairly, and honestly.
a. Principal-agent
b. Stakeholder
c. Responsible
d. Ethical
e. none of the above
: d 10 (12)
43. Career opportunities in finance involving both treasury and control functions are generally associated with:
a. business financial management
b. financial intermediaries
c. securities markets
d. government organizations
: a 16 (8) corporations separate these functions, small firms combine them
44. 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. financial markets
b. financial instituti
: b 12 (13-14) both a & c are markets, not intermediaries, intermediaries operation within markets
45. 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:
a. banking system
b. stock market
c. capit
: d 11 (13-14) & Fig 1.2
46. An efficient ______________ that is comprised of a central bank and a banking system that is able to create and transfer a stable medium of exchange called money.
a. allocation system
b. banking system
c. monetary system
d. market system
e. none of th
: c 12 (13-14) & Fig 1.2
47. An effective financial system must have:
a. financial markets that facilitate the transfer of financial assets among individuals, institutions, businesses, and governments.
b. financial institutions or intermediaries that support capital formation eit
: e 11-12 (13-14) & Fig 1.2
48. ________________ facilitate the transfer of financial assets among individuals, institutions, businesses, and governments.
a. Financial markets
b. Government institutions
c. Regulatory authorities
d. none of the above
: a 12 (13-14) & Fig 1.2 and 1.3
49. The _________________ is primarily responsible for the amount of money that is created, although most of the money is actually created by depository institutions.
a. Securities Exchange Commission
b. Federal Treasury
c. Federal Reserve System
d. Finan
: c 13 (14)
50. Functions of the monetary system include all of the following except
a. creating money
b. transferring money
c. accumulating savings
d. all of the above are included as functions of a monetary system
: c 12 (14) & Fig 1.3 accumulating savings is a function of financial institutions
51. markets are where debt securities with maturities of one year or less are issued and traded.
a. Money
b. Capital
c. Primary
d. Secondary
: a 14 (16)
52. markets are where debt instruments or securities with maturities longer than one year and corporate stocks or equity securities are issued and traded.
a. Money
b. Capital
c. Primary
d. Secondary
: b 15 (16)
53. markets are where the initial offering or origination of debt and equity securities takes place.
a. Money
b. Capital
c. Primary
d. Secondary
: c 15 (16)
54. __________ markets are physical locations or electronic forums where debt (bonds and mortgages) and equity.
a. Money
b. Capital
c. Primary
d. Secondary
d 15 (16)