Question 1

When current economic conditions are poor, people are _______ inclined to save, and when future economic conditions are predicted to be poor people are _______ inclined to save.

Accepted Answer

A)   less; more
B)   less; less
C)   more; more
D)   more; lessE) A) and B)
F) B) and C)

Question 2

When markets are more liquid, interest rates are _______ and the level of investment is _______.

Accepted Answer

A)   lower; higher
B)   lower; lower
C)   higher; higher
D)   higher; lowerE) A) and D)
F) None of the above

Question 3

Which of the following is a liquidity provider?

Accepted Answer

A)   A used car salesman
B)   A stock broker
C)   A real estate agent
D)   All of these are liquidity providers.E) A) and C)
F) B) and C)

Question 4

Which of the following exemplifies a buyer in a financial market?

Accepted Answer

A)   A family buying a new house
B)   A student saving money from a summer job for college
C)   A corporation loaning money to other firms
D)   A family putting money away for the futureE) B) and C)
F) All of the above

Question 5

A stock is:

Accepted Answer

A)   a financial asset that represents partial ownership of a company.
B)   a payment made periodically to all shareholders of a company.
C)   an agreement in which a lender gives money to a borrower in exchange for a promise to repay the amount loaned plus an agreed-upon amount of interest.
D)   a promise by a bond issuer to repay a loan at a specified maturity date and to pay periodic interest at a specific percentage rate.E) A) and D)
F) C) and D)

Question 6

Diversification of assets cannot eliminate _______ risk.

Accepted Answer

A)   idiosyncratic
B)   market
C)   individual
D)   downsideE) A) and D)
F) A) and C)

Question 7

A bond is essentially:

Accepted Answer

A)   a stock.
B)   a loan.
C)   an equity.
D)   a derivative.E) All of the above
F) None of the above

Question 8

Index funds, which replicate the movements of a stock exchange rather than trying to beat the market, follow:

Accepted Answer

A)   fundamental analysis.
B)   technical analysis.
C)   the efficient market hypothesis.
D)   present value analysis.E) C) and D)
F) A) and C)

Question 9

More diversification _______ saving, which _______ economic growth.

Accepted Answer

A)   increases; promotes,
B)   decreases; promotes
C)   increases; stifles
D)   decreases; stiflesE) All of the above
F) None of the above

Question 10

The portion of income that is not immediately spent on the consumption of goods and services is called:

Accepted Answer

A)   savings.
B)   the reserve requirement.
C)   investment.
D)   loanable funds.E) A) and D)
F) A) and C)

Question 11

An asset that is considered to be liquid:

Accepted Answer

A)   can be sold quickly for cash without much loss of value.
B)   cannot be sold quickly for cash, regardless of value.
C)   can be sold quickly for cash, but tends to lose value.
D)   can easily be traded for other assets.E) A) and B)
F) C) and D)

Question 12

The current value of a stream of profits in the future is:

Accepted Answer

A)   estimated future value.
B)   hypothetical value.
C)   net present value.
D)   fundamental value.E) C) and D)
F) B) and C)

Question 13

Information asymmetries occur when:

Accepted Answer

A)   one participant in a transaction has more information than another.
B)   information isn't readily available to anyone involved in a transaction.
C)   both participants in a transaction have equal information.
D)   None of these are true.E) B) and D)
F) A) and B)

Question 14

One of the reasons that interest rates vary for different type of loans is:

Accepted Answer

A)   the length of time to repay the loan.
B)   the amount of the loan.
C)   government policy.
D)   the exchange rate.E) B) and C)
F) A) and D)

Question 15

In an open economy, national savings can be _______ investment.

Accepted Answer

A)   more than
B)   less than
C)   equal to
D)   All of these are true.E) B) and C)
F) A) and C)

Question 16

The risk of a borrower defaulting on a loan is known as:

Accepted Answer

A)   credit risk.
B)   default risk.
C)   loan risk.
D)   asset risk.E) B) and C)
F) None of the above

Question 17

In the market for loanable funds, saving is like:

Accepted Answer

A)   selling the right to use your money for a time.
B)   buying the right to use someone else's money.
C)   selling the right to use someone else's money.
D)   buying the right to use your money for a time.E) All of the above
F) C) and D)

Question 18

Financial intermediaries are:

Accepted Answer

A)   institutions that channel funds from people who have them to people who want them.
B)   government institutions who bring together buyers and sellers in a market.
C)   institutions that negotiate terms of settlement between lenders and borrowers in default.
D)   institutions that determine market-wide interest rates for certain financial products.E) None of the above
F) All of the above

Question 19

A loan is:

Accepted Answer

A)   a financial asset that represents partial ownership of a company.
B)   a payment made periodically to all shareholders of a company.
C)   an agreement in which a lender gives money to a borrower in exchange for a promise to repay the amount loaned plus an agreed-upon amount of interest.
D)   a promise by a bond issuer to repay a loan at a specified maturity date and to pay periodic interest at a specific percentage rate.E) None of the above
F) B) and C)

Question 20

In a closed economy, income equals:

Accepted Answer

A)   consumption plus net exports.
B)   consumption plus savings.
C)   consumption minus savings.
D)   savings plus investment.E) B) and C)
F) A) and D)

Exam 14: Thebasics of Finance

In the market for loanable funds, saving is like:

Correct AnswerverifiedShow Answer

When markets are more liquid, interest rates are _______ and the level of investment is _______.

Correct AnswerverifiedShow Answer

When current economic conditions are poor, people are _______ inclined to save, and when future economic conditions are predicted to be poor people are _______ inclined to save.

Correct AnswerverifiedShow Answer

An asset that is considered to be liquid:

Correct AnswerverifiedShow Answer

A bond is essentially:

Correct AnswerverifiedShow Answer

Which of the following is a liquidity provider?

Correct AnswerverifiedShow Answer

One of the reasons that interest rates vary for different type of loans is:

Correct AnswerverifiedShow Answer

The current value of a stream of profits in the future is:

Correct AnswerverifiedShow Answer

A stock is:

Correct AnswerverifiedShow Answer

The risk of a borrower defaulting on a loan is known as:

Correct AnswerverifiedShow Answer

Index funds, which replicate the movements of a stock exchange rather than trying to beat the market, follow:

Correct AnswerverifiedShow Answer

A loan is:

Correct AnswerverifiedShow Answer

The portion of income that is not immediately spent on the consumption of goods and services is called:

Correct AnswerverifiedShow Answer

Financial intermediaries are:

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Information asymmetries occur when:

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Which of the following exemplifies a buyer in a financial market?

Correct AnswerverifiedShow Answer

In a closed economy, income equals:

Correct AnswerverifiedShow Answer

Diversification of assets cannot eliminate _______ risk.

Correct AnswerverifiedShow Answer

In an open economy, national savings can be _______ investment.

Correct AnswerverifiedShow Answer

More diversification _______ saving, which _______ economic growth.

Correct AnswerverifiedShow Answer

Correct Answer
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When markets are more liquid, interest rates are _ and the level of investment is _.

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When current economic conditions are poor, people are _ inclined to save, and when future economic conditions are predicted to be poor people are _ inclined to save.

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More diversification _ saving, which _ economic growth.

Correct Answer
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