FIN320 TEST QUESTIONS & VERIFIED
ANSWERS RATED 100% CORRECT
Security - Correct Answer ✔✔ an easily tradeable financial instrument (e.g., stocks,
bonds)
Liquidity - Correct Answer ✔✔ ease of trading an asset quickly at fair value
Most liquid market - Correct Answer ✔✔ foreign exchange
Second most liquid market - Correct Answer ✔✔ U.S. Treasuries
Derivative - Correct Answer ✔✔ a financial instrument whose value derives from
another asset
Futures - Correct Answer ✔✔ standardized, exchange-traded contracts to buy/sell
something at a set future date
Forwards - Correct Answer ✔✔ customized, over-the-counter contracts to buy/sell at a
set future date for hedging/speculation
Moral hazard - Correct Answer ✔✔ incentive to take risk or behave badly when
insulated from consequences
Commercial bank - Correct Answer ✔✔ takes deposits and makes loans; subject to
moral hazard
Conflict of interest (Agency problem) - Correct Answer ✔✔ misalignment between
managers and owners (shareholders)
Restricted stock - Correct Answer ✔✔ company shares that cannot be sold for a period
Corporate governance - Correct Answer ✔✔ mechanisms to align managers' incentives
with shareholders' interests
Portfolio - Correct Answer ✔✔ collection of investment assets
Asset allocation - Correct Answer ✔✔ allocation across broad asset classes (stocks,
bonds, real estate, etc.)
Security selection - Correct Answer ✔✔ choosing specific securities within an asset
class (e.g., Ford vs.)
ANSWERS RATED 100% CORRECT
Security - Correct Answer ✔✔ an easily tradeable financial instrument (e.g., stocks,
bonds)
Liquidity - Correct Answer ✔✔ ease of trading an asset quickly at fair value
Most liquid market - Correct Answer ✔✔ foreign exchange
Second most liquid market - Correct Answer ✔✔ U.S. Treasuries
Derivative - Correct Answer ✔✔ a financial instrument whose value derives from
another asset
Futures - Correct Answer ✔✔ standardized, exchange-traded contracts to buy/sell
something at a set future date
Forwards - Correct Answer ✔✔ customized, over-the-counter contracts to buy/sell at a
set future date for hedging/speculation
Moral hazard - Correct Answer ✔✔ incentive to take risk or behave badly when
insulated from consequences
Commercial bank - Correct Answer ✔✔ takes deposits and makes loans; subject to
moral hazard
Conflict of interest (Agency problem) - Correct Answer ✔✔ misalignment between
managers and owners (shareholders)
Restricted stock - Correct Answer ✔✔ company shares that cannot be sold for a period
Corporate governance - Correct Answer ✔✔ mechanisms to align managers' incentives
with shareholders' interests
Portfolio - Correct Answer ✔✔ collection of investment assets
Asset allocation - Correct Answer ✔✔ allocation across broad asset classes (stocks,
bonds, real estate, etc.)
Security selection - Correct Answer ✔✔ choosing specific securities within an asset
class (e.g., Ford vs.)
