1
Copyright © 2025 Pearson Education, Inc.
zl zl zl zl zl
,TEST BANK FOR zl zl
Financial Management Core Concepts, 5th edition Raymond Brooks Jimmy Yang Chapter 1
zl zl zl zl zl zl zl zl zl zl zl
-18
Chapter 1 Financial Management zl z l z l zl
1.1 The Cycle of Money zl zl zl
1) At its most basic level, the function of financial intermediaries is to
zl zl zl . zl zl zl zl zl zl zl zl zl
A) track and report interest rates zl zl zl zl
B) move money from lenders to borrowers and back again
zl zl zl zl zl zl zl zl
C) report all financial transactions to the federal government
zl zl zl zl zl zl zl
D) effect a transfer of wealth in society
zl zl zl zl zl zl zl
Answer: B z l
Diff: 1 zl
Topic: 1.1 The Cycle of Money AACSB:
z l zl zl zl zl zl
Analytical Thinking
z l zl
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrow
z l zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ing and lending.
zl zl
2) Which of the following is NOT an example of a financial transaction?
zl zl zl zl zl zl zl zl zl zl zl
A) Your parents use their credit card to pay for your current term's college tuition.
zl zl zl zl zl zl zl zl zl zl zl zl zl
B) You use the ATM at Heathrow airport in London to withdraw British pounds.
zl zl zl zl zl zl zl zl zl zl zl zl
C) Your roommate lends you $20 and you repay it in one week.
zl zl zl zl zl zl zl zl zl zl zl
D) All of the above are financial transactions.
zl zl zl zl zl zl zl
Answer: D z l
Diff: 2 zl
Topic: 1.1 The Cycle of Money AACSB:
z l zl zl zl zl zl
Analytical Thinking
z l zl
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrow
z l zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ing and lending.
zl zl
3) The movement of money from lender to borrower and back again is known as
zl . zl zl zl zl zl zl zl zl zl zl zl zl zl
A) the circle of life zl zl zl
B) corporate finance zl
C) the cycle of money zl zl zl
D) money laundering zl zl
Answer: C z l
Diff: 1 zl
Topic: 1.1 The Cycle of Money AACSB:
z l zl zl zl zl zl
Analytical Thinking
z l zl
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrow
z l zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ing and lending.
zl zl
Hmwrk Questions: * Taken from "Prepping for Exams" questions at the end of the chapter.
zl z l zl zl zl zl zl zl zl zl zl zl zl zl
2
Copyright © 2025 Pearson Education, Inc.
zl zl zl zl zl
,4) The common objective of borrowing and lending is to
zl . zl zl zl zl zl zl zl zl
A) make all parties better off zl zl zl zl
B) gain a profit at the other's expense zl zl zl zl zl zl
C) make a firm or individual appear more liquid than is really the case
zl zl zl zl zl zl zl zl zl zl zl zl
D) thwart regulatory authority zl zl zl
Answer: A z l
Diff: 1 zl
Topic: 1.1 The Cycle of Money AACSB:
z l zl zl zl zl zl
Analytical Thinking
z l zl
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrow
z l zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ing and lending. zl zl
5) Which of the following is NOT a function of a financial intermediary in the le
zl zl zl zl zl zl zl zl zl zl zl zl zl zl
nding/borrowing process? zl
A) To help establish terms of the lending/borrowing agreement
zl zl zl zl zl zl zl
B) To match the borrower and the lender
zl zl zl zl zl zl
C) To bear the risk that the lender will not repay
zl zl zl zl zl zl zl zl zl
D) To bear the risk that the borrower will not repay A
zl zl zl zl zl zl zl zl zl zl
nswer: C z l
Diff: 1 zl
Topic: 1.1 The Cycle of Money AACSB:
z l zl zl zl zl zl
Analytical Thinking
z l zl
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrow
z l zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ing and lending. zl zl
6) Professor Gaston, your History teacher, borrows money at a rate of 6% per year from the Vall
zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ey State Bank for a tuition loan for her son. You have $1,200 deposited into your checking accoun
zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
t at the same bank earning a rate of 0.5% per year. Which of the following statements is TRUE?
zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
A) The bank is criminally liable to you for paying an interest rate lower than the expected rate of infl
zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ation.
B) You and your professor have an obvious conflict of interest because you have accounts at the sa
zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
me financial institution.
zl zl
C) You benefit from earning interest on your deposit, safety for your funds, and having a re
zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
cognizable means for paying for your financial obligations without having to hold cash.
zl zl zl zl zl zl zl zl zl zl zl zl
D) Your professor is the only party to be made worse off by this example because she is the only par
zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ty paying net interest.
zl zl zl
Answer: C z l
Explanation: Both you and your professor are using services typically provided by banks. There is
z l zl zl zl zl zl zl zl zl zl zl zl zl zl zl
no conflict of interest.
zl zl zl
Diff: 2 zl
Topic: 1.1 The Cycle of Money AACSB:
z l zl zl zl zl zl
Analytical Thinking
z l zl
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrow
z l zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ing and lending. zl zl
3
Copyright © 2025 Pearson Education, Inc. zl zl zl zl zl
, 7) The basic function of financial intermediaries is to move advice from lenders to borrowers and ba
zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ck to lenders.
zl zl
Answer: FALSE z l
Explanation: The basic function of financial intermediaries is to move MONEY from lenders to borrow
z l zl zl zl zl zl zl zl zl zl zl zl zl zl
ers and back to lenders.
zl zl zl zl
Diff: 1 zl
Topic: 1.1 The Cycle of Money AACSB:
z l zl zl zl zl zl
Analytical Thinking
z l zl
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrow
z l zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ing and lending.
zl zl
8) In the lending/borrowing process, a financial intermediary function is to bear the risk that the bo
zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
rrower will not repay. zl zl zl
Answer: TRUE zl zl
Diff: 1 zl
Topic: 1.1 The Cycle of Money AACSB:
z l zl zl zl zl zl
Analytical Thinking
z l zl
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrow
z l zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ing and lending.
zl zl
9) All financial transactions have a buyer and a seller. A
zl zl zl zl zl zl zl zl zl
nswer: TRUE z l
Diff: 1 zl
Topic: 1.1 The Cycle of Money AACSB:
z l zl zl zl zl zl
Analytical Thinking
z l zl
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrow
z l zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ing and lending.
zl zl
10) Give three examples of a financial transaction.
zl zl zl zl zl zl
Answer: (1) Your parents use their credit card to pay some of your college expenses.
z l zl zl zl zl zl zl zl zl zl zl zl zl zl
(2) You use the ATM to withdraw funds so you can buy your best friend a birthday gift.
zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
(3) Your roommate lends you $20 and you repay it when you get your next pay check. Di
zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ff: 2 zl
Topic: 1.1 The Cycle of Money AACSB:
z l zl zl zl zl zl
Analytical Thinking
z l zl
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrow
z l zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ing and lending.
zl zl
1.2 Overview of Finance Areas zl zl zl
1) Which of the following best identifies the four main areas of finance?
zl zl zl zl zl zl zl zl zl zl zl
A) Exchange rate management, investments, financial institutions and markets, international fi
zl zl zl zl zl zl zl zl zl
nance
B) Corporate finance, investments, capital structure, international finance
zl zl zl zl zl zl
C) Corporate finance, investments, financial institutions and markets, international finance
zl zl zl zl zl zl zl zl
D) Corporate finance, capital budgeting, financial institutions and markets, regulation A
zl zl zl zl zl zl zl zl zl
nswer: C z l
4
Copyright © 2025 Pearson Education, Inc. zl zl zl zl zl
Copyright © 2025 Pearson Education, Inc.
zl zl zl zl zl
,TEST BANK FOR zl zl
Financial Management Core Concepts, 5th edition Raymond Brooks Jimmy Yang Chapter 1
zl zl zl zl zl zl zl zl zl zl zl
-18
Chapter 1 Financial Management zl z l z l zl
1.1 The Cycle of Money zl zl zl
1) At its most basic level, the function of financial intermediaries is to
zl zl zl . zl zl zl zl zl zl zl zl zl
A) track and report interest rates zl zl zl zl
B) move money from lenders to borrowers and back again
zl zl zl zl zl zl zl zl
C) report all financial transactions to the federal government
zl zl zl zl zl zl zl
D) effect a transfer of wealth in society
zl zl zl zl zl zl zl
Answer: B z l
Diff: 1 zl
Topic: 1.1 The Cycle of Money AACSB:
z l zl zl zl zl zl
Analytical Thinking
z l zl
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrow
z l zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ing and lending.
zl zl
2) Which of the following is NOT an example of a financial transaction?
zl zl zl zl zl zl zl zl zl zl zl
A) Your parents use their credit card to pay for your current term's college tuition.
zl zl zl zl zl zl zl zl zl zl zl zl zl
B) You use the ATM at Heathrow airport in London to withdraw British pounds.
zl zl zl zl zl zl zl zl zl zl zl zl
C) Your roommate lends you $20 and you repay it in one week.
zl zl zl zl zl zl zl zl zl zl zl
D) All of the above are financial transactions.
zl zl zl zl zl zl zl
Answer: D z l
Diff: 2 zl
Topic: 1.1 The Cycle of Money AACSB:
z l zl zl zl zl zl
Analytical Thinking
z l zl
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrow
z l zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ing and lending.
zl zl
3) The movement of money from lender to borrower and back again is known as
zl . zl zl zl zl zl zl zl zl zl zl zl zl zl
A) the circle of life zl zl zl
B) corporate finance zl
C) the cycle of money zl zl zl
D) money laundering zl zl
Answer: C z l
Diff: 1 zl
Topic: 1.1 The Cycle of Money AACSB:
z l zl zl zl zl zl
Analytical Thinking
z l zl
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrow
z l zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ing and lending.
zl zl
Hmwrk Questions: * Taken from "Prepping for Exams" questions at the end of the chapter.
zl z l zl zl zl zl zl zl zl zl zl zl zl zl
2
Copyright © 2025 Pearson Education, Inc.
zl zl zl zl zl
,4) The common objective of borrowing and lending is to
zl . zl zl zl zl zl zl zl zl
A) make all parties better off zl zl zl zl
B) gain a profit at the other's expense zl zl zl zl zl zl
C) make a firm or individual appear more liquid than is really the case
zl zl zl zl zl zl zl zl zl zl zl zl
D) thwart regulatory authority zl zl zl
Answer: A z l
Diff: 1 zl
Topic: 1.1 The Cycle of Money AACSB:
z l zl zl zl zl zl
Analytical Thinking
z l zl
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrow
z l zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ing and lending. zl zl
5) Which of the following is NOT a function of a financial intermediary in the le
zl zl zl zl zl zl zl zl zl zl zl zl zl zl
nding/borrowing process? zl
A) To help establish terms of the lending/borrowing agreement
zl zl zl zl zl zl zl
B) To match the borrower and the lender
zl zl zl zl zl zl
C) To bear the risk that the lender will not repay
zl zl zl zl zl zl zl zl zl
D) To bear the risk that the borrower will not repay A
zl zl zl zl zl zl zl zl zl zl
nswer: C z l
Diff: 1 zl
Topic: 1.1 The Cycle of Money AACSB:
z l zl zl zl zl zl
Analytical Thinking
z l zl
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrow
z l zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ing and lending. zl zl
6) Professor Gaston, your History teacher, borrows money at a rate of 6% per year from the Vall
zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ey State Bank for a tuition loan for her son. You have $1,200 deposited into your checking accoun
zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
t at the same bank earning a rate of 0.5% per year. Which of the following statements is TRUE?
zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
A) The bank is criminally liable to you for paying an interest rate lower than the expected rate of infl
zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ation.
B) You and your professor have an obvious conflict of interest because you have accounts at the sa
zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
me financial institution.
zl zl
C) You benefit from earning interest on your deposit, safety for your funds, and having a re
zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
cognizable means for paying for your financial obligations without having to hold cash.
zl zl zl zl zl zl zl zl zl zl zl zl
D) Your professor is the only party to be made worse off by this example because she is the only par
zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ty paying net interest.
zl zl zl
Answer: C z l
Explanation: Both you and your professor are using services typically provided by banks. There is
z l zl zl zl zl zl zl zl zl zl zl zl zl zl zl
no conflict of interest.
zl zl zl
Diff: 2 zl
Topic: 1.1 The Cycle of Money AACSB:
z l zl zl zl zl zl
Analytical Thinking
z l zl
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrow
z l zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ing and lending. zl zl
3
Copyright © 2025 Pearson Education, Inc. zl zl zl zl zl
, 7) The basic function of financial intermediaries is to move advice from lenders to borrowers and ba
zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ck to lenders.
zl zl
Answer: FALSE z l
Explanation: The basic function of financial intermediaries is to move MONEY from lenders to borrow
z l zl zl zl zl zl zl zl zl zl zl zl zl zl
ers and back to lenders.
zl zl zl zl
Diff: 1 zl
Topic: 1.1 The Cycle of Money AACSB:
z l zl zl zl zl zl
Analytical Thinking
z l zl
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrow
z l zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ing and lending.
zl zl
8) In the lending/borrowing process, a financial intermediary function is to bear the risk that the bo
zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
rrower will not repay. zl zl zl
Answer: TRUE zl zl
Diff: 1 zl
Topic: 1.1 The Cycle of Money AACSB:
z l zl zl zl zl zl
Analytical Thinking
z l zl
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrow
z l zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ing and lending.
zl zl
9) All financial transactions have a buyer and a seller. A
zl zl zl zl zl zl zl zl zl
nswer: TRUE z l
Diff: 1 zl
Topic: 1.1 The Cycle of Money AACSB:
z l zl zl zl zl zl
Analytical Thinking
z l zl
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrow
z l zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ing and lending.
zl zl
10) Give three examples of a financial transaction.
zl zl zl zl zl zl
Answer: (1) Your parents use their credit card to pay some of your college expenses.
z l zl zl zl zl zl zl zl zl zl zl zl zl zl
(2) You use the ATM to withdraw funds so you can buy your best friend a birthday gift.
zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
(3) Your roommate lends you $20 and you repay it when you get your next pay check. Di
zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ff: 2 zl
Topic: 1.1 The Cycle of Money AACSB:
z l zl zl zl zl zl
Analytical Thinking
z l zl
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrow
z l zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl zl
ing and lending.
zl zl
1.2 Overview of Finance Areas zl zl zl
1) Which of the following best identifies the four main areas of finance?
zl zl zl zl zl zl zl zl zl zl zl
A) Exchange rate management, investments, financial institutions and markets, international fi
zl zl zl zl zl zl zl zl zl
nance
B) Corporate finance, investments, capital structure, international finance
zl zl zl zl zl zl
C) Corporate finance, investments, financial institutions and markets, international finance
zl zl zl zl zl zl zl zl
D) Corporate finance, capital budgeting, financial institutions and markets, regulation A
zl zl zl zl zl zl zl zl zl
nswer: C z l
4
Copyright © 2025 Pearson Education, Inc. zl zl zl zl zl
