TEST BANK FOR pm pm
Financial Management Core Concepts, 5th edition Raymond Brooks Jimmy Yang Chap
pm pm pm pm pm pm pm pm pm pm
ter 1-18 pm
Chapter 1 pm p m p m Financial Management pm
1.1 The Cycle of Money pm pm pm
1) At its most basic level, the function of financial intermediaries is to
pm pm pm . pm pm pm pm pm pm pm pm pm
A) track and report interest rates
pm pm pm pm
B) move money from lenders to borrowers and back again
pm pm pm pm pm pm pm pm
C) report all financial transactions to the federal government
pm pm pm pm pm pm pm
D) effect a transfer of wealth in societ
pm pm pm pm pm pm
y Answer: B
pm p m
Diff: 1 pm
Topic: 1.1 The Cycle of Money AACS
p m pm pm pm pm pm
B: Analytical Thinking
p m pm
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of b
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
orrowing and lending. pm pm
2) Which of the following is NOT an example of a financial transaction?
pm pm pm pm pm pm pm pm pm pm pm
A) Your parents use their credit card to pay for your current term's college tuition.
pm pm pm pm pm pm pm pm pm pm pm pm pm
B) You use the ATM at Heathrow airport in London to withdraw British pounds.
pm pm pm pm pm pm pm pm pm pm pm pm
C) Your roommate lends you $20 and you repay it in one week.
pm pm pm pm pm pm pm pm pm pm pm
D) All of the above are financial transactions
pm pm pm pm pm pm
. Answer: D
pm p m
Diff: 2 pm
Topic: 1.1 The Cycle of Money AACS
p m pm pm pm pm pm
B: Analytical Thinking
p m pm
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of b
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
orrowing and lending. pm pm
3) The movement of money from lender to borrower and back again is known as
pm pm . pm pm pm pm pm pm pm pm pm pm pm pm
A) the circle of life pm pm pm
B) corporate finance pm
C) the cycle of money pm pm pm
D) money laundering pm
Answer: C
pm p m
Diff: 1 pm
Topic: 1.1 The Cycle of Money AACS
p m pm pm pm pm pm
B: Analytical Thinking
p m pm
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of b
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
orrowing and lending. pm pm
Hmwrk Questions: * Taken from "Prepping for Exams" questions at the end of the chapter.
pm p m pm pm pm pm pm pm pm pm pm pm pm pm
1
Copyright © 2025 Pearson Education, Inc.
,4) The common objective of borrowing and lending is to
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A) make all parties better off pm pm pm pm
B) gain a profit at the other's expense
pm pm pm pm pm pm
C) make a firm or individual appear more liquid than is really the case
pm pm pm pm pm pm pm pm pm pm pm pm
D) thwart regulatory authority pm pm p
Answer: A
m p m
Diff: 1 pm
Topic: 1.1 The Cycle of Money AACS
p m pm pm pm pm pm
B: Analytical Thinking
p m pm
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of b
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
orrowing and lending. pm pm
5) Which of the following is NOT a function of a financial intermediary in t
pm pm pm pm pm pm pm pm pm pm pm pm pm
he lending/borrowing process?
pm pm
A) To help establish terms of the lending/borrowing agreement
pm pm pm pm pm pm pm
B) To match the borrower and the lender
pm pm pm pm pm pm
C) To bear the risk that the lender will not repay
pm pm pm pm pm pm pm pm pm
D) To bear the risk that the borrower will not repa
pm pm pm pm pm pm pm pm pm
y Answer: C
pm p m
Diff: 1 pm
Topic: 1.1 The Cycle of Money AACS
p m pm pm pm pm pm
B: Analytical Thinking
p m pm
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of b
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
orrowing and lending. pm pm
6) Professor Gaston, your History teacher, borrows money at a rate of 6% per year from the
pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
Valley State Bank for a tuition loan for her son. You have $1,200 deposited into your checki
pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
ng account at the same bank earning a rate of 0.5% per year. Which of the following statem
pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
ents is TRUE? pm pm
A) The bank is criminally liable to you for paying an interest rate lower than the expected rate
pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
of inflation.
pm
B) You and your professor have an obvious conflict of interest because you have accounts at t
pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
he same financial institution.
pm pm pm
C) You benefit from earning interest on your deposit, safety for your funds, and having
pm pm pm pm pm pm pm pm pm pm pm pm pm
a recognizable means for paying for your financial obligations without having to hold
pm pm pm pm pm pm pm pm pm pm pm pm pm pm
cash.
D) Your professor is the only party to be made worse off by this example because she is the o
pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
nly party paying net interest.
pm pm pm pm
Answer: C p m
Explanation: Both you and your professor are using services typically provided by banks. Ther
p m pm pm pm pm pm pm pm pm pm pm pm pm
e is no conflict of interest.
pm pm pm pm pm
Diff: 2 pm
Topic: 1.1 The Cycle of Money AACS
p m pm pm pm pm pm
B: Analytical Thinking
p m pm
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of b
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
orrowing and lending. pm pm
2
Copyright © 2025 Pearson Education, Inc.
,7) The basic function of financial intermediaries is to move advice from lenders to borrowers a
pm pm pm pm pm pm pm pm pm pm pm pm pm pm
nd back to lenders.
pm pm pm
Answer: FALSE p m
Explanation: The basic function of financial intermediaries is to move MONEY from lenders to b
p m pm pm pm pm pm pm pm pm pm pm pm pm pm
orrowers and back to lenders. pm pm pm pm
Diff: 1 pm
Topic: 1.1 The Cycle of Money AACS
p m pm pm pm pm pm
B: Analytical Thinking
p m pm
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of b
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
orrowing and lending. pm pm
8) In the lending/borrowing process, a financial intermediary function is to bear the risk that t
pm pm pm pm pm pm pm pm pm pm pm pm pm pm
he borrower will not repay.
pm pm pm pm
Answer: TRUE pm pm
Diff: 1 pm
Topic: 1.1 The Cycle of Money AACS
p m pm pm pm pm pm
B: Analytical Thinking
p m pm
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of b
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
orrowing and lending. pm pm
9) All financial transactions have a buyer and a seller
pm pm pm pm pm pm pm pm
. Answer: TRUE
pm p m
Diff: 1 pm
Topic: 1.1 The Cycle of Money AACS
p m pm pm pm pm pm
B: Analytical Thinking
p m pm
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of b
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
orrowing and lending. pm pm
10) Give three examples of a financial transaction.
pm pm pm pm pm pm
Answer: (1) Your parents use their credit card to pay some of your college expenses.
p m pm pm pm pm pm pm pm pm pm pm pm pm pm
(2) You use the ATM to withdraw funds so you can buy your best friend a birthday gift.
pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
(3) Your roommate lends you $20 and you repay it when you get your next pay chec
pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
k. Diff: 2
pm pm
Topic: 1.1 The Cycle of Money AACS
p m pm pm pm pm pm
B: Analytical Thinking
p m pm
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of b
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
orrowing and lending. pm pm
1.2 Overview of Finance Areas pm pm pm
1) Which of the following best identifies the four main areas of finance?
pm pm pm pm pm pm pm pm pm pm pm
A) Exchange rate management, investments, financial institutions and markets, internationa
pm pm pm pm pm pm pm pm
l finance
pm
B) Corporate finance, investments, capital structure, international finance
pm pm pm pm pm pm
C) Corporate finance, investments, financial institutions and markets, international finance
pm pm pm pm pm pm pm pm
D) Corporate finance, capital budgeting, financial institutions and markets, regulatio
pm pm pm pm pm pm pm pm
n Answer: C
pm p m
3
Copyright © 2025 Pearson Education, Inc.
, Explanation: Exchange rate management, capital structure, and capital budgeting are activities
p m pm pm pm pm pm pm pm pm pm pm
within the functional areas of finance.
pm pm pm pm pm
Diff: 2 pm
Topic: 1.2 Overview of Finance Areas
p m pm pm pm pm pm
AACSB: Analytical Thinkingp m pm
LO: 1.2 Distinguish the four main areas of finance and briefly explain the financial activities
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm
that each encompasses.
pm pm
2) Of the following, which is NOT one of the four main areas of finance?
pm pm pm pm pm pm pm pm pm pm pm pm pm
A) International finance pm
B) Corporate finance pm
C) Investments
D) Working capital management pm pm
Answer: D
pm p m
Explanation: WCM is a primary function of corporate finance.
p m pm pm pm pm pm pm pm pm
Diff: 1 pm
Topic: 1.2 Overview of Finance Areas
p m pm pm pm pm pm
AACSB: Analytical Thinkingp m pm
LO: 1.2 Distinguish the four main areas of finance and briefly explain the financial activities
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm
that each encompasses.
pm pm
3) The set of financial activities that support the OPERATIONS of a business is best describ
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ed by which main area of finance?
pm pm pm pm pm pm
A) Corporate finance pm
B) Investments
C) Financial institutions and markets pm pm pm
D) International finance pm
Answer: A
pm p m
Diff: 1 pm
Topic: 1.2 Overview of Finance Areas
p m pm pm pm pm pm
AACSB: Analytical Thinkingp m pm
LO: 1.2 Distinguish the four main areas of finance and briefly explain the financial activities
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm
that each encompasses.
pm pm
4) is the area of finance concerned with activities such as borrowing funds to finan
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ce long-term projects; For example, plant expansions or new product launches.
pm pm pm pm pm pm pm pm pm pm
A) Working capital management pm pm
B) International finance pm
C) Investments
D) Corporate finance pm
Answer: D
pm p m
Diff: 2 pm
Topic: 1.2 Overview of Finance Areas
p m pm pm pm pm pm
AACSB: Analytical Thinkingp m pm
LO: 1.2 Distinguish the four main areas of finance and briefly explain the financial activities
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm
that each encompasses.
pm pm
4
Copyright © 2025 Pearson Education, Inc.
Financial Management Core Concepts, 5th edition Raymond Brooks Jimmy Yang Chap
pm pm pm pm pm pm pm pm pm pm
ter 1-18 pm
Chapter 1 pm p m p m Financial Management pm
1.1 The Cycle of Money pm pm pm
1) At its most basic level, the function of financial intermediaries is to
pm pm pm . pm pm pm pm pm pm pm pm pm
A) track and report interest rates
pm pm pm pm
B) move money from lenders to borrowers and back again
pm pm pm pm pm pm pm pm
C) report all financial transactions to the federal government
pm pm pm pm pm pm pm
D) effect a transfer of wealth in societ
pm pm pm pm pm pm
y Answer: B
pm p m
Diff: 1 pm
Topic: 1.1 The Cycle of Money AACS
p m pm pm pm pm pm
B: Analytical Thinking
p m pm
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of b
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
orrowing and lending. pm pm
2) Which of the following is NOT an example of a financial transaction?
pm pm pm pm pm pm pm pm pm pm pm
A) Your parents use their credit card to pay for your current term's college tuition.
pm pm pm pm pm pm pm pm pm pm pm pm pm
B) You use the ATM at Heathrow airport in London to withdraw British pounds.
pm pm pm pm pm pm pm pm pm pm pm pm
C) Your roommate lends you $20 and you repay it in one week.
pm pm pm pm pm pm pm pm pm pm pm
D) All of the above are financial transactions
pm pm pm pm pm pm
. Answer: D
pm p m
Diff: 2 pm
Topic: 1.1 The Cycle of Money AACS
p m pm pm pm pm pm
B: Analytical Thinking
p m pm
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of b
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
orrowing and lending. pm pm
3) The movement of money from lender to borrower and back again is known as
pm pm . pm pm pm pm pm pm pm pm pm pm pm pm
A) the circle of life pm pm pm
B) corporate finance pm
C) the cycle of money pm pm pm
D) money laundering pm
Answer: C
pm p m
Diff: 1 pm
Topic: 1.1 The Cycle of Money AACS
p m pm pm pm pm pm
B: Analytical Thinking
p m pm
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of b
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
orrowing and lending. pm pm
Hmwrk Questions: * Taken from "Prepping for Exams" questions at the end of the chapter.
pm p m pm pm pm pm pm pm pm pm pm pm pm pm
1
Copyright © 2025 Pearson Education, Inc.
,4) The common objective of borrowing and lending is to
pm . pm pm pm pm pm pm pm pm
A) make all parties better off pm pm pm pm
B) gain a profit at the other's expense
pm pm pm pm pm pm
C) make a firm or individual appear more liquid than is really the case
pm pm pm pm pm pm pm pm pm pm pm pm
D) thwart regulatory authority pm pm p
Answer: A
m p m
Diff: 1 pm
Topic: 1.1 The Cycle of Money AACS
p m pm pm pm pm pm
B: Analytical Thinking
p m pm
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of b
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
orrowing and lending. pm pm
5) Which of the following is NOT a function of a financial intermediary in t
pm pm pm pm pm pm pm pm pm pm pm pm pm
he lending/borrowing process?
pm pm
A) To help establish terms of the lending/borrowing agreement
pm pm pm pm pm pm pm
B) To match the borrower and the lender
pm pm pm pm pm pm
C) To bear the risk that the lender will not repay
pm pm pm pm pm pm pm pm pm
D) To bear the risk that the borrower will not repa
pm pm pm pm pm pm pm pm pm
y Answer: C
pm p m
Diff: 1 pm
Topic: 1.1 The Cycle of Money AACS
p m pm pm pm pm pm
B: Analytical Thinking
p m pm
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of b
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
orrowing and lending. pm pm
6) Professor Gaston, your History teacher, borrows money at a rate of 6% per year from the
pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
Valley State Bank for a tuition loan for her son. You have $1,200 deposited into your checki
pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
ng account at the same bank earning a rate of 0.5% per year. Which of the following statem
pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
ents is TRUE? pm pm
A) The bank is criminally liable to you for paying an interest rate lower than the expected rate
pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
of inflation.
pm
B) You and your professor have an obvious conflict of interest because you have accounts at t
pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
he same financial institution.
pm pm pm
C) You benefit from earning interest on your deposit, safety for your funds, and having
pm pm pm pm pm pm pm pm pm pm pm pm pm
a recognizable means for paying for your financial obligations without having to hold
pm pm pm pm pm pm pm pm pm pm pm pm pm pm
cash.
D) Your professor is the only party to be made worse off by this example because she is the o
pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
nly party paying net interest.
pm pm pm pm
Answer: C p m
Explanation: Both you and your professor are using services typically provided by banks. Ther
p m pm pm pm pm pm pm pm pm pm pm pm pm
e is no conflict of interest.
pm pm pm pm pm
Diff: 2 pm
Topic: 1.1 The Cycle of Money AACS
p m pm pm pm pm pm
B: Analytical Thinking
p m pm
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of b
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
orrowing and lending. pm pm
2
Copyright © 2025 Pearson Education, Inc.
,7) The basic function of financial intermediaries is to move advice from lenders to borrowers a
pm pm pm pm pm pm pm pm pm pm pm pm pm pm
nd back to lenders.
pm pm pm
Answer: FALSE p m
Explanation: The basic function of financial intermediaries is to move MONEY from lenders to b
p m pm pm pm pm pm pm pm pm pm pm pm pm pm
orrowers and back to lenders. pm pm pm pm
Diff: 1 pm
Topic: 1.1 The Cycle of Money AACS
p m pm pm pm pm pm
B: Analytical Thinking
p m pm
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of b
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
orrowing and lending. pm pm
8) In the lending/borrowing process, a financial intermediary function is to bear the risk that t
pm pm pm pm pm pm pm pm pm pm pm pm pm pm
he borrower will not repay.
pm pm pm pm
Answer: TRUE pm pm
Diff: 1 pm
Topic: 1.1 The Cycle of Money AACS
p m pm pm pm pm pm
B: Analytical Thinking
p m pm
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of b
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
orrowing and lending. pm pm
9) All financial transactions have a buyer and a seller
pm pm pm pm pm pm pm pm
. Answer: TRUE
pm p m
Diff: 1 pm
Topic: 1.1 The Cycle of Money AACS
p m pm pm pm pm pm
B: Analytical Thinking
p m pm
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of b
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
orrowing and lending. pm pm
10) Give three examples of a financial transaction.
pm pm pm pm pm pm
Answer: (1) Your parents use their credit card to pay some of your college expenses.
p m pm pm pm pm pm pm pm pm pm pm pm pm pm
(2) You use the ATM to withdraw funds so you can buy your best friend a birthday gift.
pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
(3) Your roommate lends you $20 and you repay it when you get your next pay chec
pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
k. Diff: 2
pm pm
Topic: 1.1 The Cycle of Money AACS
p m pm pm pm pm pm
B: Analytical Thinking
p m pm
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of b
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm pm
orrowing and lending. pm pm
1.2 Overview of Finance Areas pm pm pm
1) Which of the following best identifies the four main areas of finance?
pm pm pm pm pm pm pm pm pm pm pm
A) Exchange rate management, investments, financial institutions and markets, internationa
pm pm pm pm pm pm pm pm
l finance
pm
B) Corporate finance, investments, capital structure, international finance
pm pm pm pm pm pm
C) Corporate finance, investments, financial institutions and markets, international finance
pm pm pm pm pm pm pm pm
D) Corporate finance, capital budgeting, financial institutions and markets, regulatio
pm pm pm pm pm pm pm pm
n Answer: C
pm p m
3
Copyright © 2025 Pearson Education, Inc.
, Explanation: Exchange rate management, capital structure, and capital budgeting are activities
p m pm pm pm pm pm pm pm pm pm pm
within the functional areas of finance.
pm pm pm pm pm
Diff: 2 pm
Topic: 1.2 Overview of Finance Areas
p m pm pm pm pm pm
AACSB: Analytical Thinkingp m pm
LO: 1.2 Distinguish the four main areas of finance and briefly explain the financial activities
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm
that each encompasses.
pm pm
2) Of the following, which is NOT one of the four main areas of finance?
pm pm pm pm pm pm pm pm pm pm pm pm pm
A) International finance pm
B) Corporate finance pm
C) Investments
D) Working capital management pm pm
Answer: D
pm p m
Explanation: WCM is a primary function of corporate finance.
p m pm pm pm pm pm pm pm pm
Diff: 1 pm
Topic: 1.2 Overview of Finance Areas
p m pm pm pm pm pm
AACSB: Analytical Thinkingp m pm
LO: 1.2 Distinguish the four main areas of finance and briefly explain the financial activities
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm
that each encompasses.
pm pm
3) The set of financial activities that support the OPERATIONS of a business is best describ
pm pm pm pm pm pm pm pm pm pm pm pm pm pm
ed by which main area of finance?
pm pm pm pm pm pm
A) Corporate finance pm
B) Investments
C) Financial institutions and markets pm pm pm
D) International finance pm
Answer: A
pm p m
Diff: 1 pm
Topic: 1.2 Overview of Finance Areas
p m pm pm pm pm pm
AACSB: Analytical Thinkingp m pm
LO: 1.2 Distinguish the four main areas of finance and briefly explain the financial activities
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm
that each encompasses.
pm pm
4) is the area of finance concerned with activities such as borrowing funds to finan
pm pm pm pm pm pm pm pm pm pm pm pm pm
ce long-term projects; For example, plant expansions or new product launches.
pm pm pm pm pm pm pm pm pm pm
A) Working capital management pm pm
B) International finance pm
C) Investments
D) Corporate finance pm
Answer: D
pm p m
Diff: 2 pm
Topic: 1.2 Overview of Finance Areas
p m pm pm pm pm pm
AACSB: Analytical Thinkingp m pm
LO: 1.2 Distinguish the four main areas of finance and briefly explain the financial activities
p m pm pm pm pm pm pm pm pm pm pm pm pm pm pm
that each encompasses.
pm pm
4
Copyright © 2025 Pearson Education, Inc.
