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