1
Student:
Question 106
NB: with marking scheme
1. The exchange of goods and services is made more efficient by:
A. barters.
B. money.
C. governments.
D. some combination of government transfer and barter.
2. Short selling is:
A. the sale of a financial product at a discount to its current market value.
B. the sale of a financial product in small quantities.
C. the sale of a financial product that the seller does not own.
D. the sale of a financial product where the seller agrees to buy it back at a predetermined price.
3. The term ‘medium of exchange' for money refers to its use as:
A. coinage.
B. currency.
C. something that is widely accepted as payment for goods and services.
D. any standard of value that prices can be expressed in.
4. The role of money as a store of value refers to:
A. the value of money falling only when the money supply falls.
B. the value of money falling only when the money supply increases.
C. the fact that money allows worth to be stored readily.
D. the fact that money never loses its value compared with other assets.
5. Money increases economic growth by assisting transfers from:
A. consumers to investors.
B. savers to borrowers.
C. businesses to consumers.
D. borrowers to investors.
6. Financial markets have developed to facilitate the exchange of money between savers and
borrowers. Which of the following is NOT a function of money?
A. A store of value
B. A medium of exchange for settling economic transactions
C. A claim to future cash flows
D. Short-term protection against inflation
7. Buyers of financial claims lend their excess funds because they:
A. expect to borrow extra funds in the future.
B. want surplus funds in the future.
C. want to invest in the future.
D. want to increase their costs relative to their incomes.
8. Sellers of financial claims promise to pay back borrowed funds:
A. by borrowing extra funds in the future.
B. based on their expectation of having surplus funds in the future.
C. by selling other assets.
D. by reducing their costs relative to their incomes.
,9. A savings-surplus unit is an entity:
A. that needs to borrow funds from a surplus unit.
B. which has an income that exceeds its spending.
C. whose spending exceeds its income.
D. called a company.
10. The process of facilitating the flow of funds between borrowers and lenders performed by the financial
system:
A. is hindered by the problem of ‘double coincidence of wants'.
B. greatly reduces the probability of inflation.
C. increases the rate of economic growth of a country.
D. occurs only through financial intermediaries.
11. Both real and financial assets have four principal attributes that are significant factors in the
investment decision process. These are:
I. liquidity
II. capital gain
III. risk
IV. return or yield
V. time pattern of future cash flows
VI. price and cash flow volatility
A. I, II, III, IV
B. I, III, IV, V
C. I, III, IV, VI
D. II, III, IV, V
12. Which of the following is NOT associated with characteristics of shares?
A. Part ownership of a company
B. Capital gains
C. A fixed interest payment
D. Dividends
13. A financial institution that obtains most of its funds from deposits is a/an:
A. investment bank.
B. unit trust.
C. commercial bank.
D. general insurer.
14. Institutions that specialise in off-balance-sheet advisory services are called:
A. depository financial institutions.
B. contractual institutions.
C. finance companies.
D. investment banks.
15. A financial intermediary that receives premium payments which are used to purchase assets to
coverfuture possible payments is a:
A. building society.
B. credit union.
C. savings bank.
D. life insurance office.
16. Financial institutions whose liabilities specify that, in return for the payment of periodic funds to the
institution, the institution will make payments in the future (if and when a specified event occurs) are:
A. money market corporations.
B. unit trusts.
C. contractual savings institutions.
D. depository financial institutions.
,17. Financial institutions that raise the majority of their funds by selling securities in the money
marketsare:
A. commercial banks.
B. building societies.
C. finance companies.
D. life insurance offices.
18. Financial institutions that are formed under a trust deed and attract funds by inviting the public to
buyunits are:
A. finance companies
B. building societies.
C. unit trusts.
D. life insurance offices.
19. Which of the following is NOT a term associated with shares?
A. Residual
B. Ownership
C. Voting rights
D. Contractual claim
20. Which of the following is NOT a characteristic commonly associated with preference shares?
A. A specified, fixed return
B. No voting rights
C. Higher ranking than bond holders on claims on assets
D. No entitlement to take possession of assets if the borrower defaults on payment
21. Long-term debt financing instruments used by companies are called:
A. bills.
B. debentures.
C. shares.
D. equities.
22. When a borrower issues a debt instrument with collateral specified in its contract this debt instrument
is called:
A. unsecured.
B. secured.
C. defined.
D. negotiable.
23. Debt instruments that can be easily sold and transferred in the financial markets are called:
A. negotiable.
B. secured.
C. unsecured.
D. discounted.
24. Which of the following is NOT a feature of a debt instrument?
A. A contractual claim against the borrower
B. Periodic interest payments
C. Higher claim on assets of borrower than equity holders
D. Their prices do not fluctuate as much as shares
25. Which of the following is NOT a feature of futures contracts?
A. Futures contracts involve an obligation to buy or sell a specified amount
B. Trading of contracts occurs on an exchange
C. The contract price is settled at the end of the contract
D. Trading an opposite contract usually closes out the contract
, 26. Which of the following is NOT a feature of forward contracts?
A. Forward contracts are not standardised
B. Forward contracts do not trade on organised exchanges
C. The contract price may be settled at the end of the contract
D. Forward contracts are closed out by trading an opposite contract
27. Which of the following is NOT a feature of option contracts?
A. The buyer does not have an obligation to proceed with the contract
B. The writer of the contract receives a fee
C. The price of the designated asset is determined at the beginning of the contract
D. The right to buy is called a put option
28. Which of the following is NOT a feature of swaps?
A. There is a contractual arrangement to exchange cash flows
B. Interest rate swaps exchange principal at the beginning and the end
C. A fixed rate obligation may be exchanged for a variable rate obligation
D. A swap can involve interest payments and currencies
29. The key reason for the existence of markets of financial assets is:
A. that holders of shares generally want to exchange them for bonds and other financial instruments.
B. the high expenditure for many individuals and businesses.
C. that the lack of money in an economy makes trade in financial assets necessary.
D. the refusal of most modern governments to print money on demand.
30. Financial markets:
A. facilitate the exchange of financial assets.
B. provide information about prices of financial assets.
C. provide a channel for funds to flow between the providers and users of funds.
D. all of the given choices.
31. The most important function of a financial market is to:
A. provide information about shares.
B. provide a market for shares.
C. facilitate the flow of funds between lenders and borrowers.
D. provide employment for brokers and agents.
32. Financial markets:
A. act as intermediaries by holding a collection of assets and issuing claims based on them to savers.
B. issue claims on future cash flows of individual borrowers directly to lenders.
C. transmit funds indirectly between lenders and borrowers.
D. usually provide lenders with lower returns than other financial intermediaries.
33. A primary financial market is one that:
A. offers financial assets with the highest expected return.
B. offers the greatest number of financial assets.
C. involves the sale of financial assets for the first time.
D. offers financial assets with the highest historical return.
34. A secondary financial market is one that:
A. offers financial assets with the highest expected return.
B. offers the greatest number of financial assets.
C. involves the sale of existing financial assets.
D. offers financial assets with the highest historical return.
35. Purchasing shares on the Australian Securities Exchange is an example of:
A. a primary market transaction.
B. companies raising finance from another financial intermediary.
C. companies raising new finance.
D. a secondary market transaction.
Student:
Question 106
NB: with marking scheme
1. The exchange of goods and services is made more efficient by:
A. barters.
B. money.
C. governments.
D. some combination of government transfer and barter.
2. Short selling is:
A. the sale of a financial product at a discount to its current market value.
B. the sale of a financial product in small quantities.
C. the sale of a financial product that the seller does not own.
D. the sale of a financial product where the seller agrees to buy it back at a predetermined price.
3. The term ‘medium of exchange' for money refers to its use as:
A. coinage.
B. currency.
C. something that is widely accepted as payment for goods and services.
D. any standard of value that prices can be expressed in.
4. The role of money as a store of value refers to:
A. the value of money falling only when the money supply falls.
B. the value of money falling only when the money supply increases.
C. the fact that money allows worth to be stored readily.
D. the fact that money never loses its value compared with other assets.
5. Money increases economic growth by assisting transfers from:
A. consumers to investors.
B. savers to borrowers.
C. businesses to consumers.
D. borrowers to investors.
6. Financial markets have developed to facilitate the exchange of money between savers and
borrowers. Which of the following is NOT a function of money?
A. A store of value
B. A medium of exchange for settling economic transactions
C. A claim to future cash flows
D. Short-term protection against inflation
7. Buyers of financial claims lend their excess funds because they:
A. expect to borrow extra funds in the future.
B. want surplus funds in the future.
C. want to invest in the future.
D. want to increase their costs relative to their incomes.
8. Sellers of financial claims promise to pay back borrowed funds:
A. by borrowing extra funds in the future.
B. based on their expectation of having surplus funds in the future.
C. by selling other assets.
D. by reducing their costs relative to their incomes.
,9. A savings-surplus unit is an entity:
A. that needs to borrow funds from a surplus unit.
B. which has an income that exceeds its spending.
C. whose spending exceeds its income.
D. called a company.
10. The process of facilitating the flow of funds between borrowers and lenders performed by the financial
system:
A. is hindered by the problem of ‘double coincidence of wants'.
B. greatly reduces the probability of inflation.
C. increases the rate of economic growth of a country.
D. occurs only through financial intermediaries.
11. Both real and financial assets have four principal attributes that are significant factors in the
investment decision process. These are:
I. liquidity
II. capital gain
III. risk
IV. return or yield
V. time pattern of future cash flows
VI. price and cash flow volatility
A. I, II, III, IV
B. I, III, IV, V
C. I, III, IV, VI
D. II, III, IV, V
12. Which of the following is NOT associated with characteristics of shares?
A. Part ownership of a company
B. Capital gains
C. A fixed interest payment
D. Dividends
13. A financial institution that obtains most of its funds from deposits is a/an:
A. investment bank.
B. unit trust.
C. commercial bank.
D. general insurer.
14. Institutions that specialise in off-balance-sheet advisory services are called:
A. depository financial institutions.
B. contractual institutions.
C. finance companies.
D. investment banks.
15. A financial intermediary that receives premium payments which are used to purchase assets to
coverfuture possible payments is a:
A. building society.
B. credit union.
C. savings bank.
D. life insurance office.
16. Financial institutions whose liabilities specify that, in return for the payment of periodic funds to the
institution, the institution will make payments in the future (if and when a specified event occurs) are:
A. money market corporations.
B. unit trusts.
C. contractual savings institutions.
D. depository financial institutions.
,17. Financial institutions that raise the majority of their funds by selling securities in the money
marketsare:
A. commercial banks.
B. building societies.
C. finance companies.
D. life insurance offices.
18. Financial institutions that are formed under a trust deed and attract funds by inviting the public to
buyunits are:
A. finance companies
B. building societies.
C. unit trusts.
D. life insurance offices.
19. Which of the following is NOT a term associated with shares?
A. Residual
B. Ownership
C. Voting rights
D. Contractual claim
20. Which of the following is NOT a characteristic commonly associated with preference shares?
A. A specified, fixed return
B. No voting rights
C. Higher ranking than bond holders on claims on assets
D. No entitlement to take possession of assets if the borrower defaults on payment
21. Long-term debt financing instruments used by companies are called:
A. bills.
B. debentures.
C. shares.
D. equities.
22. When a borrower issues a debt instrument with collateral specified in its contract this debt instrument
is called:
A. unsecured.
B. secured.
C. defined.
D. negotiable.
23. Debt instruments that can be easily sold and transferred in the financial markets are called:
A. negotiable.
B. secured.
C. unsecured.
D. discounted.
24. Which of the following is NOT a feature of a debt instrument?
A. A contractual claim against the borrower
B. Periodic interest payments
C. Higher claim on assets of borrower than equity holders
D. Their prices do not fluctuate as much as shares
25. Which of the following is NOT a feature of futures contracts?
A. Futures contracts involve an obligation to buy or sell a specified amount
B. Trading of contracts occurs on an exchange
C. The contract price is settled at the end of the contract
D. Trading an opposite contract usually closes out the contract
, 26. Which of the following is NOT a feature of forward contracts?
A. Forward contracts are not standardised
B. Forward contracts do not trade on organised exchanges
C. The contract price may be settled at the end of the contract
D. Forward contracts are closed out by trading an opposite contract
27. Which of the following is NOT a feature of option contracts?
A. The buyer does not have an obligation to proceed with the contract
B. The writer of the contract receives a fee
C. The price of the designated asset is determined at the beginning of the contract
D. The right to buy is called a put option
28. Which of the following is NOT a feature of swaps?
A. There is a contractual arrangement to exchange cash flows
B. Interest rate swaps exchange principal at the beginning and the end
C. A fixed rate obligation may be exchanged for a variable rate obligation
D. A swap can involve interest payments and currencies
29. The key reason for the existence of markets of financial assets is:
A. that holders of shares generally want to exchange them for bonds and other financial instruments.
B. the high expenditure for many individuals and businesses.
C. that the lack of money in an economy makes trade in financial assets necessary.
D. the refusal of most modern governments to print money on demand.
30. Financial markets:
A. facilitate the exchange of financial assets.
B. provide information about prices of financial assets.
C. provide a channel for funds to flow between the providers and users of funds.
D. all of the given choices.
31. The most important function of a financial market is to:
A. provide information about shares.
B. provide a market for shares.
C. facilitate the flow of funds between lenders and borrowers.
D. provide employment for brokers and agents.
32. Financial markets:
A. act as intermediaries by holding a collection of assets and issuing claims based on them to savers.
B. issue claims on future cash flows of individual borrowers directly to lenders.
C. transmit funds indirectly between lenders and borrowers.
D. usually provide lenders with lower returns than other financial intermediaries.
33. A primary financial market is one that:
A. offers financial assets with the highest expected return.
B. offers the greatest number of financial assets.
C. involves the sale of financial assets for the first time.
D. offers financial assets with the highest historical return.
34. A secondary financial market is one that:
A. offers financial assets with the highest expected return.
B. offers the greatest number of financial assets.
C. involves the sale of existing financial assets.
D. offers financial assets with the highest historical return.
35. Purchasing shares on the Australian Securities Exchange is an example of:
A. a primary market transaction.
B. companies raising finance from another financial intermediary.
C. companies raising new finance.
D. a secondary market transaction.
