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