Finance Chapter 1 Exam Questions
Correctly Answered.
1) At its most basic level, the function of financial intermediaries is to ________.
A) track and report interest rates
B) move money from lenders to borrowers and back again
C) report all financial transactions to the federal government
D) effect a transfer of wealth in society - CORRECT ANSWER B
2) Which of the following is NOT an example of a financial transaction?
A) Your parents use their credit card to pay this term's college tuition.
B) You use the ATM to withdraw British pounds so you can fly to London.
C) Your roommate lends you $20 and you repay it in one week.
D) All of the above are financial transactions. - CORRECT ANSWER D
3) The movement of money from lender to borrower and back again is known as ________.
A) the circle of life
B) corporate finance
C) the cycle of money
D) money laundering - CORRECT ANSWER C
4) The common objective of borrowing and lending is to ________.
A) make all parties better off
B) gain a profit at the other's expense
C) make a firm or individual appear more liquid than is really the case
D) thwart regulatory authority - CORRECT ANSWER A
,5) Which of the following is NOT a function of a financial intermediary in the lending/borrowing process?
A) To help establish terms of the lending/borrowing agreement
B) To match the borrower and the lender
C) To bear the risk that the borrower will not repay
D) All of the above are functions of the financial intermediary. - CORRECT ANSWER D
6) You place $500 into your checking account at First Bank and earn 1% APR on your deposit. Your
professor borrows money at a rate of 8% from the same bank for a tuition loan for her son. Which of the
following statements is true?
A) The bank is criminally liable to you for paying an interest rate lower than the expected rate of
inflation.
B) You and your professor have an obvious conflict of interest because you have accounts at the same
financial institution.
C) You benefit from earning interest on your deposit, safety for your funds, and having a recognizable
means for paying for your financial obligations without having to hold cash.
D) Your professor is the only party to be made worse off by this example because she is the only party
paying net interest. - CORRECT ANSWER C
1) Which of the following best identifies the four main areas of finance?
A) Exchange rate management, investments, financial institutions and markets, international
B) Corporate, investments, capital structure, international
C) Corporate, investments, financial institutions and markets, international
D) Corporate, capital budgeting, financial institutions and markets, regulation - CORRECT ANSWER C
2) Of the following, which is NOT one of the four main areas of finance?
A) International Finance
B) Corporate Finance
C) Investments
D) All are considered main areas of finance. - CORRECT ANSWER D
, 3) The set of financial activities that support the OPERATIONS of a business is best described by which
main area of finance?
A) Corporate finance
B) Investments
C) Financial institutions and markets
D) International finance - CORRECT ANSWER A
4) ________ is the area of finance concerned with activities like borrowing funds to finance projects
such as plant expansions or new product launches.
A) Working capital management
B) International finance
C) Investments
D) Corporate finance - CORRECT ANSWER D
5) ________ is the area of finance concerned with activities like repayment of borrowed funds through
dividends or interest payments.
A) Investments
B) Corporate finance
C) Capital budgeting
D) International finance - CORRECT ANSWER B
6) ________ is the area of finance concerned with the activities of buying and selling financial assets
such as stocks and bonds.
A) Investments
B) Corporate finance
C) International finance
D) Financial markets and institutions - CORRECT ANSWER A
7) Which of the following is NOT typically thought of as an investment activity?
A) Accurately pricing financial assets
Correctly Answered.
1) At its most basic level, the function of financial intermediaries is to ________.
A) track and report interest rates
B) move money from lenders to borrowers and back again
C) report all financial transactions to the federal government
D) effect a transfer of wealth in society - CORRECT ANSWER B
2) Which of the following is NOT an example of a financial transaction?
A) Your parents use their credit card to pay this term's college tuition.
B) You use the ATM to withdraw British pounds so you can fly to London.
C) Your roommate lends you $20 and you repay it in one week.
D) All of the above are financial transactions. - CORRECT ANSWER D
3) The movement of money from lender to borrower and back again is known as ________.
A) the circle of life
B) corporate finance
C) the cycle of money
D) money laundering - CORRECT ANSWER C
4) The common objective of borrowing and lending is to ________.
A) make all parties better off
B) gain a profit at the other's expense
C) make a firm or individual appear more liquid than is really the case
D) thwart regulatory authority - CORRECT ANSWER A
,5) Which of the following is NOT a function of a financial intermediary in the lending/borrowing process?
A) To help establish terms of the lending/borrowing agreement
B) To match the borrower and the lender
C) To bear the risk that the borrower will not repay
D) All of the above are functions of the financial intermediary. - CORRECT ANSWER D
6) You place $500 into your checking account at First Bank and earn 1% APR on your deposit. Your
professor borrows money at a rate of 8% from the same bank for a tuition loan for her son. Which of the
following statements is true?
A) The bank is criminally liable to you for paying an interest rate lower than the expected rate of
inflation.
B) You and your professor have an obvious conflict of interest because you have accounts at the same
financial institution.
C) You benefit from earning interest on your deposit, safety for your funds, and having a recognizable
means for paying for your financial obligations without having to hold cash.
D) Your professor is the only party to be made worse off by this example because she is the only party
paying net interest. - CORRECT ANSWER C
1) Which of the following best identifies the four main areas of finance?
A) Exchange rate management, investments, financial institutions and markets, international
B) Corporate, investments, capital structure, international
C) Corporate, investments, financial institutions and markets, international
D) Corporate, capital budgeting, financial institutions and markets, regulation - CORRECT ANSWER C
2) Of the following, which is NOT one of the four main areas of finance?
A) International Finance
B) Corporate Finance
C) Investments
D) All are considered main areas of finance. - CORRECT ANSWER D
, 3) The set of financial activities that support the OPERATIONS of a business is best described by which
main area of finance?
A) Corporate finance
B) Investments
C) Financial institutions and markets
D) International finance - CORRECT ANSWER A
4) ________ is the area of finance concerned with activities like borrowing funds to finance projects
such as plant expansions or new product launches.
A) Working capital management
B) International finance
C) Investments
D) Corporate finance - CORRECT ANSWER D
5) ________ is the area of finance concerned with activities like repayment of borrowed funds through
dividends or interest payments.
A) Investments
B) Corporate finance
C) Capital budgeting
D) International finance - CORRECT ANSWER B
6) ________ is the area of finance concerned with the activities of buying and selling financial assets
such as stocks and bonds.
A) Investments
B) Corporate finance
C) International finance
D) Financial markets and institutions - CORRECT ANSWER A
7) Which of the following is NOT typically thought of as an investment activity?
A) Accurately pricing financial assets
