1
Copyright © 2025 Pearson Education, Inc.
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,TEST BANK FOR st st
Financial Management Core Concepts, 5th edition Raymond Brooks Jimmy Yang Chapter 1
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-18
Chapter 1 Financial Management st s t s t st
1.1 The Cycle of Money st st st
1) At its most basic level, the function of financial intermediaries is to
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A) track and report interest rates st st st st
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 st st st st st st st
Answer: B s t
Diff: 1 st
Topic: 1.1 The Cycle of Money AACSB:
s t st st st st st
Analytical Thinking
s t st
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrowi
s t st st st st st st st st st st st st st st st st
ng and lending.
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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 s t
Diff: 2 st
Topic: 1.1 The Cycle of Money AACSB:
s t st st st st st
Analytical Thinking
s t st
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrowi
s t st st st st st st st st st st st st st st st st
ng and lending.
st st
3) The movement of money from lender to borrower and back again is known as
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A) the circle of life st st st
B) corporate finance st
C) the cycle of money st st st
D) money laundering st st
Answer: C s t
Diff: 1 st
Topic: 1.1 The Cycle of Money AACSB:
s t st st st st st
Analytical Thinking
s t st
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrowi
s t st st st st st st st st st st st st st st st st
ng and lending.
st st
Hmwrk Questions: * Taken from "Prepping for Exams" questions at the end of the chapter.
st s t st st st st st st st st st st st st
2
Copyright © 2025 Pearson Education, Inc.
st st st st st
,4) The common objective of borrowing and lending is to
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A) make all parties better off st st st st
B) gain a profit at the other's expense st st st st st st
C) make a firm or individual appear more liquid than is really the case
st st st st st st st st st st st st
D) thwart regulatoryauthority st st st
Answer: A s t
Diff: 1 st
Topic: 1.1 The Cycle of Money AACSB: s t st st st st st
Analytical Thinking
s t st
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrowi
s t st st st st st st st st st st st st st st st st
ng and lending.
st st
5) Which of the following is NOT a function of a financial intermediary in the len
st st st st st st st st st st st st st st
ding/borrowing process? st
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 A
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nswer: C s t
Diff: 1 st
Topic: 1.1 The Cycle of Money AACSB: s t st st st st st
Analytical Thinking
s t st
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrowi
s t st st st st st st st st st st st st st st st st
ng and lending.
st st
6) Professor Gaston, your History teacher, borrows money at a rate of 6% per year from the Valle
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y State Bank for a tuition loan for her son. You have $1,200 deposited into your checking account a
st st st st st st st st st st st st st st st st st st
t the same bank earning a rate of 0.5% per year. Which of the following statements is TRUE?
st st st st st st st st st st st st st st st st st
A) The bank is criminally liable to you for paying an interest rate lower than the expected rate of infl
st st st st st st st st st st st st st st st st st st
ation.
B) You and your professor have an obvious conflict of interest because you have accounts at the sa
st st st st st st st st st st st st st st st st
me financial institution.
st st
C) You benefit from earning interest on your deposit, safety for your funds, and having a rec
st st st st st st st st st st st st st st st
ognizable means for paying for your financial obligations without having to hold cash.
st st st st st st st st st st st st
D) Your professor is the only party to be made worse off by this example because she is the only part
st st st st st st st st st st st st st st st st st st st
y paying net interest.
st st st
Answer: C s t
Explanation: Both you and your professor are using services typically provided by banks. There is n
s t st st st st st st st st st st st st st st
o conflict of interest.
st st st
Diff: 2 st
Topic: 1.1 The Cycle of Money AACSB: s t st st st st st
Analytical Thinking
s t st
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrowi
s t st st st st st st st st st st st st st st st st
ng and lending.
st st
3
Copyright © 2025 Pearson Education, Inc. st st st st st
, 7) The basic function of financial intermediaries is to move advice from lenders to borrowers and ba
st st st st st st st st st st st st st st st
ck to lenders.
st st
Answer: FALSE s t
Explanation: The basic function of financial intermediaries is to move MONEY from lenders to borrow
s t st st st st st st st st st st st st st
ers and back to lenders.
st st st st
Diff: 1 st
Topic: 1.1 The Cycle of Money AACSB: s t st st st st st
Analytical Thinking
s t st
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrowi
s t st st st st st st st st st st st st st st st st
ng and lending.
st st
8) In the lending/borrowing process, a financial intermediary function is to bear the risk that the bor
st st st st st st st st st st st st st st st
rower will not repay. st st st
Answer: TRUE st st
Diff: 1 st
Topic: 1.1 The Cycle of Money AACSB: s t st st st st st
Analytical Thinking
s t st
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrowi
s t st st st st st st st st st st st st st st st st
ng and lending.
st st
9) All financial transactions have a buyer and a seller. A
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nswer: TRUE s t
Diff: 1 st
Topic: 1.1 The Cycle of Money AACSB: s t st st st st st
Analytical Thinking
s t st
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrowi
s t st st st st st st st st st st st st st st st st
ng and lending.
st st
10) Give three examples of a financial transaction. st st st st st st
Answer: (1) Your parents use their credit card to pay some of your college expenses.
s t st st st st st st st st st st st st st
(2) You use the ATM to withdraw funds so you can buy your best friend a birthday gift.
st st st st st st st st st st st st st st st st
(3) Your roommate lends you $20 and you repay it when you get your next pay check. Dif
st st st st st st st st st st st st st st st st
f: 2 st
Topic: 1.1 The Cycle of Money AACSB: s t st st st st st
Analytical Thinking
s t st
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrowi
s t st st st st st st st st st st st st st st st st
ng and lending.
st st
1.2 Overview of Finance Areas st st st
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 fi
st st st st st st st st st
nance
B) Corporate finance, investments, capital structure, international finance st st st st st st
C) Corporate finance, investments, financial institutions and markets, international finance
st st st st st st st st
D) Corporate finance, capital budgeting, financial institutions and markets, regulation A
st st st st st st st st st
nswer: C s t
4
Copyright © 2025 Pearson Education, Inc. st st st st st
Copyright © 2025 Pearson Education, Inc.
st st st st st
,TEST BANK FOR st st
Financial Management Core Concepts, 5th edition Raymond Brooks Jimmy Yang Chapter 1
st st st st st st st st st st st
-18
Chapter 1 Financial Management st s t s t st
1.1 The Cycle of Money st st st
1) At its most basic level, the function of financial intermediaries is to
st st . st st st st st st st st st st
A) track and report interest rates st st st st
B) move money from lenders to borrowers and back again
st st st st st st st st
C) report all financial transactions to the federal government
st st st st st st st
D) effect a transfer of wealth in society st st st st st st st
Answer: B s t
Diff: 1 st
Topic: 1.1 The Cycle of Money AACSB:
s t st st st st st
Analytical Thinking
s t st
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrowi
s t st st st st st st st st st st st st st st st st
ng and lending.
st st
2) Which of the following is NOT an example of a financial transaction?
st st st st st st st st st st st
A) Your parents use their credit card to pay for your current term's college tuition.
st st st st st st st st st st st st st
B) You use the ATM at Heathrow airport in London to withdraw British pounds.
st st st st st st st st st st st st
C) Your roommate lends you $20 and you repay it in one week.
st st st st st st st st st st st
D) All of the above are financial transactions.
st st st st st st st
Answer: D s t
Diff: 2 st
Topic: 1.1 The Cycle of Money AACSB:
s t st st st st st
Analytical Thinking
s t st
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrowi
s t st st st st st st st st st st st st st st st st
ng and lending.
st st
3) The movement of money from lender to borrower and back again is known as
st . st st st st st st st st st st st st st
A) the circle of life st st st
B) corporate finance st
C) the cycle of money st st st
D) money laundering st st
Answer: C s t
Diff: 1 st
Topic: 1.1 The Cycle of Money AACSB:
s t st st st st st
Analytical Thinking
s t st
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrowi
s t st st st st st st st st st st st st st st st st
ng and lending.
st st
Hmwrk Questions: * Taken from "Prepping for Exams" questions at the end of the chapter.
st s t st st st st st st st st st st st st
2
Copyright © 2025 Pearson Education, Inc.
st st st st st
,4) The common objective of borrowing and lending is to
st . st st st st st st st st
A) make all parties better off st st st st
B) gain a profit at the other's expense st st st st st st
C) make a firm or individual appear more liquid than is really the case
st st st st st st st st st st st st
D) thwart regulatoryauthority st st st
Answer: A s t
Diff: 1 st
Topic: 1.1 The Cycle of Money AACSB: s t st st st st st
Analytical Thinking
s t st
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrowi
s t st st st st st st st st st st st st st st st st
ng and lending.
st st
5) Which of the following is NOT a function of a financial intermediary in the len
st st st st st st st st st st st st st st
ding/borrowing process? st
A) To help establish terms of the lending/borrowing agreement
st st st st st st st
B) To match the borrower and the lender
st st st st st st
C) To bear the risk that the lender will not repay
st st st st st st st st st
D) To bear the risk that the borrower will not repay A
st st st st st st st st st st
nswer: C s t
Diff: 1 st
Topic: 1.1 The Cycle of Money AACSB: s t st st st st st
Analytical Thinking
s t st
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrowi
s t st st st st st st st st st st st st st st st st
ng and lending.
st st
6) Professor Gaston, your History teacher, borrows money at a rate of 6% per year from the Valle
st st st st st st st st st st st st st st st st
y State Bank for a tuition loan for her son. You have $1,200 deposited into your checking account a
st st st st st st st st st st st st st st st st st st
t the same bank earning a rate of 0.5% per year. Which of the following statements is TRUE?
st st st st st st st st st st st st st st st st st
A) The bank is criminally liable to you for paying an interest rate lower than the expected rate of infl
st st st st st st st st st st st st st st st st st st
ation.
B) You and your professor have an obvious conflict of interest because you have accounts at the sa
st st st st st st st st st st st st st st st st
me financial institution.
st st
C) You benefit from earning interest on your deposit, safety for your funds, and having a rec
st st st st st st st st st st st st st st st
ognizable means for paying for your financial obligations without having to hold cash.
st st st st st st st st st st st st
D) Your professor is the only party to be made worse off by this example because she is the only part
st st st st st st st st st st st st st st st st st st st
y paying net interest.
st st st
Answer: C s t
Explanation: Both you and your professor are using services typically provided by banks. There is n
s t st st st st st st st st st st st st st st
o conflict of interest.
st st st
Diff: 2 st
Topic: 1.1 The Cycle of Money AACSB: s t st st st st st
Analytical Thinking
s t st
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrowi
s t st st st st st st st st st st st st st st st st
ng and lending.
st st
3
Copyright © 2025 Pearson Education, Inc. st st st st st
, 7) The basic function of financial intermediaries is to move advice from lenders to borrowers and ba
st st st st st st st st st st st st st st st
ck to lenders.
st st
Answer: FALSE s t
Explanation: The basic function of financial intermediaries is to move MONEY from lenders to borrow
s t st st st st st st st st st st st st st
ers and back to lenders.
st st st st
Diff: 1 st
Topic: 1.1 The Cycle of Money AACSB: s t st st st st st
Analytical Thinking
s t st
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrowi
s t st st st st st st st st st st st st st st st st
ng and lending.
st st
8) In the lending/borrowing process, a financial intermediary function is to bear the risk that the bor
st st st st st st st st st st st st st st st
rower will not repay. st st st
Answer: TRUE st st
Diff: 1 st
Topic: 1.1 The Cycle of Money AACSB: s t st st st st st
Analytical Thinking
s t st
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrowi
s t st st st st st st st st st st st st st st st st
ng and lending.
st st
9) All financial transactions have a buyer and a seller. A
st st st st st st st st st
nswer: TRUE s t
Diff: 1 st
Topic: 1.1 The Cycle of Money AACSB: s t st st st st st
Analytical Thinking
s t st
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrowi
s t st st st st st st st st st st st st st st st st
ng and lending.
st st
10) Give three examples of a financial transaction. st st st st st st
Answer: (1) Your parents use their credit card to pay some of your college expenses.
s t st st st st st st st st st st st st st
(2) You use the ATM to withdraw funds so you can buy your best friend a birthday gift.
st st st st st st st st st st st st st st st st
(3) Your roommate lends you $20 and you repay it when you get your next pay check. Dif
st st st st st st st st st st st st st st st st
f: 2 st
Topic: 1.1 The Cycle of Money AACSB: s t st st st st st
Analytical Thinking
s t st
LO: 1.1 Describe the cycle of money, the participants in the cycle, and the common objective of borrowi
s t st st st st st st st st st st st st st st st st
ng and lending.
st st
1.2 Overview of Finance Areas st st st
1) Which of the following best identifies the four main areas of finance?
st st st st st st st st st st st
A) Exchange rate management, investments, financial institutions and markets, international fi
st st st st st st st st st
nance
B) Corporate finance, investments, capital structure, international finance st st st st st st
C) Corporate finance, investments, financial institutions and markets, international finance
st st st st st st st st
D) Corporate finance, capital budgeting, financial institutions and markets, regulation A
st st st st st st st st st
nswer: C s t
4
Copyright © 2025 Pearson Education, Inc. st st st st st
