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