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