Financial Management: Core Concepts (Brooks)
Chapter 1 Financial Management
1.1 The Cycle of Money
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.
Answer: B
Diff: 1
Topic: 1.1 The Cycle of Money
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.
Answer: D
Diff: 2
Topic: 1.1 The Cycle of Money
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.
Answer: C
Diff: 1
Topic: 1.1 The Cycle of Money
Hmwrk Questions: * Taken from "Prepping for Exams" questions at the end of the
chapter.
4) The common objective of borrowing and lending is to ________.
A) make all parties better off.
B) gain a profit at the others' expense.
C) make a firm or individual appear more liquid than is really the case.
D) thwart regulatory authority.
Answer: A
Diff: 1
Topic: 1.1 The Cycle of Money
,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.
Answer: D
Diff: 1
Topic: 1.1 The Cycle of Money
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.
Answer: C
Comment: Both you and your professor are using services typically provided by banks.
There is no conflict of interest.
Diff: 2
Topic: 1.1 The Cycle of Money
Hmwrk Questions: * Taken from "Prepping for Exams" questions at the end of the
chapter.
, 7) The basic function of financial intermediaries is to move advice from lenders to
borrowers and back to lenders.
Answer: FALSE
Comment: The basic function of financial intermediaries is to move MONEY from
lenders to borrowers and back to lenders.
Diff: 1
Topic: 1.1 The Cycle of Money
8) In the lending/borrowing process, a financial intermediary function is to bear the risk
that the borrower will not repay.
Answer: TRUE
Diff: 1
Topic: 1.1 The Cycle of Money
Chapter 1 Financial Management
1.1 The Cycle of Money
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.
Answer: B
Diff: 1
Topic: 1.1 The Cycle of Money
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.
Answer: D
Diff: 2
Topic: 1.1 The Cycle of Money
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.
Answer: C
Diff: 1
Topic: 1.1 The Cycle of Money
Hmwrk Questions: * Taken from "Prepping for Exams" questions at the end of the
chapter.
4) The common objective of borrowing and lending is to ________.
A) make all parties better off.
B) gain a profit at the others' expense.
C) make a firm or individual appear more liquid than is really the case.
D) thwart regulatory authority.
Answer: A
Diff: 1
Topic: 1.1 The Cycle of Money
,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.
Answer: D
Diff: 1
Topic: 1.1 The Cycle of Money
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.
Answer: C
Comment: Both you and your professor are using services typically provided by banks.
There is no conflict of interest.
Diff: 2
Topic: 1.1 The Cycle of Money
Hmwrk Questions: * Taken from "Prepping for Exams" questions at the end of the
chapter.
, 7) The basic function of financial intermediaries is to move advice from lenders to
borrowers and back to lenders.
Answer: FALSE
Comment: The basic function of financial intermediaries is to move MONEY from
lenders to borrowers and back to lenders.
Diff: 1
Topic: 1.1 The Cycle of Money
8) In the lending/borrowing process, a financial intermediary function is to bear the risk
that the borrower will not repay.
Answer: TRUE
Diff: 1
Topic: 1.1 The Cycle of Money
