Question 1

Publicly traded companies are required by law to pay out their profits to shareholders in payments called dividends.

Accepted Answer

A) True 
 B)False  False

Question 2

The financial crisis of 2007-2009 was primarily the result of

Accepted Answer

A)  the bursting of the stock market bubble. 
B)  the bursting of the housing market bubble. 
C)  excessive tax rates. 
D)  inflation fighting by the Federal Reserve. 
A)  the bursting of the stock market bubble. 
B)  the bursting of the housing market bubble. 
C)  excessive tax rates. 
D)  inflation fighting by the Federal Reserve. B

Question 3

A share of ownership in a company is called a

Accepted Answer

A)  bond. 
B)  dividend. 
C)  share of stock. 
D)  mortgage. 
A)  bond. 
B)  dividend. 
C)  share of stock. 
D)  mortgage. C

Question 4

The main way corporations and governments raise money is through

Accepted Answer

A)  the stock market. 
B)  the bond market. 
C)  loans from banks. 
D)  the equity credit channel. 
A)  the stock market. 
B)  the bond market. 
C)  loans from banks. 
D)  the equity credit channel.

Question 5

Which of the following is a loan that entitles the lender to get regular interest payments over time,and then to get back the principal at the end of the term of the loan?

Accepted Answer

A)  A share of stock. 
B)  A bond. 
C)  A mutual fund. 
D)  A revolving credit account. 
A)  A share of stock. 
B)  A bond. 
C)  A mutual fund. 
D)  A revolving credit account.

Question 6

Which of the following is not a type of consumer loan?

Accepted Answer

A)  A student loan. 
B)  Credit card purchases for household items. 
C)  A mortgage used to purchase an owner-occupied house. 
D)  A loan taken out by a young entrepreneur to finance the purchase of a lawnmower for a summer landscaping business. 
A)  A student loan. 
B)  Credit card purchases for household items. 
C)  A mortgage used to purchase an owner-occupied house. 
D)  A loan taken out by a young entrepreneur to finance the purchase of a lawnmower for a summer landscaping business.

Question 7

Splitting money across different investments (diversification)reduces risk but also reduces the rate of return,according to the risk-return principle.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements about stock-issuing firms is FALSE?

Accepted Answer

A)  Firms that issue stock for the first time do so through an initial public offering, handled by an investment bank. 
B)  Firms that pay dividends cannot lose money for their investors because the stockholders can at least count on the dividend payment every year. 
C)  Firms that issue new stock a second time are making a secondary public offering. 
D)  Firms that issue stock are participating in the equity credit channel. 
A)  Firms that issue stock for the first time do so through an initial public offering, handled by an investment bank. 
B)  Firms that pay dividends cannot lose money for their investors because the stockholders can at least count on the dividend payment every year. 
C)  Firms that issue new stock a second time are making a secondary public offering. 
D)  Firms that issue stock are participating in the equity credit channel.

Question 9

The danger that the overall price level will rise faster than anticipated,so that the lender is being paid back in dollars that are worth less than expected,is called

Accepted Answer

A)  credit risk. 
B)  event risk. 
C)  inflation risk. 
D)  default risk. 
A)  credit risk. 
B)  event risk. 
C)  inflation risk. 
D)  default risk.

Question 10

Which of the following describes the risk-return principle?

Accepted Answer

A)  In most financial markets, the greater the risk, the lower the rate of return. 
B)  In a financial market, the only way to get consistently higher returns over the long run is to take more risks. 
C)  In a stock market, the higher the price of the stock, the greater the risk incurred by the investor. 
D)  An investment or loan has less risk if it is likely to lose value at the same time your other investments or loans do. 
A)  In most financial markets, the greater the risk, the lower the rate of return. 
B)  In a financial market, the only way to get consistently higher returns over the long run is to take more risks. 
C)  In a stock market, the higher the price of the stock, the greater the risk incurred by the investor. 
D)  An investment or loan has less risk if it is likely to lose value at the same time your other investments or loans do.

Question 11

A secondary public offering occurs when a

Accepted Answer

A)  stockbroker resells stock to a customer in the secondary market. 
B)  bankrupt firm's assets are sold to bondholders at auction. 
C)  venture capital firm takes a successful acquisition and goes public with it, selling its stock on the open stock market. 
D)  firm that has already issued stock issues new stock again. 
A)  stockbroker resells stock to a customer in the secondary market. 
B)  bankrupt firm's assets are sold to bondholders at auction. 
C)  venture capital firm takes a successful acquisition and goes public with it, selling its stock on the open stock market. 
D)  firm that has already issued stock issues new stock again.

Question 12

Which of the following is the best definition of a stock index?

Accepted Answer

A)  A measure of the prices of a group of stocks, such as the Dow Jones Industrial Average or the S&P 500. 
B)  A mutual fund made up of a group of stocks and sold through a firm such as Vanguard or Fidelity. 
C)  A category of stocks whose value is indexed to the inflation rate to safeguard the investor against inflation risk. 
D)  A control the Federal Reserve places on the stock market via margin requirements, whereby the Fed indexes margin requirements to inflation. 
A)  A measure of the prices of a group of stocks, such as the Dow Jones Industrial Average or the S&P 500. 
B)  A mutual fund made up of a group of stocks and sold through a firm such as Vanguard or Fidelity. 
C)  A category of stocks whose value is indexed to the inflation rate to safeguard the investor against inflation risk. 
D)  A control the Federal Reserve places on the stock market via margin requirements, whereby the Fed indexes margin requirements to inflation.

Question 13

Which of the following statements about the stock market is true?

Accepted Answer

A)  Government regulation ensures that the stock market will go up each year, even if month to month there may be declines in stock values. 
B)  People who want to buy shares of stock in an established company will generally contact a representative of a venture capital firm. 
C)  Some investors diversify by investing in a group of many different stocks, such as those in the S&P 500 Index. 
D)  Diversifying by buying shares of stock in many different companies can eliminate the risk taken by the stock investor. 
A)  Government regulation ensures that the stock market will go up each year, even if month to month there may be declines in stock values. 
B)  People who want to buy shares of stock in an established company will generally contact a representative of a venture capital firm. 
C)  Some investors diversify by investing in a group of many different stocks, such as those in the S&P 500 Index. 
D)  Diversifying by buying shares of stock in many different companies can eliminate the risk taken by the stock investor.

Question 14

The U.S.government funds the federal budget deficit by

Accepted Answer

A)  selling securities such as Treasury bonds and Treasury bills. 
B)  selling stock in government-owned corporations 
C)  selling shares in gold owned by the Federal Reserve via special drawing rights. 
D)  borrowing from large private banks at favorable terms and low interest rates. 
A)  selling securities such as Treasury bonds and Treasury bills. 
B)  selling stock in government-owned corporations 
C)  selling shares in gold owned by the Federal Reserve via special drawing rights. 
D)  borrowing from large private banks at favorable terms and low interest rates.

Question 15

In a well-functioning financial market,the only way to get consistently higher returns over the long run is to take more risks.This is known as the

Accepted Answer

A)  risk-return principle. 
B)  diversification principle. 
C)  fixed income principle. 
D)  price appreciation principle. 
A)  risk-return principle. 
B)  diversification principle. 
C)  fixed income principle. 
D)  price appreciation principle.

Question 16

Suppose the interest rate falls,and the quantity of money borrowed (and lent)increases.Which of the following could have caused this to occur?

Accepted Answer

A)  A decrease in the supply of loans to the lending market. 
B)  A decrease in the demand for loans in the lending market. 
C)  An increase in the supply of loans to the lending market. 
D)  An increase in the demand for loans in the lending market. 
A)  A decrease in the supply of loans to the lending market. 
B)  A decrease in the demand for loans in the lending market. 
C)  An increase in the supply of loans to the lending market. 
D)  An increase in the demand for loans in the lending market.

Question 17

The Federal Reserve

Accepted Answer

A)  did not pay close enough attention to derivatives in the period leading up to the financial crisis. 
B)  should not have promoted the use of complicated financial derivatives the way it did during the financial crisis. 
C)  could have prevented the financial crisis through the use of complicated financial derivatives. 
D)  is not legally authorized to monitor or regulate complicated financial derivatives. 
A)  did not pay close enough attention to derivatives in the period leading up to the financial crisis. 
B)  should not have promoted the use of complicated financial derivatives the way it did during the financial crisis. 
C)  could have prevented the financial crisis through the use of complicated financial derivatives. 
D)  is not legally authorized to monitor or regulate complicated financial derivatives.

Question 18

Financial intermediaries that provide start-up capital for risky new businesses are called

Accepted Answer

A)  stock markets. 
B)  investment banks. 
C)  stockbrokers. 
D)  venture capital firms. 
A)  stock markets. 
B)  investment banks. 
C)  stockbrokers. 
D)  venture capital firms.

Question 19

How are banks and venture capital firms different?

Accepted Answer

A)  Banks are financial intermediaries. 
B)  Venture capital firms provide funds to businesses. 
C)  Banks receive funds from the suppliers of capital. 
D)  Venture capital firms expect quite a few of their investments to fail. 
A)  Banks are financial intermediaries. 
B)  Venture capital firms provide funds to businesses. 
C)  Banks receive funds from the suppliers of capital. 
D)  Venture capital firms expect quite a few of their investments to fail.

Question 20

If the demand for loans increases,the interest rate will fall.

Accepted Answer

A) True 
 B)False

Publicly traded companies are required by law to pay out their profits to shareholders in payments called dividends.

The financial crisis of 2007-2009 was primarily the result of

A share of ownership in a company is called a

The main way corporations and governments raise money is through

Which of the following is a loan that entitles the lender to get regular interest payments over time,and then to get back the principal at the end of the term of the loan?

Which of the following is not a type of consumer loan?

Splitting money across different investments (diversification)reduces risk but also reduces the rate of return,according to the risk-return principle.

Which of the following statements about stock-issuing firms is FALSE?

The danger that the overall price level will rise faster than anticipated,so that the lender is being paid back in dollars that are worth less than expected,is called

Which of the following describes the risk-return principle?

A secondary public offering occurs when a

Which of the following is the best definition of a stock index?

Which of the following statements about the stock market is true?

The U.S.government funds the federal budget deficit by

In a well-functioning financial market,the only way to get consistently higher returns over the long run is to take more risks.This is known as the

Suppose the interest rate falls,and the quantity of money borrowed (and lent)increases.Which of the following could have caused this to occur?

The Federal Reserve

Financial intermediaries that provide start-up capital for risky new businesses are called

How are banks and venture capital firms different?

If the demand for loans increases,the interest rate will fall.

Introduction

Demand and Supply: The Basics of the Market Economy

Market Equilibrium and Shifts

How Businesses Work

Competition and Market Power

Government and the Economy

The First Step Into Macroeconomics

Inflation

Growth

Business Cycles, unemployment and Inflation

Fiscal Policy

Monetary Policy

International Trade

Technological Change

Economics of the Labor Market

The Distribution of Income

Economics of Retirement and Healthcare

Economics of Energy, the Environment, and Global Climate Change Glossary

Filters

Exam 13: The Financial Markets

Publicly traded companies are required by law to pay out their profits to shareholders in payments called dividends.

The financial crisis of 2007-2009 was primarily the result of

A share of ownership in a company is called a

The main way corporations and governments raise money is through

Which of the following is a loan that entitles the lender to get regular interest payments over time,and then to get back the principal at the end of the term of the loan?

Which of the following is not a type of consumer loan?

Splitting money across different investments (diversification)reduces risk but also reduces the rate of return,according to the risk-return principle.

Which of the following statements about stock-issuing firms is FALSE?

The danger that the overall price level will rise faster than anticipated,so that the lender is being paid back in dollars that are worth less than expected,is called

Which of the following describes the risk-return principle?

A secondary public offering occurs when a

Which of the following is the best definition of a stock index?

Which of the following statements about the stock market is true?

The U.S.government funds the federal budget deficit by

In a well-functioning financial market,the only way to get consistently higher returns over the long run is to take more risks.This is known as the

Suppose the interest rate falls,and the quantity of money borrowed (and lent)increases.Which of the following could have caused this to occur?

The Federal Reserve

Financial intermediaries that provide start-up capital for risky new businesses are called

How are banks and venture capital firms different?

If the demand for loans increases,the interest rate will fall.

Introduction

Demand and Supply: The Basics of the Market Economy

Market Equilibrium and Shifts

How Businesses Work

Competition and Market Power

Government and the Economy

The First Step Into Macroeconomics

Inflation

Growth

Business Cycles, unemployment and Inflation

Fiscal Policy

Monetary Policy

International Trade

Technological Change

Economics of the Labor Market

The Distribution of Income

Economics of Retirement and Healthcare

Economics of Energy, the Environment, and Global Climate Change Glossary

Filters