Question 1

What is the typical minimum denominated transaction size in the direct financial markets?

Accepted Answer

A)  $10,000. 
B)  $100,000. 
C)  $1,000,000. 
D)  $10,000,000. 
A)  $10,000. 
B)  $100,000. 
C)  $1,000,000. 
D)  $10,000,000.

Question 2

A mutual fund is an example of:

Accepted Answer

A)  a line of credit. 
B)  an endowment fund. 
C)  an investment fund. 
D)  a pension fund. 
A)  a line of credit. 
B)  an endowment fund. 
C)  an investment fund. 
D)  a pension fund.

Question 3

The most common reason that corporate firms use the futures and options markets is:

Accepted Answer

A)  to hedge risk. 
B)  to take risk. 
C)  to make deposits. 
D)  none of the above. 
A)  to hedge risk. 
B)  to take risk. 
C)  to make deposits. 
D)  none of the above.

Question 4

The nominal rate of interest is the rate of interest that is adjusted for inflation.

Accepted Answer

A) True 
 B)False

Question 5

Financial markets and financial institutions are both part of:

Accepted Answer

A)  the U.S. Treasury. 
B)  the financial system. 
C)  the SEC. 
D)  none of the above. 
A)  the U.S. Treasury. 
B)  the financial system. 
C)  the SEC. 
D)  none of the above.

Question 6

The role of the financial system is to gather money from people, businesses and government that have funds to invest and to channel that money to those who need it.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following markets has no central trading location?

Accepted Answer

A)  A futures exchange. 
B)  An over-the-counter market. 
C)  An auction market. 
D)  None of the above. 
A)  A futures exchange. 
B)  An over-the-counter market. 
C)  An auction market. 
D)  None of the above.

Question 8

Money market instruments are generally issued by:

Accepted Answer

A)  firms in dire need of cash to maintain their credit rating. 
B)  firms of the highest credit rating. 
C)  firms of the lower credit ratings. 
D)  all of the above. 
A)  firms in dire need of cash to maintain their credit rating. 
B)  firms of the highest credit rating. 
C)  firms of the lower credit ratings. 
D)  all of the above.

Question 9

If inflation is anticipated to be 5 percent during the next year, while the real rate of interest for a one-year loan is 5 percent, then what should the nominal rate of interest be for a risk-free one-year loan?

Accepted Answer

A)  5 percent. 
B)  10 percent. 
C)  25 percent. 
D)  None of the above. 
A)  5 percent. 
B)  10 percent. 
C)  25 percent. 
D)  None of the above.

Question 10

Which of the following is a process by which investment bankers purchase new securities directly from the issuing company and resell them to the investors?

Accepted Answer

A)  Agency marketing. 
B)  Underwriting. 
C)  Distribution. 
D)  Private placement. 
A)  Agency marketing. 
B)  Underwriting. 
C)  Distribution. 
D)  Private placement.

Question 11

Without a financial market, purchasing a house would require a cash purchase.

Accepted Answer

A) True 
 B)False

Question 12

Casualty insurance companies sell:

Accepted Answer

A)  protection against loss of income in the event of the death of the insured. 
B)  protection against loss of property from fire, theft, accidents, and other predictable causes. 
C)  protection against a loss of pension revenue for retirees. 
D)  all of the above. 
A)  protection against loss of income in the event of the death of the insured. 
B)  protection against loss of property from fire, theft, accidents, and other predictable causes. 
C)  protection against a loss of pension revenue for retirees. 
D)  all of the above.

Question 13

An important function of the financial system is:

Accepted Answer

A)  to direct money to the best investment opportunities in the economy. 
B)  to allow the federal government to view all financial transactions. 
C)  to help state governments to coordinate state tax levies. 
D)  to direct the money from borrower-lenders to lender-savers. 
A)  to direct money to the best investment opportunities in the economy. 
B)  to allow the federal government to view all financial transactions. 
C)  to help state governments to coordinate state tax levies. 
D)  to direct the money from borrower-lenders to lender-savers.

Question 14

The cost of borrowing money is called:

Accepted Answer

A)  inflation. 
B)  return. 
C)  interest. 
D)  all of the above. 
A)  inflation. 
B)  return. 
C)  interest. 
D)  all of the above.

Question 15

The nominal rate of interest is made up of:

Accepted Answer

A)  the real rate of interest. 
B)  compensation for inflation. 
C)  a commodity cross-index return. 
D)  both A and B . 
A)  the real rate of interest. 
B)  compensation for inflation. 
C)  a commodity cross-index return. 
D)  both A and B .

Question 16

A highly liquid financial instrument with a maturity of 90 days would be traded in:

Accepted Answer

A)  the money market. 
B)  the bond market. 
C)  the stock market. 
D)  none of the above. 
A)  the money market. 
B)  the bond market. 
C)  the stock market. 
D)  none of the above.

Question 17

The real rate of return can be justified, at a basic level, by:

Accepted Answer

A)  compensation for inflation. 
B)  compensation for deferring consumption. 
C)  compensation for the level of international borrowing. 
D)  all of the above. 
A)  compensation for inflation. 
B)  compensation for deferring consumption. 
C)  compensation for the level of international borrowing. 
D)  all of the above.

Question 18

Which of the following act is responsible for rolling back many of the rules against commercial banks offering investment banking activities?

Accepted Answer

A)  The Securities Act of 1933. 
B)  The Securities Exchange Act of 1934. 
C)  The Glass-Steagall Act of 1933. 
D)  The Financial Services Modernization Act of 1999. 
A)  The Securities Act of 1933. 
B)  The Securities Exchange Act of 1934. 
C)  The Glass-Steagall Act of 1933. 
D)  The Financial Services Modernization Act of 1999.

Question 19

Which of the following is a primary investment vehicle for the funds in which life insurance companies must invest?

Accepted Answer

A)  CDs. 
B)  Equity securities. 
C)  Long-term corporate bonds. 
D)  Both B and C. 
A)  CDs. 
B)  Equity securities. 
C)  Long-term corporate bonds. 
D)  Both B and C.

Question 20

Most companies use indirect market from a financial institution to fund their needs.

Accepted Answer

A) True 
 B)False

Exam 2: The Financial System and the Level of Interest Rates

What is the typical minimum denominated transaction size in the direct financial markets?

A mutual fund is an example of:

The most common reason that corporate firms use the futures and options markets is:

The nominal rate of interest is the rate of interest that is adjusted for inflation.

Financial markets and financial institutions are both part of:

The role of the financial system is to gather money from people, businesses and government that have funds to invest and to channel that money to those who need it.

Which of the following markets has no central trading location?

Money market instruments are generally issued by:

If inflation is anticipated to be 5 percent during the next year, while the real rate of interest for a one-year loan is 5 percent, then what should the nominal rate of interest be for a risk-free one-year loan?

Which of the following is a process by which investment bankers purchase new securities directly from the issuing company and resell them to the investors?

Without a financial market, purchasing a house would require a cash purchase.

Casualty insurance companies sell:

An important function of the financial system is:

The cost of borrowing money is called:

The nominal rate of interest is made up of:

A highly liquid financial instrument with a maturity of 90 days would be traded in:

The real rate of return can be justified, at a basic level, by:

Which of the following act is responsible for rolling back many of the rules against commercial banks offering investment banking activities?

Which of the following is a primary investment vehicle for the funds in which life insurance companies must invest?

Most companies use indirect market from a financial institution to fund their needs.

The Financial Manager and the Firm

The Financial System and the Level of Interest Rates

Analyzing Financial Statements

The Time Value of Money

Discounted Cash Flows and Valuation

Risk and Return

Bond Valuation and the Structure of Interest Rates

Stock Valuation

The Fundamentals of Capital Budgeting

Cash Flows and Capital Budgeting

Evaluating Project Economics

The Cost of Capital

Working Capital Management

How Firms Raise Capital

Capital Structure Policy

Dividends, Stock Repurchases, and Payout Policy

Business Formation, Growth, and Valuation

Financial Planning and Managing Growth

Options and Corporate Finance

International Financial Management

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