Deck 3: Fundamentals of Economics and Types of Markets

Question 1

Determining long-term investments and planning the expenditure of funds are part of

A) the accounting equation.
B) monetary practices.
C) financial management.
D) financial accounting.
E) managerial accounting.

Answer 1

financial management.

Question 2

Kiri's job is to pay suppliers and determine how much money is left for investment. Which task of financial managers is Kiri performing?

A) overseeing collection of money owed
B) managing bank account
C) monitoring accounting
D) minimizing taxes
E) overseeing bill payment

Answer 2

overseeing bill payment

Question 3

The end goal of financial management is

A) solvency.
B) efficiency.
C) effectiveness.
D) profitability.
E) viability.

Answer 3

profitability.

Question 4

Marsha is really good at managing her company's money in an optimum way. Marsha demonstrates the financial management principle of

A) solvency.
B) efficiency.
C) productivity.
D) profitability.
E) viability

Question 5

A(n) ________ is a firm's strategy for reaching its financial goals.

A) accounting equation
B) financial plan
C) debit/credit strategy
D) forecast
E) fiscal plan

Question 6

A financial plan has three parts: forecasting, budgeting, and

A) accounting.
B) expenditures.
C) financial controls.
D) financial planning.
E) development.

Question 7

A ________ forecast is a prediction about how money will come into and go out of a firm in the near future, usually the next 1-3 months, and are based on anticipated sales and expenses.

A) cash flow
B) short-term
C) long-term
D) budgeting
E) controls

Question 8

A ________ forecast is a prediction about how money will come into and go out of a firm during the next 4 to 12 months.

A) cash flow
B) short-term
C) long-term
D) budgeting
E) controls

Question 9

When Parul's children started college, she realized she needed to make money quickly, so she decided to increase production and distribution of the company's most popular product line. To do so, Parul borrowed money from the bank to cover the company's additional operating costs. Which reason why companies need to obtain financing is demonstrated in this example?

A) funds for managing everyday business activities
B) funds for extending credit
C) funds for unrelated business expenses
D) funds for making major investments
E) funds for capital expenditures

Question 10

When Michael started his construction company, he needed to purchase some very expensive excavating equipment, but he didn't have the cash on hand to do so. He borrowed from the bank to cover this ________ expenditure.

A) short-term
B) capital
C) intangible
D) principal
E) inventory

Question 11

Short-term financing by which a firm buys a product, then receives a bill from the supplier, and pays it in 30 to 90 days, is

A) debt financing.
B) equity financing.
C) an unsecured loan.
D) trade credit.
E) liability financing.

Question 12

When We Love Dogs ordered its dog food from a supplier, it agreed to pay the supplier within 60 days. This is the ________, or conditions the seller gives the buyer when offering short-term credit.

A) terms of trade
B) risk-return agreement
C) collateral agreement
D) trade conditions
E) liability financing

Question 13

The length of time for which the seller extends credit to the buyer is known as the

A) net period.
B) equity timeline.
C) collateral period.
D) trade conditions.
E) contract limit.

Question 14

The most familiar form of trade credit is ________, a written contract prepared by the buyer who agrees to pay the seller a certain amount by a certain time.

A) a secured loan
B) an unsecured loan
C) collateral
D) a promissory note
E) crowdfunding

Question 15

The price you pay for the use of money over a certain period of time is called the

A) collateral.
B) interest rate.
C) fixed payment.
D) promissory rate.
E) investment cost.

Question 16

In a ________, a bank specifies how much it is willing to lend the borrower during a specified period of time, although the bank does not guarantee the loan.

A) revolving credit agreement
B) lay away plan
C) line of credit
D) transaction loan
E) credit card advance

Question 17

A ________ is credit extended by a bank for a specific purpose, such as for constructing a new store or stocking up on new inventory for the season.

A) revolving credit agreement
B) lay away plan
C) line of credit
D) transaction loan
E) credit card advance

Question 18

When a firm uses its accounts receivable as collateral, or security, to obtain a short-term loan, as from a commercial bank, it is called

A) pledging accounts payable.
B) factoring accounts receivable.
C) factoring accounts payable.
D) pledging accounts receivable.
E) commercial financing.

Question 19

As substitutes for bank loans, ________ consists of unsecured, short-term promissory notes over $100,000 issued by large banks, corporations, insurance companies, pension funds, public utilities, and state and local governments.

A) a revolving credit agreement
B) commercial paper
C) a line of credit
D) a transaction loan
E) factoring

Question 20

A technology start-up received money from a venture capital company. What type of financing is this?

A) long-term loan
B) debt financing
C) equity financing
D) retaining earnings
E) selling stock

Question 21

After paying its stockholders, a construction company decided to use the rest of its earnings to buy more buildings. What type of financing is this?

A) long-term loan
B) debt financing
C) distributed profit
D) retained earnings
E) selling stock

Question 22

________ consist(s) of funds acquired from wealthy individuals and institutions that invest in promising start-ups or emerging companies in return for their giving up some ownership.

A) Long-term loans
B) Debt financing
C) Equity financing
D) Retaining earnings
E) Venture capital

Question 23

What is the term for the rate of return a firm must earn to cover the cost of generating funds in the marketplace?

A) interest rate
B) debt financing
C) distributed profit
D) retained earnings
E) cost of capital

Question 24

Peer-to-peer lending, which allows individuals to borrow and lend money while bypassing financial institutions, is also called

A) buddy lending.
B) angel investing.
C) social lending.
D) Web investing.
E) crowd jumping.

Question 25

Joe's Barber Shop gives free haircuts to Manny, who brings Joe a free pastrami sandwich on Fridays. This demonstrates the concept of

A) crowdfunding.
B) bartering.
C) a transaction loan.
D) a financial exchange.
E) networking.

Question 26

Which statement demonstrates the money characteristic of portability?

A) I can carry money with me.
B) I can break big bills down into small ones.
C) Dollar bills last a long time.
D) The dollar bill cannot easily be copied or counterfeited.
E) The value of the dollar won't change when I give it to a supplier.

Question 27

Which statement demonstrates the divisibility of money?

A) I can carry money with me.
B) I can break big bills down into small ones.
C) Dollar bills last a long time.
D) The dollar bill cannot easily be copied or counterfeited.
E) The value of the dollar won't change when I give it to a supplier.

Question 28

Which statement demonstrates the concept of durability as it relates to money?

A) I can carry money with me.
B) I can break big bills down into small ones.
C) Dollar bills last a long time.
D) The dollar bill cannot easily be copied or counterfeited.
E) The value of the dollar won't change when I give it to a supplier.

Question 29

Which statement demonstrates the concept of uniqueness as it relates to money?

A) I can carry money with me.
B) I can break big bills down into small ones.
C) Dollar bills last a long time.
D) The dollar bill cannot easily be copied or counterfeited.
E) The value of the dollar won't change when I give it to a supplier.

Question 30

Which function of money is apparent when it makes economic transactions easier and eliminates the need to barter?

A) medium of exchange
B) store of wealth
C) standard of value
D) stability of form
E) durable quality

Question 31

Money can be used to measure the worth of goods and services. This relates to which function of money?

A) medium of exchange
B) store of wealth
C) standard of value
D) stability of form
E) durable quality

Question 32

Money that can be accessed quickly and easily, such as that in a checking account, is called

A) on-demand money.
B) time deposits.
C) M1.
D) M2.
E) short-term assets.

Question 33

________ are bank funds that can't be withdrawn without notice or transferred by check.

A) Long-term assets
B) Time deposits
C) M1
D) M2
E) Short-term assets

Question 34

What is a purpose of the Fed's administrative districts?

A) to monitor the member banks in their districts for violations of the law
B) to adjust interest rates on a regional basis
C) to set monetary policy for their districts
D) to provide the member banks in their districts with sufficient currency
E) to provide oversight on potentially risky loan practices

Question 35

All commercial banks are________, meaning they have received government permission to operate, either from the federal government (national banks) or an individual state (state banks).

A) licensed
B) chartered
C) regional
D) certified
E) accredited

Question 36

Which of these is a nonbank institution?

A) brokerage firm
B) savings institution
C) savings and loan
D) credit union
E) mutual savings bank

Question 37

A ________ is an account that pays interest and allows you to write an unlimited number of checks, but you have to maintain a minimum monthly balance.

A) checking account
B) savings account
C) NOW account
D) money market account
E) certificate of deposit

Question 38

Rhonda has a ________ account, which gives her an interest rate competitive with those of brokerage firm money market funds but requires a higher minimum balance and limits check writing to three per month.

A) checking
B) savings
C) NOW
D) money market
E) certificate of deposit

Question 39

Alfred received a bonus and didn't need it for at least a year, so he wanted to put in somewhere where it would earn more interest than a savings account. What is thebest option for Alfred?

A) checking account
B) demand deposit
C) NOW account
D) money market account
E) certificate of deposit

Question 40

Jasper started a new position last year. Since starting, he has been responsible for obtaining sufficient funds to complete several important projects for his employer. Jaspermost likely works in the field of ________ management.

A) capital gains
B) entrepreneurial
C) financial
D) accounting
E) treasury returns

Question 41

Chasen's friends ask him to come out to the lake house this weekend, but he politely passes. He is in the process of analyzing his employer's investments to ensure that their risk is translating to their expected level of return. This examplebest describes the concept of

A) risk-return trade-off.
B) financial controls.
C) short-term forecasting.
D) pledging.
E) factoring.

Question 42

Tra's Tree Trimming Company is always able to pay its bills on time or before they are due. Thisbest demonstrates the concept of

A) efficiency.
B) solvency.
C) strategy.
D) transparency.
E) profitability.

Question 43

Shan is responsible for managing the accounts payable team for her Signal Signage Company. She ensures the team does not make payments immediately after receiving an invoice, while also ensuring that payment due dates are not missed. Why would Shan manage the accounts payable process in this manner?

A) to eliminate trade credit and maximize investment returns
B) to decrease interest fees and increase leverage
C) to reduce solvency and improve profitability
D) to avoid interest fees and allow for investment returns
E) to minimize taxes and avoid interest fees

Question 44

Kiley is reviewing her company's projected sales and its planned expenses. This data would bebest suited for which of the following forecasts?

A) long-term
B) trade credit
C) short-term
D) risk-return
E) cash flow

Question 45

Dex is the CFO for Trask Enterprises. He is meeting with the CEO and other members of the leadership team to create a formal plan for helping Trask to meet its financial objectives. Dex ismost likely assisting with a

A) financial plan.
B) credit index.
C) balance sheet.
D) treasury index.
E) capital budget.

Question 46

Brazen Manufacturing is planning to build a new factory in 5 years. It is also planning to expand sales outside of the United States in 10 years. The financial management team is preparing a report that will estimate how cash will enter and exit the firm during the time leading up to the two milestones. What type of report is the financial management team preparing?

A) cost of capital
B) long-term forecast
C) accounts receivable factor
D) cash flow forecast
E) promissory note

Question 47

Brewster needs to purchase a new company car for his sales manager within the next year. He wants a clear forecast of the potential money that his company will collect and pay during that period. What would be hisbest approach?

A) revolving credit forecast
B) financial leverage review
C) short-term forecast
D) cost of capital review
E) long-term forecast

Question 48

Ellison is responsible for taking care of her elderly parents. She also is a small business owner. As her bills mount for caring for her parents, she is forced to tap into her savings account. She then decides to borrow money from the bank to pay bills related to her business. Which of the reasons a firm borrows money does thisbest demonstrate?

A) funds for extending credit
B) funds for short-term cash flow
C) funds for minor investments
D) funds for managing everyday business activities
E) funds for trade credit

Question 49

Meister Mixers is planning to build a new production facility next year. The owners visit their bank to borrow the money needed to begin the construction process. Which of the reasons a firm borrows money does thisbest demonstrate?

A) funds for keeping enough product available
B) funds for managing everyday business activities
C) funds for cash leverage
D) funds for extending credit
E) funds for major investments

Question 50

Dolan's Detailing is purchasing another company in order to obtain the patent to its luxury car cleaning system. A patent is described as a ________ expenditure.

A) tangible
B) capital
C) leverage
D) trade
E) factor

Question 51

Fine Art Framing wanted to spur business, so it ran a three-month stretch of promotions where customers were given six months with zero interest and no payments. Unfortunately, the company found itself short on money as it waited for payments to roll in, so it was forced to borrow money from the bank to stay in business. Which of the reasons firms borrow money does thisbest demonstrate?

A) funds for extending credit
B) funds for trade credit
C) funds for keeping enough product available
D) funds for capital leverage
E) funds for managing everyday business activities

Question 52

I'SCream makes a variety of healthy alternatives to dairy-based ice cream. One of its most popular styles of ice cream utilizes avocado milk for the main ingredient. Avocados take a long time to ship, so I'SCream will often borrow money from its bank to facilitate larger orders of avocados. Which of the reasons firms borrow money does thisbest demonstrate?

A) funds for making major investments
B) funds for keeping enough product available
C) funds for extending credit
D) funds for requesting a line of credit
E) funds for managing everyday business activities

Question 53

Elemental Flags has a three-year loan agreement with its bank. It can borrow anything up to $300,000 and is charged interest on any unpaid balance. Thisbest describes a

A) line of credit.
B) promissory note.
C) commercial credit.
D) revolving credit agreement.
E) transaction loan.

Question 54

Mogul Gaming negotiates a written contract with its main supplier to pay half of its invoice within 30 days and the other half within 90 days. This agreement is most likely ________, a form of ________.

A) a promissory note; trade credit
B) line of credit; secured loan
C) commercial paper; trade credit
D) a promissory note; transaction loan
E) revolving credit agreement; unsecured loan

Question 55

Samurai Generators makes a purchase of resistors for next quarter's production run. Its supplier emails an invoice with the total amount owed. Next to the total is a reminder that states, "2/10, net 30." What would happen if Samurai pays its bill the next day?

A) It would receive a 2 percent trade credit.
B) It would receive a 10 percent discount off the total.
C) It would receive a 30-day grace period on its next order.
D) It would receive a 2 percent discount off the total.
E) It would receive a 10 percent discount on its next order.

Question 56

ProStar Desks needs to double the size of its fleet of delivery vehicles. Its bank provides the owners with a $500,000 credit to use for their vehicle order. This credit isbest described as

A) a line of credit.
B) a promissory note.
C) angel investing.
D) a transaction loan.
E) commercial paper.

Question 57

Precision Trucking has an outstanding credit rating and decides to approach its bank about financing a new factory it wants to build. The bank agrees to lend money to Precision Trucking over a 15-year period using Precision's fleet of vehicles as collateral. Precision will need to pay monthly installments during the life of the agreement. This agreement is best described as which of the following terms?

A) private placement
B) venture capital
C) term-loan agreement
D) financial leverage
E) commercial paper

Question 58

BlueDot Training just finished paying annual dividends to its stockholders. It uses the remaining money to fund the purchase of the acquisition of a smaller competitor. Thisbest describes an example of

A) financial leverage.
B) debt financing.
C) equity financing.
D) earnings financing.
E) equity credit.

Question 59

Deluge Writing is preparing to launch a new product. The CFO has been asked to present a financing plan to the Board. What would be hisbest approach if he wants to keep the company from being heavily leveraged?

A) conduct a crowdfunding campaign
B) sell a large percentage of bonds and small percentage of stock
C) conduct a full-scale public stock offering
D) sign a term-loan agreement
E) put out a request for proposal for commercial paper

Question 60

Algorithm Computers needs to borrow money to pay for an addition to its training facility. The owners approach their bank, but their application for a long-term loan is denied. They decide to issue corporate bonds to the public instead. The company has a strong reputation but is unable to provide collateral for the bonds it sells. The bonds in this example are most likely ________ and would be described as a form of ________.

A) indenture bonds; equity financing
B) debenture bonds; peer-to-peer financing
C) unsecured bonds; initial public offering
D) secured bonds; crowdfunding
E) debenture bonds; debt financing

Question 61

Malik runs a fun center that offers go-karts, mini-golf, and more. He is low on money and offers his soda supplier free tickets to the fun center in exchange for his monthly order of soda. This is an example of

A) trade credit.
B) barter.
C) peer-to-peer lending.
D) collateral.
E) revolving credit.

Question 62

Tatjana received $100 for her birthday last week. She spent $50 on a new video game and put the other $50 aside for a vacation she has planned next month. The money she savedbest represents which function of money?

A) store of wealth
B) means of leverage
C) standard of value
D) terms of interest
E) medium of exchange

Question 63

Antanas is tired of living paycheck to paycheck. He tells his friend Irena that he is going to start counterfeiting U.S. currency to help him get rich quick. Irena feels bad but tells him that his plan will most likely fail due to the ________ of money.

A) factoring
B) debenture
C) durability
D) uniqueness
E) stability

Question 64

Giedre is going on vacation next week and runs to her bank to pick up traveler's checks to use while she is away. These checks arebest described as an example of which part of the money supply?

A) M1
B) commercial paper
C) demand deposit
D) M2
E) time deposit

Question 65

Lahn placed $100 in a certificate of deposit. After three years he received 10 percent interest on the $100. This is an example of a ________ deposit, which can be further classified as a form of ________.

A) demand; M1
B) bond; NOW
C) time; M2
D) paper; M1
E) promissory; M2

Question 66

Cong works in the banking industry. He is responsible for ensuring that member banks in his district have enough cash on hand to serve customers during the holiday buying season. Congmost likely works in

A) a chartered bank.
B) the Bureau of Engraving and Printing.
C) a commercial bank.
D) the Federal Reserve Bank.
E) the Board of Governors.

Question 67

When Marston's son turned 16, he helped him open an interest-bearing checking account at the local bank. This account canbest be classified as

A) M2.
B) time deposit.
C) demand deposit.
D) interest deposit.
E) M1.

Question 68

Ahlai works for the Fed and is conducting a seminar about money supply. An attendee says he thinks people borrow too much money and suggests that the Fed remove half of the money in the money supply. What would be Ahlai'sbest response regarding the outcome if the Fed followed this advice?

A) Consumer borrowing would go up.
B) There would be an oversupply of goods and services.
C) Prices for goods and services would increase.
D) The reserve requirement would decrease.
E) There would be fewer bonds available for the Fed to buy.

Question 69

The market is currently seeing lower interest rates and increased economic growth. Which Fed tool for controlling the money supply wasmost likely used to cause this to occur?

A) They purchased bonds from the public.
B) They increased the discount rate.
C) They increased the reserve requirement.
D) They sold bonds to the public.
E) They decreased EFT fees.

Question 70

The Fed is considering increasing the amount of money that banks are required to keep in their vault. This amount is known as the ________ and an increase would most likely cause ________ to interest rates.

A) discount rate; no change
B) indenture term; a decrease
C) reserve requirement; an increase
D) reserve requirement; a decrease
E) discount rate; an increase

Question 71

Luna placed $1,000 in an interest-bearing checking account. She can write as many checks as she needs to each month but must keep her balance above $500. Luna most likely opened a ________ account.

A) NOW
B) certificate of deposit
C) promissory
D) savings
E) money market

Question 72

Which activity represents a way that a commercial bank might make money?

A) extending trade credit
B) providing a discount rate
C) decreasing the reserve requirement
D) offering life insurance
E) eliminating loan interest

Question 73

Marsh received a $50,000 inheritance when his aunt passed away last week and decides to deposit the money in a new account at his bank. He wants to make significant interest on his deposit, but also wants the ability to write checks. What is his best option?

A) mutual checking account
B) treasury deposit
C) Super-NOW account
D) certificate of deposit
E) money market account

Question 74

Easy Insurance is a new business that offers property and casualty and life and health insurance to customers. Easy Insurance ismost likely a

A) commercial bank.
B) nonbank institution.
C) savings and loan institution.
D) peer-to-peer lender.
E) market mutual company.

Question 75

DeAndre recently took a new job with Macklemore Industries. He is responsible for buying and selling stocks for individuals looking for assistance. Macklemore Industries ismost likely a(n)

A) finance company.
B) insurance company.
C) brokerage firm.
D) credit union.
E) treasury fund.

Question 76

Danyou is hired to work for Bristol Motors. Bristol is a large corporation that even has its own financial institution. Danyou does some research on the financial institution and learns that he can get all the same services he has at his current bank, albeit with slightly higher interest rates. Bristol's financial institution ismost likely a(n)

A) pension fund.
B) credit union.
C) brokerage firm.
D) insurance company.
E) mutual savings cooperative.

Question 77

Antoinette wants to take out a mortgage. Her friend recommended she look into her bank, so Antoinette decided to do some research. Everything appeared to be the same except her friend's bank appeared to be owned by depositors rather than shareholders. Antoinette's friendmost likely recommended a

A) savings and loan association.
B) brokerage firm.
C) demand deposit institution.
D) mutual savings bank.
E) credit union.

Question 78

Andrei has been hired by his friend Andy to serve as the financial manager for Andy's company. Andy assigns Andrei his first job: evaluating the risk-return trade-off for the company. Help Andrei by defining risk-reward trade-off and provide two examples to help with your explanation.

Question 79

Carol is a financial manager at a large bank. As part of the bank's community outreach efforts, Carol conducts regular seminars for business owners. Her last presentation was designed for individuals who are considering opening their own business. She wants to help them to understand the four reasons a company might need financing. List the reasons and provide an example of each for support.

Question 80

Prairie Office Supplies needs money, but its loan application was rejected. The owner suggests that the finance manager utilize accounts receivable to obtain funds. Describe the characteristics of the potential options available to the manager.