Question 1

Which of the following is not a reason why companies issue stock?

Accepted Answer

A)   It allows owners to raise capital without having to borrow.
B)   It allows owners to share the risk of failure.
C)   It allows owners to turn an illiquid asset into a liquid one.
D)   It allows owners to file bankruptcy.E) A) and D)
F) A) and B)

Question 2

Which of the following are common economic problems caused by asymmetric information? I. Moral hazard
II)  Public debt
III)  Adverse selection
IV)  Resource cost

Accepted Answer

A)   I and II only
B)   I and III only
C)   III and IV only
D)   I, II, III, and IVE) None of the above
F) C) and D) B

Question 3

A saver can eliminate _______ risk through _______.

Accepted Answer

A)   systemic; diversification
B)   idiosyncratic; diversification
C)   systemic; asset valuation
D)   idiosyncratic; asset valuationE) None of the above
F) All of the above

Question 4

Two major kinds of banks are _______ banks and _______ banks.

Accepted Answer

A)   commercial; investment
B)   brokerage; investment
C)   private; commercial
D)   federal reserve; privateE) B) and C)
F) A) and D)

Question 5

A capital outflow occurs when:

Accepted Answer

A)   money saved domestically is invested in another country.
B)   money saved in another country finances domestic investment.
C)   more money is invested domestically than invested abroad.
D)   money saved domestically is invested in firms in another sector of the economy.E) All of the above
F) None of the above

Question 6

Aisha can take out a one-year loan of $3,000 at an annual interest rate of 10 percent. After calculating her return to be $200, Aisha knows she will _______ if she takes out the loan.

Accepted Answer

A)   lose $100
B)   make $200
C)   make $100
D)   lose $200E) None of the above
F) All of the above

Question 7

The price of borrowing is the:

Accepted Answer

A)   equilibrium price.
B)   interest rate.
C)   transaction cost.
D)   None of these are true.E) A) and B)
F) C) and D)

Question 8

The development and heavy use of ATMs and debit cards increased:

Accepted Answer

A)   reserve ratios.
B)   liquidity.
C)   interest rates.
D)   risk.E) A) and D)
F) A) and C)

Question 9

In the market for loanable funds, the law of supply shows that more people will choose to _______ at _______ interest rates.

Accepted Answer

A)   borrow; lower
B)   save; lower
C)   save; higher
D)   borrow; higherE) B) and D)
F) A) and C)

Question 10

A liquidity provider is someone who:

Accepted Answer

A)   is always ready to buy or sell an asset.
B)   works at a bank and specializes in loans.
C)   works in the financial system.
D)   invests in the economy.E) All of the above
F) A) and C)

Question 11

The risk-free rate is:

Accepted Answer

A)   the prevailing interest rate when there is no risk of default.
B)   the interest rate borrowers get on short-term loans.
C)   the interest rate charged by the government.
D)   the rate of return savers get on their investments.E) A) and D)
F) C) and D)

Question 12

Financial assets that represent the partial ownership of a firm and an ability to share in its profits are called:

Accepted Answer

A)   equities.
B)   debt certificates.
C)   intermediaries.
D)   Treasury securities.E) A) and B)
F) All of the above

Question 13

Banks provide:

Accepted Answer

A)   liquidity.
B)   adverse selection.
C)   moral hazard.
D)   None of these are provided by banks.E) A) and B)
F) A) and C)

Question 14

Which type of institution is responsible for providing liquidity to the financial system?

Accepted Answer

A)   Banks
B)   Stock exchanges
C)   Insurance companies
D)   All of these institutions provide liquidity to the financial system.E) A) and C)
F) A) and B) D

Question 15

A financial market:

Accepted Answer

A)   brings together savers and borrowers.
B)   connects the government to those who need public services.
C)   helps individuals keep track of the general price level.
D)   gathers information about firms' profits.E) C) and D)
F) None of the above

Question 16

Diversification:

Accepted Answer

A)   is the process by which risks are shared among many different assets or people.
B)   makes a market more liquid by having intermediaries ready to buy or sell any asset.
C)   is the interest rate at which one would lend if there were no risk of default.
D)   occurs when a borrower fails to pay back a loan according to the agreed-upon terms.E) C) and D)
F) A) and C) A

Question 17

Sarah can take out a one-year loan of $5,000 at an annual interest rate of 10 percent. After calculating her return to be $450, Sarah knows she will _______ if she takes out the loan.

Accepted Answer

A)   make $450
B)   lose $450
C)   make $50
D)   lose $50E) None of the above
F) A) and D)

Question 18

In the market for loanable funds:

Accepted Answer

A)   savers supply funds to those who want to borrow.
B)   borrowers buy and sell loans.
C)   savers interact to set the interest rate for loans.
D)   borrowers supply funds to savers.E) None of the above
F) B) and C)

Question 19

Economists use the word investment to refer to the portion of income that is:

Accepted Answer

A)   spent on productive inputs, such as factories, machinery, and inventories.
B)   not immediately spent on the consumption of goods and services.
C)   placed in an individual's savings account.
D)   stored in any interest-bearing account.E) B) and C)
F) C) and D)

Question 20

Which of the following is not a scenario in which a bank could serve as an intermediary between borrowers and savers?

Accepted Answer

A)   Tom takes out student loans to cover the cost of going to school to learn how to be a welder.
B)   Danika takes a job with a salary that is greater than her living expenses, so she starts looking into different options for a 401(k) .
C)   Jan is hunting for an apartment close to work that costs about 30 percent of her take-home pay.
D)   Chris is looking to buy a new car but does not have the cash on hand to pay for it outright.E) B) and C)
F) All of the above

Exam 14: Thebasics of Finance

Which of the following is not a reason why companies issue stock?

Correct AnswerverifiedShow Answer

Which of the following are common economic problems caused by asymmetric information? I. Moral hazard II) Public debt III) Adverse selection IV) Resource cost

Correct AnswerverifiedB

A saver can eliminate _______ risk through _______.

Correct AnswerverifiedShow Answer

Two major kinds of banks are _______ banks and _______ banks.

Correct AnswerverifiedShow Answer

A capital outflow occurs when:

Correct AnswerverifiedShow Answer

Aisha can take out a one-year loan of $3,000 at an annual interest rate of 10 percent. After calculating her return to be $200, Aisha knows she will _______ if she takes out the loan.

Correct AnswerverifiedShow Answer

The price of borrowing is the:

Correct AnswerverifiedShow Answer

The development and heavy use of ATMs and debit cards increased:

Correct AnswerverifiedShow Answer

In the market for loanable funds, the law of supply shows that more people will choose to _______ at _______ interest rates.

Correct AnswerverifiedShow Answer

A liquidity provider is someone who:

Correct AnswerverifiedShow Answer

The risk-free rate is:

Correct AnswerverifiedShow Answer

Financial assets that represent the partial ownership of a firm and an ability to share in its profits are called:

Correct AnswerverifiedShow Answer

Banks provide:

Correct AnswerverifiedShow Answer

Which type of institution is responsible for providing liquidity to the financial system?

Correct AnswerverifiedD

A financial market:

Correct AnswerverifiedShow Answer

Diversification:

Correct AnswerverifiedA

Sarah can take out a one-year loan of $5,000 at an annual interest rate of 10 percent. After calculating her return to be $450, Sarah knows she will _______ if she takes out the loan.

Correct AnswerverifiedShow Answer

In the market for loanable funds:

Correct AnswerverifiedShow Answer

Economists use the word investment to refer to the portion of income that is:

Correct AnswerverifiedShow Answer

Which of the following is not a scenario in which a bank could serve as an intermediary between borrowers and savers?

Correct AnswerverifiedShow Answer

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B

A saver can eliminate _ risk through _.

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Two major kinds of banks are _ banks and _ banks.

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In the market for loanable funds, the law of supply shows that more people will choose to _ at _ interest rates.

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D

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A

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