Question 1

Diversification is:

Accepted Answer

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

Question 2

The less liquid markets are:

Accepted Answer

A)  the smaller the supply of loanable funds,and the slower the growth in the economy.
B)  the larger the supply of loanable funds,and the slower the growth in the economy.
C)  the smaller the supply of loanable funds,and the faster the growth in the economy.
D)  the larger the supply of loanable funds,and the faster the growth in the economy.E) None of the above
F) A) and B)

Question 3

The buyer of a futures contract:

Accepted Answer

A)  agrees to pay the seller based on the future price of some asset.
B)  assumes the risk of the future price of some asset.
C)  must pay a set amount to the seller regardless of what the future price turns out to be.
D)  All of these are true.E) A) and B)
F) All of the above

Question 4

Savings and investment are equal:

Accepted Answer

A)  at the equilibrium in the market for loanable funds.
B)  because banks regulate their flow.
C)  at an interest rate set by the Fed.
D)  All of these are true.E) All of the above
F) B) and C)

Question 5

A bank allows us to diversify risk because:

Accepted Answer

A)  it has a big pool of borrowers and savers,so the risk of repayment is spread among many.
B)  it has a small amount of borrowers,but many savers,so it can combine savings to make larger loans.
C)  it has a small amount of borrowers and savers,so it can connect the optimal saver to the best-matched borrower.
D)  it has a big pool of borrowers,but not many savers,so it can choose the riskiest person to borrow from.E) B) and C)
F) A) and D)

Question 6

When you own part of a company and share in its profits,we say that you have:

Accepted Answer

A)  equity in that company.
B)  credit with that company.
C)  intermediary stock in that company.
D)  financial diversification in that company.E) A) and C)
F) B) and C)

Question 7

If income is equal to total spending,then in a closed economy,it is equal to:

Accepted Answer

A)  consumption plus investment spending.
B)  savings plus investment.
C)  savings minus investment.
D)  consumption minus investment spending.E) A) and C)
F) None of the above

Question 8

The risk-free rate is usually approximated by interest rates on U.S.government debt,because:

Accepted Answer

A)  the U.S.government is considered extremely unlikely to default.
B)  the U.S.government sets all policy concerning interest rates.
C)  the U.S.government backs all loans secured with that rate.
D)  None of these is true.E) B) and D)
F) B) and C)

Question 9

Speculators in the financial market:

Accepted Answer

A)  act as a buyer.
B)  act as a seller.
C)  buy and sell assets for financial gain.
D)  All of these are true.E) B) and C)
F) A) and D)

Question 10

Mutual funds,pension plans,and life insurance policies:

Accepted Answer

A)  are all forms of savings.
B)  differ regarding when you can have access to the asset's worth.
C)  all entrust a professional to decide which financial assets are the best for the saver to hold.
D)  All of these are true.E) B) and C)
F) B) and D)

Question 11

In financial markets,buyers are people who:

Accepted Answer

A)  want to spend money on something of value right now,but don't have cash on hand.
B)  have cash on hand and are willing to let others use it,for a price.
C)  want to spend money on something of big value in the future,but don't know how to save for it.
D)  have cash promised to them at some future date.E) None of the above
F) A) and B)

Question 12

Which of the following financial assets is most likely to have the chance of a higher rate of return than the others?

Accepted Answer

A)  Stocks
B)  Bonds
C)  Mutual funds
D)  Savings accountsE) A) and C)
F) A) and B)

Question 13

Securitization:

Accepted Answer

A)  turns many loans into a single larger asset.
B)  is an agreement in which a lender gives money to a borrower in exchange for a promise to repay the amount loaned plus an agreed-upon amount of interest.
C)  is a promise by the bond issuer to repay the loan,at a specified maturity date,and to pay periodic interest at a specific percentage rate.
D)  None of these is true.E) None of the above
F) All of the above

Question 14

The fact that U.S.citizens expect to receive retirement benefits through Social Security and Medicare pushes their:

Accepted Answer

A)  demand for loanable funds further right than it would otherwise be.
B)  demand for loanable funds further left than it would otherwise be.
C)  supply of loanable funds further right than it would otherwise be.
D)  supply of loanable funds further left than it would otherwise be.E) B) and C)
F) B) and D)

Question 15

The supply of loanable funds comes from:

Accepted Answer

A)  savings.
B)  investment.
C)  borrowers.
D)  None of these is true.E) B) and D)
F) None of the above

Question 16

The interest rate:

Accepted Answer

A)  is the price of borrowing money for a specified period of time.
B)  is expressed as a percentage per dollar borrowed and per unit of time.
C)  determines the total amount that must be paid back on a loan.
D)  All of these are true.E) None of the above
F) C) and D)

Question 17

Saving is like:

Accepted Answer

A)  selling the right to use your money for a time.
B)  buying the right to use someone else's money.
C)  selling the right to use someone else's money.
D)  buying the right to use your money for a time.E) A) and B)
F) A) and C)

Question 18

The biggest difference between mutual funds and life insurance policies is:

Accepted Answer

A)  when you can have access to your contributions.
B)  one is a savings plan,and one allows you to reduce your risk.
C)  one is considered savings,and the other is an investment.
D)  None of these is true.E) B) and D)
F) All of the above

Question 19

After taking out a one year loan with an annual interest rate of 10 percent,Tommy pays $3,300 back to the bank.The principal of the loan must be ___________ and the interest payment must be ___________.

Accepted Answer

A)  $3,000;$300
B)  $3,300;$300
C)  $300;$3,300
D)  $300;$3,000E) A) and B)
F) B) and D)

Question 20

A bond is:

Accepted Answer

A)  a financial asset that represents partial ownership of a company.
B)  a payment made periodically to all shareholders of a company.
C)  an agreement in which a lender gives money to a borrower in exchange for a promise to repay the amount loaned plus an agreed-upon amount of interest.
D)  a promise by the bond issuer to repay the loan,at a specified maturity date,and to pay periodic interest at a specific percentage rate.E) C) and D)
F) B) and C)

Exam 30: The Basics of Finance

The buyer of a futures contract:

Correct AnswerverifiedShow Answer

The supply of loanable funds comes from:

Correct AnswerverifiedShow Answer

Savings and investment are equal:

Correct AnswerverifiedShow Answer

After taking out a one year loan with an annual interest rate of 10 percent,Tommy pays $3,300 back to the bank.The principal of the loan must be ___________ and the interest payment must be ___________.

Correct AnswerverifiedShow Answer

A bond is:

Correct AnswerverifiedShow Answer

The less liquid markets are:

Correct AnswerverifiedShow Answer

A bank allows us to diversify risk because:

Correct AnswerverifiedShow Answer

Diversification is:

Correct AnswerverifiedShow Answer

The fact that U.S.citizens expect to receive retirement benefits through Social Security and Medicare pushes their:

Correct AnswerverifiedShow Answer

Securitization:

Correct AnswerverifiedShow Answer

Which of the following financial assets is most likely to have the chance of a higher rate of return than the others?

Correct AnswerverifiedShow Answer

Speculators in the financial market:

Correct AnswerverifiedShow Answer

The risk-free rate is usually approximated by interest rates on U.S.government debt,because:

Correct AnswerverifiedShow Answer

When you own part of a company and share in its profits,we say that you have:

Correct AnswerverifiedShow Answer

Mutual funds,pension plans,and life insurance policies:

Correct AnswerverifiedShow Answer

The biggest difference between mutual funds and life insurance policies is:

Correct AnswerverifiedShow Answer

The interest rate:

Correct AnswerverifiedShow Answer

Saving is like:

Correct AnswerverifiedShow Answer

If income is equal to total spending,then in a closed economy,it is equal to:

Correct AnswerverifiedShow Answer

In financial markets,buyers are people who:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

After taking out a one year loan with an annual interest rate of 10 percent,Tommy pays $3,300 back to the bank.The principal of the loan must be _ and the interest payment must be _.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified