Financial Markets and Institutions
Exam Bank
Course Introduction
This course provides an in-depth examination of the structure, functions, and roles of financial markets and institutions within the global economy. Students will explore the mechanisms by which funds are transferred between savers and borrowers, the variety of financial instruments available, and the regulatory environment governing financial activities. The course analyzes different types of financial institutions, including banks, insurance companies, investment firms, and the central bank, and considers their impact on economic development and stability. Key topics include interest rate determination, risk management, asset pricing, and the effects of monetary policy. Through case studies and real-world examples, students develop a practical understanding of how financial markets and institutions shape business and personal finance decisions.
Recommended Textbook
Introduction to Finance Markets Investments and Financial Management 15th Edition by Ronald
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18 Chapters
2654 Verified Questions
2654 Flashcards
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Chapter 1: The Financial Environment
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104 Verified Questions
104 Flashcards
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Sample Questions
Q1) Finance has its origins in:
A)economics and statistics
B)accounting and sociology
C)accounting and economics
D)psychology and mathematics
Answer: C
Q2) The theory of ___________________ implies that information is quickly embedded in prices making it difficult for investors to "beat the market."
A)stock investing
B)efficient markets
C)portfolio management
D)asset allocation
E)none of the above
Answer: B
Q3) A sub-prime mortgage is a home loan made to a borrower with a relatively low credit score indicating the likelihood that loan payments might be missed when due.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Money and the Monetary System
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148 Flashcards
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Sample Questions
Q1) _____________ is a promise of future payment issued by a firm and guaranteed by a bank that is used to finance international trade with typical maturities ranging from one to six months.
A)A negotiable certificate of deposit (NCD)
B)A repurchase agreement
C)Commercial paper
D)A banker's acceptance
E)none of the above
Answer: D
Q2) A major factor in the severity of the 2007-09 financial crisis was the massive amounts of debt taken on by:
A) individuals
B) business
C) government
D) all of the above
E) none of the above
Answer: D
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Chapter 3: Banks and Other Financial Institutions
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Sample Questions
Q1) Commercial banks accept deposits and makes loans to individuals and businesses.
A)True
B)False
Answer: True
Q2) Which of the following would not be part of primary bank capital?
A)bank premises
B)common stock of the bank
C)loan loss reserves
D)perpetual preferred stock
Answer: A
Q3) __________________ collect premiums on insurance policies and employee/employer contributions from pension fund participants and provide retirement benefits and insurance against major financial losses.
A)Banks
B)Personal service firms
C)Investment banking firms
D)Brokerage firms
E)none of the above
Answer: E
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Page 5
Chapter 4: Federal Reserve System
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155 Flashcards
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Sample Questions
Q1) Which of the following statements would be false? The discount rate is
A)an instrument of monetary policy
B)frequently used as a tool of fiscal policy
C)regarded as a fine-tuning mechanism
D)all the above are true
Q2) The members of the board of directors of each Federal Reserve bank are:
A)appointed by the Board of Governors of the Federal Reserve System
B)elected by the member banks
C)chosen by the Board of Governors and by the member banks
D)appointed by the President of the United States with the advice and consent of the Senate
Q3) State-chartered banks were permitted to join the system if they could show evidence of a satisfactory financial condition
A)True
B)False
Q4) Banks with large transaction account balances hold the same percentage of reserves as all other banks.
A)True
B)False
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Chapter 5: Policy Makers and the Money Supply
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139 Flashcards
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Sample Questions
Q1) Banking system reserves plus currency held by the nonbank public is referred to as the:
A)money supply
B)monetary base
C)monetary multiplier
D)monetary requirement
Q2) In an effort to stimulate economic activity, Congress and the president passed the $787 billion _________________________________ in February, 2009 with the funds to be used to provide tax relief, appropriations, and direct spending.
A)American Reconstruction and Reconfiguration Act of 2009
B)American Real Estate and Reconstruction Act of 2009
C)American Real Estate Reinvestment Act of 2009
D)American Reconstruction and Real Estate Act of 2009
E)none of the above
Q3) The budget-making process rests with the:
A)Congress
B)U.S.Treasury
C)President's Council of Economic Advisors
D)U.S.Treasury in cooperation with the Fed
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Page 7
Chapter 6: International Finance and Trade
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151 Flashcards
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Sample Questions
Q1) Intervention by central banks in the flexible exchange rate system is called a dirty float.
Not in chapter
A)True
B)False
Q2) 43CNew.Holding demand constant, an decrease in supply for one currency relative to another will cause its value to depreciate relative to that currency.
A)True
B)False
Q3) The lowest quotation on foreign exchange is given for: Not in chapter
A)cable rates
B)banker's time drafts
C)banker's sight drafts
D)banker's acceptance
Q4) Purchasing power parity (PPP) states that the currency of a country with relatively higher inflation will depreciate relative to the currency of a country with a relatively lower inflation rate.
A)True
B)False
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Chapter 7: Savings and Investment Process
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Sample Questions
Q1) If personal consumption expenditures are $1 billion, government purchases are $2 billion, gross private domestic investments are $4 billion and net exports are $5 billion, then GDP is:
A) $12 billion
B) $8 billion
C) $7 billion
D) $2 billion
Q2) Which of the following statements is most correct?
A)Corporate after-tax profits rose from $473.8 billion in 2006 to $616.2 billion in 2008.This rise coincided with the 2007-09 financial crisis.
B)Corporate after-tax profits remained about the same at $500 million between 2006 and 2008.
C)Corporate after-tax profits declined from $616.2 billion in 2006 to $473.8 billion in 2008.This decline coincided with the 2007-09 financial crisis.
D)Corporate after-tax profits rose from $473.8 million in 2006 to $616.2 million in 2008.This rise coincided with the 2007-09 financial crisis.
E)none of the above.
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Page 9
Chapter 8: Interest Rates
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Sample Questions
Q1) As the economy begins moving out of a recessionary period, the yield curve is generally:
A)upward sloping
B)flattened out
C)downward sloping
D)discontinuous
Q2) A decrease in the demand for loanable funds, holding supply constant, will cause interest rates to:
A)increase
B)decrease
C)stay the same
D)not enough information to tell
Q3) Cost-push inflation occurs when prices are raised to cover rising production costs, such as wages.
A)True
B)False
Q4) The nominal interest rate may include a default risk premium.
A)True
B)False
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Chapter 9: Time Value of Money
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Sample Questions
Q1) Which of the following statements is false?
A)the present value of a future sum decreases as either the discount rate or the number of discounting periods per year increases.
B)if the present value of a sum is equal to its future value, the interest rate must be zero.
C)if the discount (or interest) rate is positive, the future value of an expected series of payments will always exceed the present value of the same series.
D)For a given APR, the present value of a future sum decreases as the number of discounting periods per year decreases.each of the above statements is true.
Q2) The method of calculating interest on a loan that is set by law is called the:
A)negotiated legal rate (NLR)
B)effective annual rate (EAR)
C)annual percentage rate (APR)
D)none of the above
Q3) In actual practice, most corporate bonds pay interest four times a year. Not in chapter
A)True
B)False
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Chapter 10: Bonds and Stocks: Characteristics and Valuation
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Sample Questions
Q1) Subordinate debentures are bonds whose claims are subordinate or junior to the claims of those holding debenture bonds.
A)True
B)False
Q2) Callable bonds can be redeemed prior to maturity by the firm.
A)True
B)False
Q3) A (n) _____________ gives the bondholder a claim to specific assets (identified through serial numbers) such as railroad cars or airplanes.
A)first mortgage bond
B)equipment trust certificate
C)inventory bond
D)collateralized bond
Q4) Eurodollar bonds are dollar-denominated bonds that are sold outside the United States.
A)True
B)False
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Chapter 11: Securities Markets
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Sample Questions
Q1) An underwriting agreement is a contract in which the investment banker agrees to underwrite or do its best to sell securities to investors at the highest price it can; the investment banker assumes no risk for the possibility that it may fail to issue all authorized shares .
A)True
B)False
Q2) A global depository receipt is traded on the American Stock Exchange.
A)True
B)False
Q3) A limit order, if not executed, will expire at the end of A)the day.
B)the week.
C)the month.
D)all of the above are possibilities as the trader will decide the expiration date.
Q4) A pre-emptive right refers to the right of existing shareholders to sue management in order to head off potential actions by management that would adversely affect the price of the stock.
A)True B)False
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Chapter 12: Financial Return and Risk Concepts
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Sample Questions
Q1) In general, securities with lower returns have lower historical standard deviations.
A)True
B)False
Q2) A market system that allows for quick execution of customers' trades is said to be informationally efficient.
A)True
B)False
Q3) The existence of chartists or technicians suggests that some investors believe that markets are not weak form efficient.
A)True
B)False
Q4) Most market risk can be eliminated through diversification.
A)True
B)False
Q5) The benefits of diversification are greatest when asset returns have positive correlations.
A)True B)False
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Chapter 13: Business Organization and Financial Data
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Sample Questions
Q1) The Sarbanes-Oxley Act of 2002 was passed by the U.S.Congress in response several political ethical scandals.
A)True
B)False
Q2) Ningbo Steel had year end 2011 and 2012 retained earnings balances of $6,000,000 and $6,600,000 respectively. The firm paid $200,000 of dividends in 2011. Based on this information, Ningbo Steels net profit after taxes in 2011 was:
A) $200,000
B) $600,000
C) $620,000
D) $6,200,000
E) none of the above
Q3) Market value added can be written as: the market value of stock minus the market value of debt plus the book value of stock minus the book value of debt.
A)True
B)False
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15
Chapter 14: Financial Analysis and Long-Term Financial Planning
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Sample Questions
Q1) Which item is not included in the calculation for both the quick ratio and the current ratio?
A)accounts receivable
B)current assets
C)inventories
D)current liabilities
Q2) All other things being equal, a decrease in the contribution margin for a firm would:
A)increase the break-even point
B)decrease the break-even point
C)have no impact on the break-even point
D)not enough information given
Q3) What would be the return on total assets of a firm if net income is $50,000, total sales are $100,000, and total assets are $175,000?
A)35%
B)28.6%
C)57.14%
D)not enough information available
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Page 16
Chapter 15: Managing Working Capital
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Sample Questions
Q1) A firm has a minimum desired cash balance of $120,000.Any cash shortfalls will be made up with short-term financing.The net cash flow for January is $80,000 and the beginning balance for that month is $15,000: short-term financing requirements that month will be:
A)-$120,000
B)$25,000
C)$215,000
D)cannot determine from this information
Q2) The operating cycle can be reduced by lengthening the accounts payable period.
A)True
B)False
Q3) The principle of hedging calls for the matching of a firm's average:
A)liquidity of its assets with its liabilities and equity
B)liquidity of its accounts receivable with its accounts payable
C)maturities of its assets with its liabilities and equity
D)maturities of its sales with its assets
Q4) The account receivable period may be calculated as accounts receivable divided by sales.
A)True
B)False
Page 17
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Chapter 16: Short-Term Business Financing
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Sample Questions
Q1) If a firm actually sells its accounts receivable, the process is known as:
A)wholesale financing
B)floor planningpledging
C)field crediting
D)factoring
Q2) The choice of financing strategy involves a tradeoff between return and risk.
A)True
B)False
Q3) Which of the following are not typical of an accounts receivable loan arrangement?
A)basic interest charge
B)compensating balance
C)fee to cover extra work need for such a loan
D)all the above are typical of accounts receivable loans
Q4) A short-term promissory note sold by high-credit-quality corporations and is backed solely by the credit quality of the issuer is called:
A)commercial paper
B)a line of credit
C)a revolving credit agreement
D)a factoring arrangement
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Chapter 17: Capital Budgeting Analysis
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Sample Questions
Q1) The process of allocating funds among competing investment opportunities is referred to as:
A)capital expenditures
B)initial cash flow analysis
C)long-term forecasting
D)capital budgeting
Q2) a sunk cost is a project-related expense that is dependent upon whether or not the project is undertaken.
A)True
B)False
Q3) The ratio between the present value of a project's cash inflows and the present value of its initial investment is called the:
A)MIRR.
B)IRR.
C)PM.
D)NPV.
E)none of the above are correct
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19
Chapter 18: Capital Structure and the Cost of Capital
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Sample Questions
Q1) Smith Company has a degree of operating leverage of 5, while an industry competitor, Johnson Company, has a degree of operating leverage of 2.Supplied with this knowledge, pick the response below that is most typical of Johnson Company.
A)high fixed costs
B)conservative
C)large commitment to plant facilities
D)greater low sales.
Q2) Business risk is measured by the degree of financial leverage.
A)True
B)False
Q3) Ningbo Shipping has common stock with a market price of $25 per share and an expected dividend of $2 per share at the end of the coming year.The growth rate in dividends has been 5 percent and this growth is expected to continue indefinitely.Based on this information, the cost of the firm's common stock equity is A)5%.
B)8%.
C)10%.
D)13%.
E)none of the above.
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