Question 1

A dividend 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 a bond issuer to repay a loan at a specified maturity date and to pay periodic interest at a specific percentage rate.E) A) and B)
F) C) and D)

Question 2

Savers supply funds to those who want to borrow for their investment spending needs in the:

Accepted Answer

A)   market for loanable funds.
B)   market for savings.
C)   market for interest rates.
D)   stock market.E) B) and D)
F) B) and C)

Question 3

Those who believe that market prices always incorporate all available information believe:

Accepted Answer

A)   in the efficient-market hypothesis.
B)   that randomly choosing a stock is not as effective as technical or fundamental analysis.
C)   that current stock prices do not represent true value as correctly as possible.
D)   All of these are true.E) B) and C)
F) A) and D)

Question 4

In financial markets, sellers are people who:

Accepted Answer

A)   have cash on hand and are willing to let others use it, for a price.
B)   want to spend money on something of value right now, but don't have cash on hand.
C)   want to spend money on something of value in the future, but don't know how to save for it.
D)   have cash promised to them at some future date.E) All of the above
F) B) and D)

Question 5

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) A) and B)
F) B) and C)

Question 6

In the market for loanable funds, the rate of return describes the:

Accepted Answer

A)   expected profit a project will generate per dollar invested.
B)   cost of borrowing.
C)   interest rate on loans.
D)   frequency with which reinvestment can occur.E) A) and D)
F) B) and C)

Question 7

When you own part of a company and share in its profits, 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 D)
F) A) and B)

Question 8

Which of the following is an equity asset?

Accepted Answer

A)   A stock
B)   A dividend
C)   An intermediary
D)   A cash depositE) A) and C)
F) B) and C)

Question 9

In general, stocks are _______ risky than bonds and have a _______ rate of return.

Accepted Answer

A)   more; higher
B)   more; lower
C)   less; higher
D)   less; lowerE) B) and C)
F) A) and D)

Question 10

The measure of how easily a particular asset can quickly be converted to cash without much loss of value is called:

Accepted Answer

A)   liquidity.
B)   risk.
C)   intermediation.
D)   default line.E) A) and B)
F) B) and D)

Question 11

After taking out a one-year loan with an annual interest rate of 10 percent, Toben pays $3,300 back to the bank. The principal of the loan was _______ and the interest payment was _______.

Accepted Answer

A)   $3,000; $300
B)   $3,300; $300
C)   $300; $3,300
D)   $300; $3,000E) All of the above
F) A) and C)

Question 12

The process of taking advantage of market inefficiencies to earn profits is called:

Accepted Answer

A)   arbitrage.
B)   technical analysis.
C)   a random walk.
D)   futures contracting.E) B) and D)
F) C) and D)

Question 13

Equilibrium in the market for loanable funds occurs:

Accepted Answer

A)   at the interest rate set by the Fed.
B)   at the price where quantity supplied is slightly greater than quantity demanded.
C)   where the amount being borrowed equals the amount being saved.
D)   where the amount being saved covers banks' required reserves.E) A) and B)
F) A) and C)

Question 14

The graph shown displays the market for loanable funds in an economy.  Suppose investors become more optimistic that the economy will do well over the next decade. How will the market for loanable funds be affected?

Accepted Answer

A)   Supply will shift to the right, from S1 to S2
B)   Supply will shift to the left, from S2 to S1
C)   Demand will shift to the right, from D1 to D2
D)   Demand will shift to the left, from D2 to D1E) A) and B)
F) A) and C)

Question 15

An asset that cannot be sold quickly for cash without much loss of value is considered to be:

Accepted Answer

A)   illiquid.
B)   liquid.
C)   durable.
D)   fixed.E) A) and B)
F) C) and D)

Question 16

In the market for loanable funds, the supply curve:

Accepted Answer

A)   represents savers.
B)   is downward-sloping.
C)   shows that more people will choose to save at lower interest rates.
D)   represents borrowers.E) A) and C)
F) A) and D)

Question 17

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 the decision about which financial assets a saver would benefit most from holding to a professional.
D)   All of these are true.E) A) and C)
F) All of the above

Question 18

The supply of loanable funds is determined by:

Accepted Answer

A)   current economic conditions.
B)   expected profit on an investment.
C)   investors' confidence.
D)   All of these are determinants of the supply of loanable funds.E) C) and D)
F) A) and C)

Question 19

The financial system is made up of:

Accepted Answer

A)   institutions that bring together savers, borrowers, investors, and insurers in a set of interconnected markets where people trade financial products.
B)   borrowers and savers using banks to complete transactions and make investments.
C)   institutions such as the World Bank, International Monetary Fund, Federal Reserve, and World Trade Organization.
D)   the government and its central bank.E) All of the above
F) B) and C)

Question 20

In a closed economy, national savings will be _______ private savings if the government runs a _______.

Accepted Answer

A)   lower than; deficit
B)   higher than; deficit
C)   lower than; surplus
D)   equal to; deficitE) None of the above
F) B) and D)

Exam 14: Thebasics of Finance

In the market for loanable funds, the rate of return describes the:

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Savers supply funds to those who want to borrow for their investment spending needs in the:

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The process of taking advantage of market inefficiencies to earn profits is called:

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Mutual funds, pension plans, and life insurance policies:

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The financial system is made up of:

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After taking out a one-year loan with an annual interest rate of 10 percent, Toben pays $3,300 back to the bank. The principal of the loan was _______ and the interest payment was _______.

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In a closed economy, national savings will be _______ private savings if the government runs a _______.

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Which of the following is an equity asset?

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An asset that cannot be sold quickly for cash without much loss of value is considered to be:

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The graph shown displays the market for loanable funds in an economy. Suppose investors become more optimistic that the economy will do well over the next decade. How will the market for loanable funds be affected?

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In general, stocks are _______ risky than bonds and have a _______ rate of return.

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Those who believe that market prices always incorporate all available information believe:

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

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In financial markets, sellers are people who:

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In the market for loanable funds, the supply curve:

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Equilibrium in the market for loanable funds occurs:

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The interest rate:

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The measure of how easily a particular asset can quickly be converted to cash without much loss of value is called:

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A dividend is:

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The supply of loanable funds is determined by:

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

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In a closed economy, national savings will be _ private savings if the government runs a _.

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In general, stocks are _ risky than bonds and have a _ rate of return.

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