Question 1

The difference between a financial intermediary and a market intermediary is best described as:
A) one deals with the financing decision making within a business entity, the other deals with financial markets and securities.
B) one involves the issuing of new securities, the other permits investors to buy and sell existing securities.
C) one transforms the nature of securities in a market; the other does not change the nature of the transaction.

Accepted Answer

Financial intermediaries, such as banks, transform the nature of securities by converting deposits into loans or other types of assets, whereas market intermediaries facilitate transactions without altering the nature of the securities involved, such as brokers enabling the buying and selling of existing securities.

Question 2

The environment in which households provide funds to businesses and government is best described as a:
A) financial system.
B) market intermediary.
C) financial intermediary.

Accepted Answer

The financial system encompasses the complex set of institutions, markets, and instruments involved in the transfer of funds among individuals, businesses, and governments.

Question 3

Which of the following would not be an example of intermediation?
A) Matt borrows money from friends to start a food truck business.
B) Andrea takes out a mortgage loan from SunTrust Mortgage.
C) Angela borrows money from a credit union to purchase a new car.
D) A retired person withdraws money from their savings account to take a Caribbean cruise.

Accepted Answer

Intermediation involves the process where financial institutions act as intermediaries between savers and borrowers. Choices A, B, and C all involve borrowing from others, which is a form of intermediation. Choice D involves a personal withdrawal for consumption, not an intermediation process.

Question 4

Investment and financing decisions, which may be short-term or long-term decisions are best described as:
A) financial decision making.
B) economic decision making.
C) accounting decision making.

Accepted Answer

Investment and financing decisions, whether short-term or long-term, are primarily concerned with the allocation and management of financial resources, making them a key aspect of financial decision making.

Question 5

Mutual funds, pension funds, investment dealers and insurance companies are best described as examples of:
A) corporate finance.
B) market intermediaries.
C) financial intermediaries.

Accepted Answer

These entities act as financial intermediaries by pooling funds from savers and allocating them to borrowers or investments, facilitating the flow of money within the financial system.

Question 6

Which of the following is not a type of financial instrument?
A) Bond
B) Collateral
C) Equity security
D) Debt instrument

Accepted Answer

Collateral is not a financial instrument but rather an asset that a borrower offers to a lender to secure a loan. Financial instruments, such as bonds, equity securities, and debt instruments, are tradable assets or negotiable documents representing a financial value.

Question 7

Farmers and Merchants Bank lends money to Ruth to purchase a car from Steven Toyota. Ruth is going to insure the car with Allstate Insurance. Which party is best described as the creditor?
A) Ruth
B) Steven Toyota
C) Allstate Insurance
D) Farmers and Merchants Bank

Accepted Answer

Farmers and Merchants Bank is the creditor because it is the entity lending money to Ruth for the purchase, making it the party to whom the debt is owed.

Question 8

Which of the following would not be described as a debenture?
A) An unsecured loan
B) A loan secured by collateral
C) A loan secured by the "full faith and credit" of the issuer

Accepted Answer

Debentures are typically unsecured loans that do not have specific assets as collateral. Instead, they rely on the creditworthiness and reputation of the issuer. A loan secured by collateral would not be considered a debenture, as debentures are not backed by physical assets.

Question 9

What is the primary difference between a bond and a note?
A) One is short-term, one is long-term
B) One is a debt security, one is an equity security
C) One is issued in the primary market, one is issued in the secondary market

Accepted Answer

The answer of What is the primary difference between a...

Question 10

What is wrong with the following statement? General Electric will be issuing $100 million in forty year notes at the end of September?
A) This should be called a bond
B) This should be called a stock
C) Nothing is wrong with this statement

Accepted Answer

The correct term for a long-term debt instrument issued by a company is a bond, not a note. Notes typically refer to shorter-term debt instruments.

Question 11

The City of Harrisonburg issues revenue bonds to improve the city's water and sewer systems. These bonds would be best described as being backed by:
A) nothing.
B) the full faith and credit of the issuer.
C) a specific revenue stream of the issuing entity.
D) property taxes that are assessed by the local government.

Accepted Answer

Revenue bonds are specifically backed by the revenue generated from the project they finance, such as water and sewer system fees in this case, rather than the general credit or taxing power of the issuing entity.

Question 12

U.S. Treasury bonds, which are backed by the full faith and credit of the U.S. government, are best described as:
A) revenue bonds.
B) equity securities.
C) assessment bonds.
D) general obligation bonds.

Accepted Answer

U.S. Treasury bonds are best described as general obligation bonds because they are backed by the full faith and credit of the U.S. government, meaning the government is obligated to repay the debt, using its general revenues if necessary.

Question 13

School bonds backed by property taxes that are assessed by Rockingham County would best be described as:
A) revenue bonds.
B) equity securities.
C) assessment bonds.
D) general obligation bonds.

Accepted Answer

The answer of School bonds backed by property taxes that...

Question 14

The type of stock that entitles the owner to stated dividend payments that must be made before any dividends are paid to other classes of shareholders would best be described as:
A) common stock.
B) preferred stock.
C) corporate bonds.
D) municipal bonds.

Accepted Answer

Preferred stock typically provides dividends that are paid out to shareholders before any dividends are distributed to common stockholders. This feature makes preferred stock distinct in its dividend payment priority over common stock.

Question 15

Which of the following is considered a capital market security?
A) T-bills
B) Equity securities
C) Commercial paper
D) Bankers' acceptances

Accepted Answer

Equity securities, such as stocks, are considered capital market securities because they represent long-term investments in companies. Capital markets are where long-term debt or equity-backed securities are traded, distinguishing them from other types of securities that are considered short-term, such as T-bills, commercial paper, and bankers' acceptances.

Question 16

Which of the following is not considered a money market security?
A) T-bills
B) 30-year bond
C) Commercial paper
D) Bankers' acceptances

Accepted Answer

30-year bonds are not considered money market securities because money market instruments are short-term debt instruments, typically with maturities of one year or less, whereas a 30-year bond is a long-term debt instrument.

Question 17

Which of the following is considered a money market security?
A) Treasury bill
B) 30-year bond
C) Common stock

Accepted Answer

Treasury bills are short-term securities issued by the government, typically with maturities of one year or less, making them a classic example of money market instruments.

Question 18

Which of the following is best described as a capital market security?
A) Treasury bill
B) Common stock
C) Commercial paper

Accepted Answer

Common stock is a capital market security because it represents ownership in a company and is not a debt obligation.

Question 19

"There are more offerings of IPOs during periods of strong economic activity and fewer offerings of IPOs during economic downturns." "IPO" in the above statement best refers to:
A) first sale of equity interest to the public.
B) property that is pledged to secure a loan.
C) trading environment that allows investors to buy and sell existing securities.
D) instrument that takes the form of a security, generally with a maturity between one and ten years.

Accepted Answer

IPO stands for Initial Public Offering, which is the process by which a private company goes public by selling its stocks to the general public for the first time.

Question 20

Morgan Stanley was the investment banking firm that took Facebook from being a closely held company to issuing stock to the public for the first time. Which of the following terms most closely describes this?
A) money market security.
B) issuing commercial paper.
C) initial public offering (IPO).
D) debt security backed by the general credit of the issuer.

Accepted Answer

An initial public offering (IPO) is the process by which a private company goes public by selling its stocks to the general public for the first time. Morgan Stanley, as the investment banking firm for Facebook, facilitated its IPO.

Quiz 1: An Introduction to Finance

The difference between a financial intermediary and a market intermediary is best described as:

The environment in which households provide funds to businesses and government is best described as a:

Which of the following would not be an example of intermediation?

Investment and financing decisions, which may be short-term or long-term decisions are best described as:

Mutual funds, pension funds, investment dealers and insurance companies are best described as examples of:

Which of the following is not a type of financial instrument?

Farmers and Merchants Bank lends money to Ruth to purchase a car from Steven Toyota. Ruth is going to insure the car with Allstate Insurance. Which party is best described as the creditor?

Which of the following would not be described as a debenture?

What is the primary difference between a bond and a note?

What is wrong with the following statement? General Electric will be issuing $100 million in forty year notes at the end of September?

The City of Harrisonburg issues revenue bonds to improve the city's water and sewer systems. These bonds would be best described as being backed by:

U.S. Treasury bonds, which are backed by the full faith and credit of the U.S. government, are best described as:

School bonds backed by property taxes that are assessed by Rockingham County would best be described as:

The type of stock that entitles the owner to stated dividend payments that must be made before any dividends are paid to other classes of shareholders would best be described as:

Which of the following is considered a capital market security?

Which of the following is not considered a money market security?

Which of the following is considered a money market security?

Which of the following is best described as a capital market security?

"There are more offerings of IPOs during periods of strong economic activity and fewer offerings of IPOs during economic downturns." "IPO" in the above statement best refers to:

Morgan Stanley was the investment banking firm that took Facebook from being a closely held company to issuing stock to the public for the first time. Which of the following terms most closely describes this?