Question 1

Jayson Smith is a recent college graduate who found himself in debt as a result of credit card expenditures and is in need of dependable transportation. Smith recently purchased a new motorcycle from Watt Cycles. In financing the cycle, Smith found that he would be making payments to Beneficial Corp., a company that deals in poor credit risks and short-term loans. Smith was dealing with which of the following?

Accepted Answer

Beneficial Corp. is a finance company that specializes in dealing with poor credit risks and short-term loans. A savings bank deals primarily in savings accounts and mortgage loans, a savings and loan association specializes in home mortgages and other home-related loans, and a commercial bank deals in a wide range of financial services including savings accounts, checking accounts, loans, and investments.

Question 2

What are two types of equity securities?

Accepted Answer

Common shares and preferred shares are both types of equity securities, representing ownership in a company. Debentures and convertible bonds are types of debt securities, representing loans to a company.

Question 3

A security that represents direct ownership interest in a corporation and allows the owner to share in the profits is known as which of the following?

Accepted Answer

Common shares represent ownership in a corporation and entitle the shareholder to a portion of the company's profits through dividends. Mortgage bonds, in contrast, are debt securities backed by real estate assets. Preferred shares represent ownership in a corporation, but typically pay a fixed dividend and have priority over common shares in the event of liquidation. Convertible bonds are debt securities that can be converted into common shares at a specified price and time.

Question 4

When Tiara Petark wanted to buy a new pickup truck, her credit rating was poor. Petark found that the only place she could get a loan was from which of the following?

Accepted Answer

Finance companies typically specialize in lending to individuals with poor credit ratings, so they are often the only option for those in Tiara Petark's situation. Brokerage, insurance, and trust companies typically do not offer consumer loans.

Question 5

Michaela Petty owns common shares in Procter & Gamble. Last quarter she received a cheque from P&G for $132, which is her share of P&G's distributed profits. Petty has received which of the following?

Accepted Answer

Petty received a cheque for her share of P&G's distributed profits, which is called a dividend. Therefore, the best choice is C, dividends. A is incorrect because interest would typically refer to income from bonds or savings accounts. B is incorrect because yield is a broader term that can refer to various types of returns on an investment (such as both dividends and capital gains), but in this case, the specific type of return Petty received was a dividend. D is incorrect because capital gain would refer to a profit made from selling an asset (such as common shares) at a higher price than what was paid for it, which is not applicable in this scenario.

Question 6

Which of the following is one of the advantages of common share ownership?

Accepted Answer

Liquidity refers to the ease with which an asset can be converted into cash. Common shares are highly liquid, as they can be easily bought and sold on the stock market.

Question 7

Which of the following are investment certificates that represent either ownership of a corporation or a loan to the corporation?

Accepted Answer

Securities are investment certificates that can represent either ownership of a corporation (stocks) or a loan to the corporation (bonds). Deposits refer to funds held in a bank account, while capital funds and contracts are not necessarily investment certificates.

Question 8

Some corporations pay their shareholders in the form of more shares. Which of the following best describes this type of payment?

Accepted Answer

A stock dividend is a payment made by a corporation to its shareholders in the form of additional shares of stock, rather than cash. It represents a distribution of a portion of the corporation's profits to its shareholders and is usually issued in proportion to their existing holdings of the company's stock. Therefore, choice A is the best option for this scenario.

Question 9

Which of the following are large pools of money set aside by corporations, unions, and governments for later use in paying retirement benefits to their employees or members?

Accepted Answer

Pension funds are specifically created to accumulate money for retirement benefits. The other options may involve money for workers or employees, but they are not specifically intended for retirement benefits.

Question 10

Which of the following is an example of a nondepository financial institution?

Accepted Answer

Nondepository financial institutions are institutions that do not accept deposits from individuals and firms but rather provide financial services and investments. Finance companies are an example of nondepository financial institutions. Consulting companies, savings banks, and credit unions accept deposits from individuals and firms, making them depository financial institutions.

Question 11

Which of the following buys and sells securities (stocks and bonds) for its clients and gives them related advice?

Accepted Answer

A brokerage company buys and sells securities for its clients and provides related advice. Finance companies provide loans and other financial services, consulting companies provide advice and strategies for various business aspects, and investment companies pool money from investors to buy a diversified portfolio of securities.

Question 12

Tameika Wilson owns 100 shares of Telus Mobility. Last year Telus Mobility sent her four more shares instead of her usual cash dividend. Which of the following did Telus distribute to its shareholders?

Accepted Answer

Telus Mobility distributed a stock dividend, which means they gave existing shareholders additional shares of the company instead of cash.

Question 13

Which of the following statements best describes credit unions?

Accepted Answer

Credit unions are typically smaller, locally owned financial institutions that serve a specific community or group of individuals. They are not usually for-profit institutions, but rather exist to serve their members' financial needs. They are subject to provincial regulations and require members to have some sort of common bond or affiliation.

Question 14

Which of the following represent profits from the operation of the corporation that are distributed to the shareholders?

Accepted Answer

Dividends represent profits from the operation of the corporation that are distributed to the shareholders. Contribution margins and net profits are financial performance metrics, while shared earnings is not a commonly used term in finance.

Question 15

ATMs let customers of banks make deposits and withdrawals while in a shopping centre or supermarket 24 hours a day. What do the letters ATM stand for?

Accepted Answer

ATM stands for Automated Teller Machine. This machine lets bank customers make deposits and withdrawals at any time of the day or night. It is automated, meaning there is no need for a bank teller to be present to process the transaction.

Question 16

What is the class of equity securities that provides the most potential for growth and appreciation?

Accepted Answer

Common shares typically offer the most potential for growth and appreciation, as they provide shareholders with a claim on a portion of the company's profits, which can increase in value as the company grows.

Question 17

The Canadian Deposit Insurance Corporation insures deposits in commercial banks. What is the maximum amount at a single institution that CDIC will insure someone for?

Accepted Answer

The CDIC operates under the Financial Administration Act and provides insurance coverage for eligible deposits held at member institutions up to a maximum of $100,000 per insured category at each member institution.

Question 18

Gino Vocci buys and sells shares and bonds and provides advice to his clients on when to buy and when to sell. Vocci works for which of the following type of nondepository financial institution?

Accepted Answer

Gino Vocci works for a brokerage company, which is a nondepository financial institution that buys and sells securities and provides investment advice to its clients. Commodity brokers deal in buying and selling of commodities, such as gold or oil. Finance companies offer loans and other financial services. Shares insurance companies provide insurance for shareholders.

Question 19

The Canadian Deposit Insurance Corporation insures deposits in commercial banks. The CDIC was created as one of which of the following institutions?

Accepted Answer

The CDIC is a crown corporation created by the Canadian government to insure deposits in commercial banks to protect depositors in case of bank failures or closures.

Question 20

Darren Hicks owns 10 shares in Carolina Power, a utility company. He has voting rights and shares in the profits. What type of shares does Hicks own?

Accepted Answer

Darren Hicks owns common shares, which give him both voting rights and a share in the company's profits. Preferred shares typically offer guaranteed dividends but do not come with voting rights. Dividend shares and market shares are not common terms for types of shares.

Quiz 17: Understanding Money and the Canadian Financial System