Deck 1: An Introduction to Finance

Question 1

If Canadian households, in aggregate, own real assets with a market value of $3.194 trillion, and also own net financial assets with a market value of $2.344 trillion, the total net assets of Canadian households have a market value of

A)$3.194 trillion
B)$5.538 trillion
C)$-0.850 trillion
D)$0.850 trillion

Answer 1

$5.538 trillion

Question 2

Given the following hypothetical information regarding the real and financial assets in Canada for 2022 (numbers in $ billions):

What is the value of the total net assets in Canada for 2022?

A)$5,842 billion
B)$6,086 billion
C)$6,124 billion
D)$6,105 billion

Answer 2

$6,124 billion

Question 3

Which of the following sectors is NOT a user of savings in the economy?

A)business sector
B)household sector
C)government sector
D)banking sector

Answer 3

household sector

Question 4

In Canada, the primary provider of funds to business and government is (are)

A)international banks.
B)large Canadian banks.
C)the household sector.
D)market intermediaries.

Question 5

As of 2018 what was the major proportion of Canadian households' financial assets?

A)stocks and bonds
B)deposits
C)foreign investment
D)claims on retirement and insurance funds

Question 6

Which of the following does NOT appear as an item on Canada's balance sheet, as presented in the text?

A)non-residential structures
B)net worth or equity
C)net foreign liabilities
D)net foreign assets

Question 7

Finance is the study of how and under what terms

A)savings are allocated between lenders and borrowers.
B)investments are allocated between investors and brokers.
C)institutions with excess money make share purchase decisions.
D)households allocate money between spending and saving.

Question 8

An example of direct intermediation would be

A)an individual borrowing money from a bank.
B)an individual borrowing money from their mother.
C)an individual using a real estate broker to finance their home purchase.
D)a stockbroker selling securities to an individual.

Question 9

The three intermediation channels that transfer money from lenders to borrowers are

A)direct, indirect, and financial intermediation.
B)direct, indirect, and monetary intermediation.
C)direct, financial, and monetary intermediation.
D)indirect, financial, and monetary intermediation.

Question 10

Human capital is

A)based on only the current skills, but not the education, of a country's citizens.
B)based on only the education, but not the current skills, of a country's citizens.
C)based on the skills and education of citizens and should be included in a country's wealth.
D)difficult to measure and should therefore not be included in a country's wealth.

Question 11

In the following list, which item is a financial asset?

A)land
B)bond
C)building
D)inventory

Question 12

A financial security is

A)a jail term for a financial manager that has committed fraud.
B)a contract that is created only when a new stock is issued to the public.
C)a financial contract created whenever funds are transferred.
D)a contract that is created only when a new bond is first sold.

Question 13

Entities that invest funds on behalf of others and change the nature of the transactions are called

A)brokers.
B)financial intermediaries.
C)dealers.
D)market intermediaries.

Question 14

Joe has just borrowed $5,000 from his aunt in order to make a down payment on a car.This borrowing transaction is an example of

A)indirect intermediation.
B)direct intermediation.
C)external intermediation.
D)market transaction.

Question 15

Which of the following is NOT a financial intermediary?

A)chartered banks
B)insurance companies
C)pension funds
D)mutual funds

Question 16

You are provided with the following hypothetical information regarding the real and financial assets in Canada for 2022 (numbers in $ billions):

What is the value of the net financial assets owned by non-residents for 2022?

A)$901 billion
B)$51 billion
C)$2,293 billion
D)There is not enough information to answer the question.

Question 17

Which of the following items is NOT a real asset?

A)land
B)television
C)bond
D)gold mine

Question 18

Which of the following is NOT one of the main functions performed by mutual funds?

A)pooling sums of money to make investments
B)paying out premiums to their clients
C)providing professional management expertise
D)acting as a "pass-through" for individuals to invest in the equity and debt markets

Question 19

What is the main difference between real assets and financial assets?

A)Real assets are tangible and financial assets are intangible.
B)Real assets have known values, while the values of financial assets are not known.
C)Real assets are intangible and financial assets are tangible.
D)Real assets have unknown values, while the values of financial assets are known.

Question 20

Although Canadian banks are involved in almost all areas of the financial system, which of the following is their core activity?

A)stock market investment activity
B)retirement planning
C)wealth management
D)taking deposits and lending funds

Question 21

An example of a non-marketable financial asset is a

A)demand deposit.
B)T-bill.
C)commercial paper.
D)common share.

Question 22

Who are the biggest borrowers and lenders in Canada, respectively?

A)government and households
B)government and banks
C)banks and mutual funds
D)Crown corporations and banks

Question 23

How do governments obtain the majority of their short- and long-term financing?

A)T-bills and Canada Savings Bonds
B)T-bills, traditional bonds, and Canada Savings Bonds
C)T-bills, equity, and traditional bonds
D)traditional bonds and Canada Savings Bonds

Question 24

Which of the following is an existing stock exchange in Canada?

A)Toronto Stock Exchange (TSX)
B)Montreal Exchange (ME)
C)Vancouver Stock Exchange (VSE)
D)Winnipeg Stock Exchange (WSE)

Question 25

Two examples of marketable assets include

A)savings accounts and demand deposits held at financial institutions.
B)provincial and federal savings bonds.
C)demand deposits and provincial savings bonds.
D)equity securities and T-bills.

Question 26

Though they are classified as equity, why are preferred shares also similar to debt?

A)Both carry the same interest rate.
B)Dividends on preferred shares must be paid out before any common share dividends.
C)The voting structures for preferred shares and debt are equivalent.
D)Preferred shares have similar maturity structures to debt.

Question 27

Which of the following is NOT an example of a capital market security?

A)bond
B)debenture
C)common equity
D)T-bill

Question 28

Which of the following was NOT one of the major objectives in the restructuring of the Canadian stock exchanges in 1999 and 2000?

A)to create a Canadian market for NASDAQ-listed companies
B)to combine all futures and options trading on one exchange
C)to make the TSX the official exchange for the trading of Canadian senior stocks
D)to create a single national exchange for trading in junior company stocks

Question 29

Which of the following was NOT a reason for the credit crunch of 2008-09?

A)mistrust between financial intermediaries
B)illiquidity of debt markets
C)the arrest of Bernard Madoff
D)bankruptcy of one of the leading financial institutions

Question 30

Which of the following is NOT a component of debt securities?

A)maturity
B)repayment
C)dividends
D)interest payments

Question 31

Which one of the following is NOT a function of brokers?

A)Manage money for clients.
B)Make the market work.
C)Charge a fee for their services.
D)Assist with the transaction process.

Question 32

The main difference between exchanges and dealer/OTC markets is

A)exchanges are a part of the primary market, while dealer and OTC markets are part of the secondary market.
B)transactions in dealer markets are conducted entirely by humans, not electronically.
C)exchanges have a physical location while dealer and OTC markets do not.
D)All of the above are differences between exchanges and dealer markets.

Question 33

All common shares are comprised of which two components?

A)ownership and voting rights
B)ownership and dividend rights
C)voting and dividend rights
D)dividend and yield rights

Question 34

The exchange that acts as the Canadian national derivatives market and conducts all options and futures trading is called the

A)Montreal Exchange (ME).
B)Winnipeg Commodity Exchange.
C)TSX Venture.
D)Alpha Exchange.

Question 35

Since March 2000 the Montreal Exchange (ME)has functioned as Canada's national market for

A)hedge funds.
B)publicly traded stocks.
C)derivatives.
D)T-bills.

Question 36

Why can't the Canadian government issue equity?

A)because assets belong to all Canadians
B)it is not listed in the financial markets
C)it has too much debt
D)because expenditures exceed revenues

Question 37

Financial markets are usually classified by the type and maturity of the financial assets traded.The two main classifications are as follows:

A)bond market and money market.
B)money market and capital market.
C)bond market and foreign-exchange market.
D)commodity market and capital market.

Question 38

Which is the only province where trades in unlisted securities need to be reported?

A)British Columbia
B)Quebec
C)Alberta
D)Ontario

Question 39

A market where transactions are made directly between large institutions and wealthy individuals that bypass brokers and dealers is an example of

A)the primary market.
B)the secondary market.
C)the third market.
D)the fourth market.

Question 40

Of the following list, who are the dominant players in the money market?
I.individuals
II.corporations
III.governments

A)I and II
B)I and III
C)II and III
D)I, II, and III

Question 41

Explain why primary markets are the key to the wealth creation process.

Question 42

If the stock of a listed firm decreases by 50 percent, what does it mean to the shareholders?

A)Their ownership of the firm will decrease by 50 percent.
B)Total value of their holdings decreases by 50 percent.
C)The debt of the firm decreases by 50 percent.
D)nothing

Question 43

Explain what an auction market is and how it works.

Question 44

The consolidation of U.S.and global stock markets has

A)been increasing recently, as shown by the merger of the NYSE and Euronext.
B)been decreasing recently, as shown by the decrease in multi-listed stocks.
C)led to lower risk in investments because markets have become less interdependent.
D)led to increased reliance on human interactions in securities trading.

Question 45

What is an over-the-counter market? Do all bonds in Canada trade over-the-counter?

Question 46

Which of the following is NOT a benefit of global financial markets?

A)They represent important sources of funds for borrowers.
B)They provide diversification benefits to Canadian investors.
C)Canadian companies can list their shares in different markets.
D)The value of Canadian shares becomes more stable.

Question 47

How do financial intermediaries help those with "too much money today" and those with "not enough money today"?

Question 48

What are the differences between the primary markets and the secondary markets?

Question 49

Which is the world's largest and most famous stock market?

A)New York Stock Exchange (NYSE)
B)Toronto Stock Exchange (TSX)
C)Tokyo Stock Exchange (TSE)
D)London Stock Exchange (LSE)

Question 50

Why is the secondary market important?

Question 51

Define and describe the difference between the third and fourth markets.

Question 52

The two sectors that are normally regarded as the lowest risk in the financial market are

A)T-bills and loans extended to "PIIGS" countries.
B)demand deposits and loans to countries that have taken austerity measures.
C)household mortgages and government debt.
D)government debt and foreign company borrowings.

Question 53

The spread of the financial crisis in the autumn of 2008 was NOT increased by

A)linkages between global financial markets.
B)the cross listing of firms in different markets.
C)the consolidation of the global financial system.
D)excessive debt of the government.