Question 1

In the market for loanable funds, the demand curve:

Accepted Answer

A)   represents savers.
B)   is downward-sloping.
C)   shows that more people will choose to save at higher interest rates.
D)   represents the amount of debt-backed securities the government is willing to provide at each interest rate.E) A) and D)
F) A) and B)

Question 2

The fact that U.S. citizens expect to receive retirement benefits through Social Security and Medicare causes the _______ loanable funds to be _______ than it would be if these programs did not exist.

Accepted Answer

A)   demand for; greater
B)   demand for; lesser
C)   supply of; greater
D)   supply of; lesserE) None of the above
F) A) and D)

Question 3

If the rate of return is higher than the cost of borrowing, the:

Accepted Answer

A)   investor will lose money after paying back the loan.
B)   investor will make money after paying back the loan.
C)   saver will make less money than the borrower.
D)   borrower will make more money than the saver.E) None of the above
F) B) and C)

Question 4

Which of the following statements about the relationship between rate of return and risk is true?

Accepted Answer

A)   A portfolio often provides a higher rate of return for a given level of risk than any individual asset can offer.
B)   Individual assets typically provide higher rates of return than portfolios, given that portfolios are lower risk.
C)   A portfolio often provides a higher rate of return than any other type of savings.
D)   A portfolio is the safer choice and thus provides a lower rate of return than any other type of savings.E) B) and D)
F) A) and D)

Question 5

What are the three main roles of financial markets?

Accepted Answer

A)   Act as intermediaries between governments and firms, decrease liquidity, and diversify risk
B)   Act as intermediaries between buyers and sellers, provide liquidity, and integrate risk
C)   Act as intermediaries between governments and firms, provide liquidity, and integrate risk
D)   Act as intermediaries between buyers and sellers, provide liquidity, and diversify riskE) None of the above
F) All of the above

Question 6

Crowding out is a reduction in _______ borrowing caused by an increase in _______ borrowing.

Accepted Answer

A)   private; government
B)   government; private
C)   private; corporate
D)   corporate; privateE) All of the above
F) C) and D)

Question 7

When markets are less liquid, people are _______ willing to save, which pushes interest rates _______.

Accepted Answer

A)   less; higher
B)   more; higher
C)   less; lower
D)   more; lowerE) All of the above
F) B) and C)

Question 8

In general, financial assets that have a _______ amount of risk have a _______ rate of return.

Accepted Answer

A)   higher; higher
B)   higher; lower
C)   lower; higher
D)   None of these are true.E) B) and D)
F) B) and C)

Question 9

A company's net present value:

Accepted Answer

A)   is the current value of the company's expected future cash flows.
B)   is a measure of the company's book value.
C)   tells you the "correct" price of company shares.
D)   adds up the value of all the assets the company currently owns.E) A) and B)
F) A) and C)

Question 10

Fundamental analysis involves looking at:

Accepted Answer

A)   how much profit a company will make in the future and using that to predict its present value.
B)   market fundamentals to gauge a company's future trends.
C)   a company's past performance to assess its overall worth.
D)   the value of comparable companies abroad to assess a company's value.E) A) and D)
F) B) and C)

Question 11

In general, information asymmetries are _______ within financial markets.

Accepted Answer

A)   common
B)   not accounted for
C)   uncommon
D)   not easily accounted forE) A) and B)
F) All of the above

Question 12

When markets are more liquid, people are _______ willing to save and the level of investment is _______.

Accepted Answer

A)   more; higher
B)   less; higher
C)   more; lower
D)   less; lowerE) A) and D)
F) All of the above

Question 13

A capital inflow occurs when:

Accepted Answer

A)   money saved domestically is invested in another country.
B)   money saved in another country finances domestic investment.
C)   more money is invested abroad than invested domestically.
D)   money saved domestically is invested in a firm in the same industry.E) C) and D)
F) A) and D)

Question 14

The difference between the risk-free rate and the interest rate a particular investor has to pay is called the:

Accepted Answer

A)   credit risk.
B)   risk premium.
C)   default rate.
D)   interest rate arbitrage.E) None of the above
F) A) and D)

Question 15

Intermediation in the financial system is the process of:

Accepted Answer

A)   bringing together buyers and sellers in a market.
B)   negotiating terms of repayment when agreements between buyers and sellers are in default.
C)   government intervention in a financial market.
D)   an arbitrator working with governments and private firms to create efficiency.E) B) and C)
F) A) and D)

Question 16

The supply of loanable funds comes from all the following except:

Accepted Answer

A)   businesses.
B)   individuals.
C)   government.
D)   borrowers.E) A) and D)
F) B) and D)

Question 17

The savings of individuals or corporations within a country are:

Accepted Answer

A)   private savings.
B)   public savings.
C)   national savings.
D)   real GDP.E) B) and C)
F) A) and D)

Question 18

A closed economy:

Accepted Answer

A)   does not interact with other economies.
B)   does not publish its financial information to the public.
C)   collects only income tax revenue.
D)   establishes tariffs with all countries it trades with.E) A) and D)
F) All of the above

Question 19

Which of the following is a derivative?

Accepted Answer

A)   A futures contract
B)   A stock
C)   A bond
D)   A fixed-income securityE) None of the above
F) A) and B)

Question 20

After the housing bubble popped in 2007, the U.S. government provided emergency funds that prevented banks from failing. Some argued this action caused:

Accepted Answer

A)   moral hazard.
B)   adverse selection.
C)   adverse decisions.
D)   moral consequence.E) B) and D)
F) A) and B)

Exam 14: Thebasics of Finance

Which of the following statements about the relationship between rate of return and risk is true?

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When markets are more liquid, people are _______ willing to save and the level of investment is _______.

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In the market for loanable funds, the demand curve:

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The fact that U.S. citizens expect to receive retirement benefits through Social Security and Medicare causes the _______ loanable funds to be _______ than it would be if these programs did not exist.

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A company's net present value:

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The savings of individuals or corporations within a country are:

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When markets are less liquid, people are _______ willing to save, which pushes interest rates _______.

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In general, financial assets that have a _______ amount of risk have a _______ rate of return.

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A closed economy:

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Which of the following is a derivative?

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Crowding out is a reduction in _______ borrowing caused by an increase in _______ borrowing.

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If the rate of return is higher than the cost of borrowing, the:

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What are the three main roles of financial markets?

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A capital inflow occurs when:

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Intermediation in the financial system is the process of:

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The difference between the risk-free rate and the interest rate a particular investor has to pay is called the:

Correct AnswerverifiedShow Answer

In general, information asymmetries are _______ within financial markets.

Correct AnswerverifiedShow Answer

After the housing bubble popped in 2007, the U.S. government provided emergency funds that prevented banks from failing. Some argued this action caused:

Correct AnswerverifiedShow Answer

The supply of loanable funds comes from all the following except:

Correct AnswerverifiedShow Answer

Fundamental analysis involves looking at:

Correct AnswerverifiedShow Answer

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When markets are more liquid, people are _ willing to save and the level of investment is _.

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The fact that U.S. citizens expect to receive retirement benefits through Social Security and Medicare causes the _ loanable funds to be _ than it would be if these programs did not exist.

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When markets are less liquid, people are _ willing to save, which pushes interest rates _.

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In general, financial assets that have a _ amount of risk have a _ rate of return.

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Crowding out is a reduction in _ borrowing caused by an increase in _ borrowing.

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