Question 1

A professionally managed portfolio of assets intended to provide income to retirees is called:

Accepted Answer

A)   a mutual fund.
B)   a stock.
C)   a derivative.
D)   investing by proxy.E) A) and B)
F) B) and D)

Question 2

The quantity of savings that people are willing to supply will depend on:

Accepted Answer

A)   the price they will receive.
B)   the amount they have left over after consumption.
C)   their disposable income.
D)   their age, since people tend to stop saving once they retire.E) A) and B)
F) B) and C)

Question 3

Sarah is able to take out a loan for $5000 for one year at an annual interest rate of 10 percent. After calculating her return to be $450, Sarah will:

Accepted Answer

A)   make $450 on net, and should take out the loan.
B)   lose $450 on net, and should not take out the loan.
C)   make $50 on net, and should take out the loan.
D)   lose $50 on net, and should not take out the loan.E) None of the above
F) A) and B)

Question 4

For an open economy, national savings can be:

Accepted Answer

A)   more than investment.
B)   less than investment.
C)   the same as investment.
D)   All of these are true.E) B) and D)
F) None of the above

Question 5

Which of the following people are liquidity providers?

Accepted Answer

A)   Used car salesman
B)   Antiques dealer
C)   Bank teller
D)   All of these are considered liquidity providers.E) B) and C)
F) A) and D)

Question 6

The risk-free rate is not:

Accepted Answer

A)   usually approximated by interest rates on U.S. government debt.
B)   the interest rate at which one would lend if there were no risk of default.
C)   lower than any other interest rate.
D)   usually approximated by interest rate on corporation debts.E) A) and B)
F) A) and C)

Question 7

When people expect their income to be lower in the future, they will be:

Accepted Answer

A)   more inclined to save.
B)   less inclined to save.
C)   unaffected in their present choices.
D)   People only react and change their savings decisions based on recent history.E) B) and C)
F) A) and C)

Question 8

After taking out a one year loan with an annual interest rate of 5 percent, Tommy pays $2,100 back to the bank. The principal of the loan must be ___________ and the interest payment must be ___________.

Accepted Answer

A)   $2,000; $100
B)   $2,100; $100
C)   $100; $2,100
D)   $100; $2,000E) None of the above
F) A) and D)

Question 9

A closed economy is an economy that:

Accepted Answer

A)   does not interact with other economies.
B)   publishes its financial information to the public.
C)   collects tax revenue.
D)   has free trade relationship with other countries.E) A) and B)
F) A) and C)

Question 10

Speculators in the financial market are:

Accepted Answer

A)   debated by some as to whether they contribute to the financial system's success.
B)   seen by most as necessary for the health of the financial system.
C)   largely thought to be detrimental to the overall health of the financial system.
D)   illegal, and often work in the "grey" markets despite this.E) C) and D)
F) B) and D)

Question 11

Diversification of assets cannot eliminate which kind of risk?

Accepted Answer

A)   Idiosyncratic risk
B)   Market risk
C)   Individual risk
D)   Downside riskE) All of the above
F) None of the above

Question 12

The equilibrium in the market for loanable funds is:

Accepted Answer

A)   at the interest rate set by the Fed.
B)   at the price at which the quantity supplied is slightly greater than quantity demanded.
C)   where the amount being borrowed and the amount being saved is the same.
D)   where the amount being saved is enough for banks to cover required reserves.E) All of the above
F) B) and C)

Question 13

The process by which risks are shared among many different assets or people is called:

Accepted Answer

A)   the credit risk.
B)   the risk spread.
C)   diversification.
D)   the liquidity process.E) None of the above
F) A) and D)

Question 14

In an economy without government or trade, it must be true that:

Accepted Answer

A)   savings equals investment.
B)   consumption equals savings plus investment.
C)   consumption plus savings equal investment.
D)   consumption plus investment equal national savings.E) A) and D)
F) All of the above

Question 15

Savers in the financial system make decisions about how to save their money by following the basic principles of:

Accepted Answer

A)   asset valuation.
B)   cost benefit analysis.
C)   rate of return on investments.
D)   risk valuation.E) None of the above
F) A) and D)

Question 16

John is able to take out a loan for $1,000 for one year at an annual interest rate of 10 percent. After calculating his return to be $200, John will:

Accepted Answer

A)   make money on net, and should take out the loan.
B)   make money on net, and should not take out the loan.
C)   not make money on net, and should take out the loan.
D)   not make money on net, and should not take out the loan.E) A) and D)
F) All of the above

Question 17

The process of bringing together buyers and sellers in a market is called:

Accepted Answer

A)   intermediation.
B)   supply and demand.
C)   the invisible hand.
D)   equilibrium.E) A) and B)
F) A) and C)

Question 18

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) A) and C)

Question 19

An example of a derivative is a:

Accepted Answer

A)   futures contract.
B)   stock.
C)   bond.
D)   fixed-income security.E) A) and C)
F) C) and D)

Question 20

The institutions that bring together savers, borrowers, investors, and insurers in a set of interconnected markets where people trade financial products is called the:

Accepted Answer

A)   financial system.
B)   money system.
C)   market for interest rates.
D)   market for loanable funds.E) A) and C)
F) None of the above

Exam 14: The Basics of Finance

Savers in the financial system make decisions about how to save their money by following the basic principles of:

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Speculators in the financial market are:

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The institutions that bring together savers, borrowers, investors, and insurers in a set of interconnected markets where people trade financial products is called the:

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The process of bringing together buyers and sellers in a market is called:

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An example of a derivative is a:

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Which of the following people are liquidity providers?

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When people expect their income to be lower in the future, they will be:

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After taking out a one year loan with an annual interest rate of 5 percent, Tommy pays $2,100 back to the bank. The principal of the loan must be ___________ and the interest payment must be ___________.

Correct AnswerverifiedShow Answer

A professionally managed portfolio of assets intended to provide income to retirees is called:

Correct AnswerverifiedShow Answer

The risk-free rate is not:

Correct AnswerverifiedShow Answer

The equilibrium in the market for loanable funds is:

Correct AnswerverifiedShow Answer

In an economy without government or trade, it must be true that:

Correct AnswerverifiedShow Answer

John is able to take out a loan for $1,000 for one year at an annual interest rate of 10 percent. After calculating his return to be $200, John will:

Correct AnswerverifiedShow Answer

Diversification of assets cannot eliminate which kind of risk?

Correct AnswerverifiedShow Answer

Sarah is able to take out a loan for $5000 for one year at an annual interest rate of 10 percent. After calculating her return to be $450, Sarah will:

Correct AnswerverifiedShow Answer

A closed economy is an economy that:

Correct AnswerverifiedShow Answer

For an open economy, national savings can be:

Correct AnswerverifiedShow Answer

The quantity of savings that people are willing to supply will depend on:

Correct AnswerverifiedShow Answer

In general, information asymmetries are _________________ within financial markets.

Correct AnswerverifiedShow Answer

The process by which risks are shared among many different assets or people is called:

Correct AnswerverifiedShow Answer

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After taking out a one year loan with an annual interest rate of 5 percent, Tommy pays $2,100 back to the bank. The principal of the loan must be _ and the interest payment must be _.

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