Question 1

A booming economy can make investors _______, shifting the _______ curve for loanable funds to the _______.

Accepted Answer

A)   eager to borrow money; demand; right
B)   eager to borrow money; supply; right
C)   wary of future downturns; demand; left
D)   wary of future downturns; supply; leftE) A) and D)
F) C) and D)

Question 2

Which of the following is not considered to be a major player in the financial system?

Accepted Answer

A)   Banks
B)   Savers
C)   Businesses
D)   Labor unionsE) A) and B)
F) B) and D)

Question 3

Because a bank has a very large pool of buyers and savers, it can:

Accepted Answer

A)   act as an intermediary between firms and government.
B)   provide liquidity to some individuals that deposit funds.
C)   diversify the risk of saving and borrowing for individuals.
D)   act in the best interest of society by ensuring there is enough money for everyone.E) A) and D)
F) All of the above

Question 4

Which type of financial asset is most likely to have a higher amount of risk?

Accepted Answer

A)   Stocks
B)   Bonds
C)   Mutual funds
D)   Savings accountsE) A) and B)
F) A) and C)

Question 5

In general, entrepreneurs prefer:

Accepted Answer

A)   more diversification.
B)   less diversification.
C)   to maximize risk, regardless of diversification.
D)   to concentrate investments in just a few sectors.E) A) and C)
F) All of the above

Question 6

Arpita decides to take up mountain biking after securing health insurance. Her choice is an example of:

Accepted Answer

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

Question 7

Studies show that _______ households tend to save more of their income and that ____________ households save more out of tax cuts than others do.

Accepted Answer

A)   richer; poorer
B)   richer; richer
C)   poorer; richer
D)   poorer; poorerE) B) and C)
F) A) and C)

Question 8

Banks act as:

Accepted Answer

A)   organizers among firms in a specific market.
B)   intermediaries between borrowers and savers.
C)   informants to various buyers about prices and contracts.
D)   negotiators for buyers.E) A) and C)
F) A) and B)

Question 9

A default happens when a:

Accepted Answer

A)   borrower fails to pay back a loan according to the agreed-upon terms.
B)   lender fails to earn a high-enough return on their investment.
C)   bank fails to have enough cash on hand to give all depositors their money.
D)   borrower pays back a loan early.E) B) and C)
F) None of the above

Question 10

An asset used to secure a loan is called.

Accepted Answer

A)   collateral.
B)   a retainer.
C)   a down payment.
D)   an investment.E) A) and D)
F) A) and C)

Question 11

Idiosyncratic risk:

Accepted Answer

A)   cannot be eliminated through diversification.
B)   is unique to a company or asset.
C)   is only present in index funds.
D)   All of these are true.E) All of the above
F) None of the above

Question 12

Which of the following is a liquidity provider?

Accepted Answer

A)   A used car buyer
B)   An eBay seller
C)   A grocery store cashier
D)   All of these are liquidity providers.E) B) and C)
F) None of the above

Question 13

Which of the following exemplifies a seller in a financial market?

Accepted Answer

A)   An entrepreneur starting a new venture
B)   A government financing public spending
C)   An individual who has a savings account
D)   A family buying a new minivanE) A) and B)
F) All of the above

Question 14

The principal of a loan is the:

Accepted Answer

A)   original amount of the loan.
B)   set of rules and conditions borrowers agree to when taking out a loan.
C)   set of rules and conditions savers agree to when agreeing to let someone borrow their money.
D)   initial credit check conducted by the lender.E) A) and B)
F) A) and C)

Question 15

Which of the following is the most liquid?

Accepted Answer

A)   An antique bicycle
B)   A checking account
C)   Home-baked cookies
D)   A gold watchE) C) and D)
F) A) and B)

Question 16

Net capital outflow measures how many capital goods are:

Accepted Answer

A)   exported from a country.
B)   exported from a country, minus how many are imported into the country.
C)   imported into a country.
D)   imported into a country, minus how many are exported from the country.E) C) and D)
F) A) and D)

Question 17

As interest rates rise, there are fewer potential investments that will generate returns high enough to make the cost of paying back a loan worthwhile. This relationship is represented by the _______ in the market for loanable funds.

Accepted Answer

A)   upward-sloping supply curve
B)   downward-sloping supply curve
C)   upward-sloping demand curve
D)   downward-sloping demand curveE) C) and D)
F) None of the above

Question 18

When you have equity in a company, it means you:

Accepted Answer

A)   own part of the company and share in its profits.
B)   have diversified the company's risk.
C)   have diversified your risk by investing with the company.
D)   own a portion of the debt obligations of the company.E) C) and D)
F) All of the above

Question 19

Adverse selection occurs when:

Accepted Answer

A)   one participant in a transaction has more information than another, resulting in a bargaining dispute.
B)   one participant in a negotiation selects the wrong strategy, resulting in an unfavourable outcome.
C)   one participant in a transaction has more information than another, resulting in less frequent transactions.
D)   neither participant in a transaction is willing to make an agreement because they don't have enough information.E) A) and B)
F) B) and D)

Question 20

The quantity of savings that people are willing to supply depends 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) None of the above

Exam 14: Thebasics of Finance

Adverse selection occurs when:

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In general, entrepreneurs prefer:

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Which of the following is not considered to be a major player in the financial system?

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The principal of a loan is the:

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Idiosyncratic risk:

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Which of the following is a liquidity provider?

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

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A booming economy can make investors _______, shifting the _______ curve for loanable funds to the _______.

Correct AnswerverifiedShow Answer

Arpita decides to take up mountain biking after securing health insurance. Her choice is an example of:

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Which type of financial asset is most likely to have a higher amount of risk?

Correct AnswerverifiedShow Answer

Which of the following is the most liquid?

Correct AnswerverifiedShow Answer

Net capital outflow measures how many capital goods are:

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As interest rates rise, there are fewer potential investments that will generate returns high enough to make the cost of paying back a loan worthwhile. This relationship is represented by the _______ in the market for loanable funds.

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Because a bank has a very large pool of buyers and savers, it can:

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A default happens when a:

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When you have equity in a company, it means you:

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Which of the following exemplifies a seller in a financial market?

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Banks act as:

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An asset used to secure a loan is called.

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Studies show that _______ households tend to save more of their income and that ____________ households save more out of tax cuts than others do.

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A booming economy can make investors ___, shifting the _ curve for loanable funds to the _____.

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Studies show that _ households tend to save more of their income and that ______ households save more out of tax cuts than others do.

Correct Answer
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