Question 1

In the market for loanable funds, borrowing is like:

Accepted Answer

A)   selling the right to use your money for a time.
B)   buying the right to use someone else's money.
C)   selling the right to use someone else's money.
D)   buying the right to use your money for a time.E) A) and D)
F) B) and D)

Question 2

Moral hazard describes a scenario in which people behave:

Accepted Answer

A)   morally and a negative consequence occurs.
B)   in a riskier fashion or renege on agreements when they do not face the full consequences of their actions.
C)   in a riskier fashion when they don't understand the consequences of their actions.
D)   behave morally but end up in a dangerous situation.E) None of the above
F) A) and D)

Question 3

Which of the following does not support the efficient-market hypothesis?

Accepted Answer

A)   Index funds
B)   Mutual funds
C)   Bonds
D)   Asset price bubblesE) B) and C)
F) None of the above

Question 4

The buyer of a derivative is typically _______ comfortable assuming risk compared to the seller.

Accepted Answer

A)   more
B)   less
C)   equally
D)   None of these are true.E) A) and D)
F) B) and C)

Question 5

Miguel takes out a one-year loan of $5,000 with a 10 percent annual interest rate. What is the principal?

Accepted Answer

A)   $5,000
B)   $5,500
C)   $500
D)   $1,000E) A) and B)
F) All of the above

Question 6

In 2006, before the Great Recession, the economy was booming and consumer demand was high. The good economic conditions caused the _______ for loanable funds to _______.

Accepted Answer

A)   demand; increase
B)   demand; decrease
C)   supply; increase
D)   supply; decreaseE) All of the above
F) A) and D)

Question 7

The risk-free rate is usually approximated by interest rates on U.S. government debt, because the U.S. government:

Accepted Answer

A)   is considered extremely unlikely to default.
B)   sets all policy concerning interest rates.
C)   has all loans protected by the Federal Reserve.
D)   is the largest source of loanable funds in the economy.E) B) and D)
F) B) and C)

Question 8

One way to predict the future profitability of a company is through:

Accepted Answer

A)   technical analysis.
B)   fundamental analysis.
C)   the idea of market efficiency.
D)   All of these are ways to predict a company's worth.E) C) and D)
F) B) and C)

Question 9

Bonds are a _______ liquid asset than other loans because they are _______.

Accepted Answer

A)   more; standardized
B)   more; guaranteed from default by the government
C)   less; standardized
D)   less; guaranteed from default by the governmentE) All of the above
F) B) and C)

Question 10

Investment decisions are based on the trade-off between which two factors?

Accepted Answer

A)   The potential profit that could be generated by investment and the cost of borrowing money to finance the investment
B)   The interest rate that savers will earn and the interest rate that borrowers will have to pay
C)   The future value of the loan and the present value of the loan
D)   The potential profit that could be generated and the willingness of a lender to make the loanE) None of the above
F) B) and D)

Question 11

When people expect their income to fall 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)   Any of these could occur when income is expected to fall.E) A) and C)
F) A) and B)

Question 12

A net capital inflow occurs in open economies where investment is _______ national savings.

Accepted Answer

A)   higher than
B)   lower than
C)   equal to
D)   either higher or lower thanE) None of the above
F) A) and C)

Question 13

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 equals investment.
D)   consumption plus investment equals national savings.E) B) and C)
F) A) and D)

Question 14

An asset whose value is based on the value of another asset is called a:

Accepted Answer

A)   derivative.
B)   dividend.
C)   stock.
D)   bond.E) B) and C)
F) A) and C)

Question 15

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) C) and D)
F) A) and B)

Question 16

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

Accepted Answer

A)   financial system.
B)   money system.
C)   money market.
D)   market for loanable funds.E) All of the above
F) C) and D)

Question 17

Securitization:

Accepted Answer

A)   turns many loans into a single, larger asset.
B)   is an agreement in which a lender gives money to a borrower in exchange for a promise to repay the amount loaned plus an agreed-upon amount of interest.
C)   is a promise by a bond issuer to repay a loan at a specified maturity date and to pay periodic interest at a specific percentage rate.
D)   turns many loans into a risk-free, secure asset.E) B) and C)
F) A) and C)

Question 18

When shopping for a used car on the internet, Jonathan is faced with:

Accepted Answer

A)   moral hazard.
B)   adverse selection.
C)   poor credit.
D)   financial intermediaries.E) A) and B)
F) B) and D)

Question 19

Bonds are often referred to as fixed-income securities because they:

Accepted Answer

A)   have a set interest rate.
B)   are more commonly held by retirees.
C)   adjust interest payments with the inflation rate.
D)   have a fixed price.E) A) and D)
F) All of the above

Question 20

If Howard takes out a one-year loan of $400 with a 5 percent annual interest rate, he will pay back a total of:

Accepted Answer

A)   $400.
B)   $440.
C)   $420.
D)   $20.E) C) and D)
F) B) and D)

Exam 14: Thebasics of Finance

Which of the following does not support the efficient-market hypothesis?

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The buyer of a derivative is typically _______ comfortable assuming risk compared to the seller.

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

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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 make up the:

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

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Securitization:

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The risk-free rate is usually approximated by interest rates on U.S. government debt, because the U.S. government:

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A net capital inflow occurs in open economies where investment is _______ national savings.

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Miguel takes out a one-year loan of $5,000 with a 10 percent annual interest rate. What is the principal?

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In 2006, before the Great Recession, the economy was booming and consumer demand was high. The good economic conditions caused the _______ for loanable funds to _______.

Correct AnswerverifiedShow Answer

One way to predict the future profitability of a company is through:

Correct AnswerverifiedShow Answer

When shopping for a used car on the internet, Jonathan is faced with:

Correct AnswerverifiedShow Answer

If Howard takes out a one-year loan of $400 with a 5 percent annual interest rate, he will pay back a total of:

Correct AnswerverifiedShow Answer

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

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In the market for loanable funds, borrowing is like:

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Investment decisions are based on the trade-off between which two factors?

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An asset whose value is based on the value of another asset is called a:

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Bonds are a _______ liquid asset than other loans because they are _______.

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Bonds are often referred to as fixed-income securities because they:

Correct AnswerverifiedShow Answer

Moral hazard describes a scenario in which people behave:

Correct AnswerverifiedShow Answer

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In 2006, before the Great Recession, the economy was booming and consumer demand was high. The good economic conditions caused the _ for loanable funds to _.

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Bonds are a _ liquid asset than other loans because they are _.

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