Question 1

Lenders generally want a higher interest rate to compensate them when loans stretch over a longer period because:

Accepted Answer

A)  the opportunity cost increases over time.
B)  there's more uncertainty about potential future investment opportunities.
C)  lenders want to be compensated for being unable to get their money back quickly.
D)  All of these are true.E) None of the above
F) C) and D)

Question 2

A liquidity provider is someone who:

Accepted Answer

A)  helps make a market more liquid by being always ready to buy or sell an asset.
B)  works at a bank and specializes in loans.
C)  works in the financial system.
D)  None of these is true.E) A) and D)
F) B) and C)

Question 3

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

Question 4

The process of taking advantage of market inefficiencies to earn profits is called:

Accepted Answer

A)  arbitrage.
B)  technical analysis.
C)  a random walk.
D)  futures contracting.E) None of the above
F) A) and B)

Question 5

Good current economic conditions incent people to save _______,and a good outlook on future economic conditions incent people to save _________.

Accepted Answer

A)  more;less
B)  more;more
C)  less;more
D)  less;lessE) A) and B)
F) All of the above

Question 6

The supply of loanable funds come from:

Accepted Answer

A)  businesses.
B)  individuals.
C)  government.
D)  Any of these could be the source of loanable funds.E) All of the above
F) B) and D)

Question 7

Sarah is able to take out a loan for $5000 for one year at an annual interest rate of 10 percent.After calculating her rate of 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) A) and D)
F) B) and C) D

Question 8

When the government increases its demand for loanable funds,it causes:

Accepted Answer

A)  the demand for loanable funds curve to shift to the right.
B)  the demand for loanable funds curve to shift to the left.
C)  the supply of loanable funds curve to shift to the right.
D)  the supply of loanable funds curve to shift to the left.E) B) and D)
F) A) and D)

Question 9

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

Question 10

Why do companies issue stock?

Accepted Answer

A)  It allows the owners to raise capital without having to borrow.
B)  It allows the owners to share the risk of failure.
C)  It allows the owners to turn an illiquid asset into a liquid one.
D)  All of these are true.E) None of the above
F) B) and D)

Question 11

The reduction in private borrowing that is caused by an increase in government borrowing is called:

Accepted Answer

A)  the crowding out effect.
B)  surplus investment.
C)  the dissaving effect.
D)  the savings effect.E) A) and B)
F) A) and C)

Question 12

Net capital outflow measures:

Accepted Answer

A)  how many capital goods are exported from a country.
B)  how many capital goods are exported minus how many are imported to a country.
C)  how many capital goods are imported from a country.
D)  None of these is true.E) B) and D)
F) B) and C)

Question 13

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 rate of return to be $200,John:

Accepted Answer

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

Question 14

Most savers:

Accepted Answer

A)  do not lend their money directly.
B)  use proxies to decide who to lend their money to.
C)  deposit their savings into banks,retirement accounts,and life insurance companies.
D)  All of these are true.E) A) and B)
F) A) and C)

Question 15

A capital outflow occurs when:

Accepted Answer

A)  money saved domestically is invested in another country.
B)  money saved in another country finances domestic investment.
C)  there is a positive difference between capital inflows and capital outflows for a country.
D)  there is a positive difference between capital inflows and capital outflows of a country.E) A) and C)
F) B) and C)

Question 16

If lenders think that a particular borrower might default,they will demand:

Accepted Answer

A)  a higher interest rate to make it worth taking that risk.
B)  a lower interest rate to make it worth taking that risk.
C)  a higher interest rate to decrease the amount of risk incurred.
D)  a lower interest rate to decrease the amount of risk incurred.E) A) and D)
F) A) and C)

Question 17

The less liquid markets are:

Accepted Answer

A)  the less willing people are to save,and the higher the interest rates.
B)  the more willing people are to save and the higher the interest rates.
C)  the less willing people are to save,and the lower the interest rates.
D)  the more willing people are to save,and the lower the interest rates.E) C) and D)
F) None of the above

Question 18

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) All of the above
F) A) and D)

Question 19

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 B)
F) A) and D)

Question 20

The savings of individuals or corporations within a country is called:

Accepted Answer

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

Exam 30: The Basics of Finance

Lenders generally want a higher interest rate to compensate them when loans stretch over a longer period because:

Correct AnswerverifiedShow Answer

A liquidity provider is someone who:

Correct AnswerverifiedShow Answer

Speculators in the financial market are:

Correct AnswerverifiedShow Answer

The process of taking advantage of market inefficiencies to earn profits is called:

Correct AnswerverifiedShow Answer

Good current economic conditions incent people to save _______,and a good outlook on future economic conditions incent people to save _________.

Correct AnswerverifiedShow Answer

The supply of loanable funds come from:

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 rate of return to be $450,Sarah will:

Correct AnswerverifiedD

When the government increases its demand for loanable funds,it causes:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Why do companies issue stock?

Correct AnswerverifiedShow Answer

The reduction in private borrowing that is caused by an increase in government borrowing is called:

Correct AnswerverifiedShow Answer

Net capital outflow measures:

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 rate of return to be $200,John:

Correct AnswerverifiedA

Most savers:

Correct AnswerverifiedShow Answer

A capital outflow occurs when:

Correct AnswerverifiedShow Answer

If lenders think that a particular borrower might default,they will demand:

Correct AnswerverifiedShow Answer

The less liquid markets are:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The savings of individuals or corporations within a country is called:

Correct AnswerverifiedA

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Good current economic conditions incent people to save _,and a good outlook on future economic conditions incent people to save ___.

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D

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A

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