Question 1

Most savers:

Accepted Answer

A)   lend their money directly.
B)   do not 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) All of the above
F) None of the above

Question 2

Differences in interest rates for different type of loans are due to:

Accepted Answer

A)   the length of time the borrower has to repay the loan.
B)   the amount of the loan.
C)   government policy.
D)   exchange rateE) A) and C)
F) A) and B)

Question 3

Speculators in the financial market:

Accepted Answer

A)   act as buyers only.
B)   act as sellers only.
C)   buy and sell assets for financial gain.
D)   reduces risk in financial markets.E) A) and C)
F) A) and B)

Question 4

Institutions that channel funds from people who have them to people who want them are called:

Accepted Answer

A)   financial intermediaries.
B)   corporations.
C)   the Federal Reserve.
D)   governmental agency.E) C) and D)
F) A) and C)

Question 5

The fact that there are fewer and fewer potential investments that will generate returns high enough to make the cost of paying back a loan worthwhile is reflected in the:

Accepted Answer

A)   upward-slope of the supply curve in the market for loanable funds.
B)   downward-slope of the supply curve in the market for loanable funds.
C)   upward-slope of the demand curve in the market for loanable funds.
D)   downward-slope of the demand curve in the market for loanable funds.E) A) and B)
F) A) and C)

Question 6

Loans that are secured against an asset:

Accepted Answer

A)   generally have lower interest rates.
B)   generally have higher interest rates.
C)   are much longer in length than unsecured loans.
D)   are much shorter in length than unsecured loans.E) A) and B)
F) A) and C)

Question 7

Savers supply funds to those who want to borrow for their investment spending needs in the:

Accepted Answer

A)   market for loanable funds.
B)   market for savings.
C)   market for interest rates.
D)   stock market.E) All of the above
F) C) and D)

Question 8

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) C) and D)
F) None of the above

Question 9

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

Accepted Answer

A)   investor will lose money on net after paying back the loan.
B)   investor will make money on net after paying back the loan.
C)   saver will make less money on net than the borrower.
D)   borrower will make more money on net than the saver.E) C) and D)
F) A) and B)

Question 10

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 the bond issuer to repay the 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 D)
F) B) and C)

Question 11

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

Question 12

The two kinds of banks are ________ banks and ____________ banks.

Accepted Answer

A)   commercial; investment
B)   brokerage; investment
C)   private; commercial
D)   federal reserve; privateE) C) and D)
F) All of the above

Question 13

The biggest difference between mutual funds and life insurance policies is:

Accepted Answer

A)   when you can have access to your contributions.
B)   one is a savings plan, and one allows you to reduce your risk.
C)   one is considered savings, and the other is an investment.
D)   when you are required to contribute to them.E) All of the above
F) None of the above

Question 14

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

Accepted Answer

A)   Banks
B)   Savers
C)   Businesses
D)   Labor unions.E) B) and C)
F) A) and D)

Question 15

Which of the following people are liquidity providers?

Accepted Answer

A)   Used car salesman
B)   Stock broker
C)   Real estate agent
D)   All of these are considered liquidity providers.E) A) and B)
F) B) and C)

Question 16

The risk-free rate is the interest rate:

Accepted Answer

A)   at which one would lend if there were no risk of default.
B)   borrowers get when the loan is extremely short term.
C)   the government charges for the loans it gives out.
D)   savers get on their deposits.E) A) and B)
F) All of the above

Question 17

Schyler is able to take out a loan for $3,000 for one year at an annual interest rate of 10 percent. After calculating her return to be $200, Schyler will realize she will:

Accepted Answer

A)   lose $100 overall if she takes out the loan.
B)   make $200 overall if she takes out the loan.
C)   make $100 overall if she takes out the loan.
D)   lose $200 overall if she takes out the loan.E) C) and D)
F) B) and C)

Question 18

Mutual funds, pension plans, and life insurance policies:

Accepted Answer

A)   are all forms of savings.
B)   differ regarding when you can have access to the asset's worth.
C)   all entrust a professional to decide which financial assets are the best for the saver to hold.
D)   All of these are true.E) C) and D)
F) B) and C)

Question 19

If an asset is considered liquid, then it:

Accepted Answer

A)   can be sold quickly for cash without much loss of value.
B)   cannot be sold quickly for cash without much loss of value.
C)   can be sold quickly for cash, but tends to lose value.
D)   can easily be traded for other assets.E) A) and B)
F) C) and D)

Question 20

A determinant of the supply of loanable funds is:

Accepted Answer

A)   current economic conditions.
B)   expected profit on an investment.
C)   investors' confidence.
D)   All of these are determinants of the supply of loanable funds.E) C) and D)
F) A) and D)

Exam 14: The Basics of Finance

Speculators in the financial market:

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Savers supply funds to those who want to borrow for their investment spending needs in the:

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

Correct AnswerverifiedShow Answer

The fact that there are fewer and fewer potential investments that will generate returns high enough to make the cost of paying back a loan worthwhile is reflected in the:

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The two kinds of banks are ________ banks and ____________ banks.

Correct AnswerverifiedShow Answer

Most savers:

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Institutions that channel funds from people who have them to people who want them are called:

Correct AnswerverifiedShow Answer

Loans that are secured against an asset:

Correct AnswerverifiedShow Answer

The risk-free rate is the interest rate:

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Mutual funds, pension plans, and life insurance policies:

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

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

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If an asset is considered liquid, then it:

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Securitization:

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Differences in interest rates for different type of loans are due to:

Correct AnswerverifiedShow Answer

Schyler is able to take out a loan for $3,000 for one year at an annual interest rate of 10 percent. After calculating her return to be $200, Schyler will realize she will:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The biggest difference between mutual funds and life insurance policies is:

Correct AnswerverifiedShow Answer

A determinant of the supply of loanable funds is:

Correct AnswerverifiedShow Answer

Which of the following people are liquidity providers?

Correct AnswerverifiedShow Answer

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The two kinds of banks are banks and ____ banks.

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