Question 1

Liquidity is:

Accepted Answer

A)   a measure of how easily a particular asset can quickly be converted to cash without much loss of value.
B)   the speed with which dollars are spent in the economy.
C)   the speed with which physical dollars change hands in the economy.
D)   the magnitude of change in the money supply as controlled by the Fed.E) None of the above
F) A) and B)

Question 2

Why do lenders generally want a higher interest rate when loans stretch over a longer period?

Accepted Answer

A)   The opportunity cost increases over time.
B)   There's more uncertainty about potential future investment opportunities.
C)   They want to be compensated for the inability to get their money back quickly.
D)   All of these are true.E) All of the above
F) B) and D)

Question 3

Suppose an economy experiences an economic downturn. If expectations about the future don't change, at any given interest rate savings will _______ and the supply curve for loanable funds will shift to the _______.

Accepted Answer

A)   decrease; left
B)   increase; left
C)   decrease; right
D)   increase; rightE) B) and C)
F) A) and C)

Question 4

Credit risk:

Accepted Answer

A)   is the risk of a borrower defaulting on a loan.
B)   occurs when one party to a transaction has more information than the other.
C)   is the amount a borrower must pay in interest over the term of a loan.
D)   is the risk of not being able to qualify for a loan.E) B) and C)
F) A) and B)

Question 5

After taking out a one-year loan with an annual interest rate of 5 percent, Pranav pays $2,100 back to the bank. The principal of the loan was _______ and the interest payment was _______.

Accepted Answer

A)   $2,000; $100
B)   $2,100; $100
C)   $100; $2,100
D)   $100; $2,000E) A) and D)
F) A) and C)

Question 6

In a closed economy, income equals:

Accepted Answer

A)   consumption plus investment spending.
B)   savings plus investment.
C)   savings minus investment.
D)   consumption minus investment spending.E) B) and D)
F) None of the above

Question 7

Technical analysis involves looking at:

Accepted Answer

A)   how much profit a company will make in the future and using that to predict its present value.
B)   market fundamentals to gauge a company's future trends.
C)   a company's past performance to assess its overall worth.
D)   the value of comparable companies abroad to assess a company's value.E) B) and D)
F) All of the above

Question 8

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 9

In a financial market, people trade:

Accepted Answer

A)   future claims on funds or goods.
B)   current claims for future goods.
C)   current goods for future funds.
D)   future funds or goods for reduced current risk.E) C) and D)
F) All of the above

Question 10

John can take out a one-year loan of $1,000 at an annual interest rate of 10 percent. After calculating his return to be $200, John knows he will _______ if he takes out the loan.

Accepted Answer

A)   make $100
B)   lose $100
C)   make $200
D)   lose $200E) C) and D)
F) All of the above

Question 11

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 12

If a lender believes that a particular borrower might default, the lender will demand:

Accepted Answer

A)   a higher interest rate, to make the risk worth taking.
B)   more collateral, to ensure adequate compensation if the default occurs.
C)   a longer term on the loan, to give the borrower more of a chance to repay.
D)   that another bank is also involved in securing the loan.E) B) and C)
F) A) and C)

Question 13

The graph shown displays the market for loanable funds in an economy.  If the quantity people want to save increases, at any given interest rate, a new equilibrium would occur at a _______ interest rate and a _______ equilibrium quantity of funds saved and invested.

Accepted Answer

A)   lower; higher
B)   higher; higher
C)   lower; constant
D)   higher; constantE) B) and C)
F) C) and D)

Question 14

Market risk is:

Accepted Answer

A)   broadly shared by an entire market or economy.
B)   unique to a company or asset.
C)   often predictable and generally reflected in interest rates.
D)   the reason economies suffer inflation from time to time.E) All of the above
F) B) and D)

Question 15

If Riko takes out a one-year loan of $2,000 with a 10 percent annual interest rate, the price she will pay for borrowing is:

Accepted Answer

A)   $2,000.
B)   $2,200.
C)   $200.
D)   $2,400.E) A) and B)
F) C) and D)

Question 16

When the government runs a deficit, the cost of borrowing _______, which _______ private demand for loanable funds.

Accepted Answer

A)   increases; decreases
B)   decreases; decreases
C)   increases; increases
D)   decreases; increasesE) All of the above
F) A) and B)

Question 17

The basic purpose of financial markets is to:

Accepted Answer

A)   match people who want money to spend now with people who want to save their money for later.
B)   buy and sell different currencies to make a profit.
C)   sell commodities to firms as inputs.
D)   trade stocks and bonds.E) A) and D)
F) A) and C)

Question 18

The efficient market hypothesis states that markets:

Accepted Answer

A)   currently contain all available information and correctly value instruments.
B)   are efficient when buyers and sellers act in their own best interest markets.
C)   need adequate regulation to be efficient.
D)   make trades without restriction.E) A) and C)
F) B) and D)

Question 19

The _______ the length of a loan, and the _______ the risk of repayment, the higher the interest rate a bank will charge.

Accepted Answer

A)   longer; higher
B)   longer; lower
C)   shorter; higher
D)   shorter; lowerE) B) and D)
F) B) and C)

Question 20

Which type of financial asset is most likely to earn a higher rate of return?

Accepted Answer

A)   Stocks
B)   Bonds
C)   Mutual funds
D)   Savings accountsE) C) and D)
F) None of the above

Exam 14: Thebasics of Finance

Suppose an economy experiences an economic downturn. If expectations about the future don't change, at any given interest rate savings will _______ and the supply curve for loanable funds will shift to the _______.

Correct AnswerverifiedShow Answer

If a lender believes that a particular borrower might default, the lender will demand:

Correct AnswerverifiedShow Answer

Market risk is:

Correct AnswerverifiedShow Answer

After taking out a one-year loan with an annual interest rate of 5 percent, Pranav pays $2,100 back to the bank. The principal of the loan was _______ and the interest payment was _______.

Correct AnswerverifiedShow Answer

The basic purpose of financial markets is to:

Correct AnswerverifiedShow Answer

In a closed economy, income equals:

Correct AnswerverifiedShow Answer

Technical analysis involves looking at:

Correct AnswerverifiedShow Answer

The graph shown displays the market for loanable funds in an economy. If the quantity people want to save increases, at any given interest rate, a new equilibrium would occur at a _______ interest rate and a _______ equilibrium quantity of funds saved and invested.

Correct AnswerverifiedShow Answer

Loans that are secured against an asset:

Correct AnswerverifiedShow Answer

The _______ the length of a loan, and the _______ the risk of repayment, the higher the interest rate a bank will charge.

Correct AnswerverifiedShow Answer

If Riko takes out a one-year loan of $2,000 with a 10 percent annual interest rate, the price she will pay for borrowing is:

Correct AnswerverifiedShow Answer

The efficient market hypothesis states that markets:

Correct AnswerverifiedShow Answer

When the government runs a deficit, the cost of borrowing _______, which _______ private demand for loanable funds.

Correct AnswerverifiedShow Answer

John can take out a one-year loan of $1,000 at an annual interest rate of 10 percent. After calculating his return to be $200, John knows he will _______ if he takes out the loan.

Correct AnswerverifiedShow Answer

In a financial market, people trade:

Correct AnswerverifiedShow Answer

Liquidity is:

Correct AnswerverifiedShow Answer

Credit risk:

Correct AnswerverifiedShow Answer

Why do lenders generally want a higher interest rate when loans stretch over a longer period?

Correct AnswerverifiedShow Answer

Which type of financial asset is most likely to earn a higher rate of return?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose an economy experiences an economic downturn. If expectations about the future don't change, at any given interest rate savings will _ and the supply curve for loanable funds will shift to the _.

Correct Answer
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Correct Answer
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Correct Answer
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After taking out a one-year loan with an annual interest rate of 5 percent, Pranav pays $2,100 back to the bank. The principal of the loan was _ and the interest payment was _.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The graph shown displays the market for loanable funds in an economy. If the quantity people want to save increases, at any given interest rate, a new equilibrium would occur at a _ interest rate and a _ equilibrium quantity of funds saved and invested.

Correct Answer
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Correct Answer
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The _ the length of a loan, and the _ the risk of repayment, the higher the interest rate a bank will charge.

Correct Answer
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Correct Answer
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Correct Answer
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When the government runs a deficit, the cost of borrowing _, which _ private demand for loanable funds.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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