Finance Quiz 1 - Chapter 1

Question 1

Shareholder Wealth Maximization

Answer 1

The appropriate goal for management decision

Question 2

The appropriate goal for management decision

Answer 2

Shareholder Wealth Maximization

Question 3

Money Market

Answer 3

A financial market for debt securities with maturities of less than one year

Question 4

A financial market for debt securities with maturities of less than one year

Answer 4

Money Market

Question 5

Capital Market

Answer 5

Financial markets for long-term debt and corporate stock

Question 6

Financial markets for long-term debt and corporate stock

Answer 6

Capital Market

Question 7

Primary Market

Answer 7

The markets in which newly issued securities are sold for the first time

Question 8

The markets in which newly issued securities are sold for the first time

Answer 8

Primary Market

Question 9

Secondary Market

Answer 9

Markets where securities are resold after initial issue in the primary markets

Question 10

Markets where securities are resold after initial issue in the primary markets

Answer 10

Secondary Market

Question 11

Private Market

Answer 11

Transactions work out directly between two parties and structures in a manner that appeals to them

Question 12

Transactions work out directly between two parties and structures in a manner that appeals to them

Answer 12

Private Market

Question 13

Private Markets Securities

Answer 13

Securities more tailor-made, less liquid

Question 14

Securities more tailor-made, less liquid

Answer 14

Private Markets Securities

Question 15

Public Market

Answer 15

Standardized contracts are traded on organized exchanges

Question 16

Standardized contracts are traded on organized exchanges

Answer 16

Public Market

Question 17

Public Markets Securities

Answer 17

Securities more liquid, subject to greater standardization

Question 18

Securities more liquid, subject to greater standardization

Answer 18

Public Markets Securities

Question 19

Derivatives

Answer 19

Claims whose value depends on what happens to the value of some other asset; Futures and options

Question 20

Claims whose value depends on what happens to the value of some other asset; Futures and options

Answer 20

Derivatives

Question 21

Investment Banker

Answer 21

Middleman between businesses and saves

Question 22

Middleman between businesses and saves

Answer 22

Investment Banker

Question 23

Investment Banker Responsibility

Answer 23

1. Assist in the design of corporate securities and then sell them to savers (investors) in the primary markets
2. A financial intermediary buys securities with funds that it obtains by issuing its securities

Question 24

Mutual Funds

Answer 24

A corporation that sells shares in a fund and uses the proceeds to buy stocks, long-term bonds, or short-term instruments

Question 25

A corporation that sells shares in a fund and uses the proceeds to buy stocks, long-term bonds, or short-term instruments

Answer 25

Mutual Funds

Question 26

Money Market Funds

Answer 26

Mutual funds that invest in short-term debt instruments, with maturities of less than one year

Question 27

Mutual funds that invest in short-term debt instruments, with maturities of less than one year

Answer 27

Money Market Funds

Question 28

Production Opportunities

Answer 28

The returns available within an economy from investment in productive assets

Question 29

The returns available within an economy from investment in productive assets

Answer 29

Production Opportunities

Question 30

Consumption Time Preferences

Answer 30

The preferred pattern of consumption; establishes how much consumption they are willing to defer and hence save, at different levels of interest

Question 31

The preferred pattern of consumption; establishes how much consumption they are willing to defer and hence save, at different levels of interest

Answer 31

Consumption Time Preferences

Question 32

Foreign Trade Deficits

Answer 32

Businesses and individuals in a country impact more goods from foreign countries than are exported; Must be financed by debt

Question 33

Businesses and individuals in a country impact more goods from foreign countries than are exported; Must be financed by debt

Answer 33

Foreign Trade Deficits

Question 34

Increase Trade Deficit = Borrowing ? and Interest ?

Answer 34

Increase Borrowing = Increase Interest Rates

Question 35

If Central Bank attempts to set interest rates lower than foreign rates

Answer 35

* Foreigners will sell bonds * Decrease bond prices * Increase interest rates

Question 36

If the market price reflects all relevant information, the observed price =

Answer 36

intrinsic price

Question 37

Financial Intermediaries

Answer 37

Business organizations that receive funds in one form and repackage them for use by those who need funds

Question 38

Business organizations that receive funds in one form and repackage them for use by those who need funds

Answer 38

Financial Intermediaries

Question 39

Increase in money supply = Decrease in money supply =

Answer 39

Lower interest rates Higher interest rates