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Exam 1: The Financial Environment

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Question 21

Multiple Choice

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Involves conducting financial analysis and valuation of new securities being issued.

A) Stockbroker
B) Security analyst
C) Investment banking analyst
D) Financial planner assistant

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Question 22

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Finance has its origins in:

A) economics and statistics
B) accounting and sociology
C) accounting and economics
D) psychology and mathematics

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Question 23

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The principle of finance that "financial markets are efficient in pricing securities" implies that the prices of securities reflect some information available to the public and that when new information becomes available, prices change over time to reflect that information.

The saving-investment process involves which of the following financial functions:

An economy's _____________________ is the interaction of policy makers, a monetary system, financial institutions, and financial markets to expedite the flow of financial capital from savings into investment:

The six principles of finance include (1) Money has a time value, (2) Higher returns are expected for taking on more risk, (3) Diversification of investments can reduce risk, (4) Financial markets are efficient in pricing securities, (5) Manager and stockholder objectives may differ, and (6) Reputation matters.

The possible conflict between managers and owners is sometimes called the

Among the six principles of finance, all are included except:

Capital markets are markets where equity securities and debt securities with maturities of greater than one year are traded.

Involves marketing and selling or leasing residential or commercial property.

The _________________ is primarily responsible for the amount of money that is created, although most of the money is actually created by depository institutions.

The principle of finance that "management objectives may differ from owner objectives" implies that owner returns may suffer as a result of manager objectives.

An area of finance that involves financial planning, asset management and fund-raising decisions to enhance the value of businesses is called:

Crucial elements of well-developed financial systems include all of the following except:

The principle of finance that "lower returns are expected for taking on less risk" implies that rational investors would choose a risky investment only if they feel the expected return is high enough to justify the greater risk.

The six principles of finance include all of the following except:

Some risk can be removed by investing in several different assets or securities.

If the interest rate is greater than 0%, then a dollar today is worth

_________________________________________ are crucial elements of the financial environment and well-developed financial systems.

___________________ are intermediaries, such as banks, insurance companies, and investment companies that engage in financial activities to aid the flow of funds from savers to borrowers or investors.