Ch01
Student: ___________________________________________________________________________
1. Both real and financial assets have four principal attributes that are significant factors in the investment
decision process. These are:
I. liquidity
II. capital gain
III. risk
IV. return or yield
V. time pattern of future cash flows
VI. price and cash flow volatility
A. I, II, III, IV
B. I, III, IV, V
C. I, III, IV, VI
D. II, III, IV, V
2. The exchange of goods and services is made more efficient by:
A. barter
B. money
C. governments
D. some combination of government transfer and barter
3. A nation state that has only a barter system has high transaction costs because:
A. the difficulties of trade result in high legal costs because of the contracts required
B. traders must spend quite a bit of time looking for trading partners
C. taxes under this system consume a large amount of output
D. the difficulties of trade require high insurance premiums
4. The term ‘medium of exchange' for money refers to its use as:
A. coinage
B. currency
C. anything that is widely accepted as payment for goods and services
D. any standard of value that prices can be expressed in
5. The role of money as a store of value refers to:
A. the value of money falling only when the money supply falls
B. the value of money falling only when the money supply increases
C. the fact that money allows worth to be stored readily
D. the fact that money never loses its value compared with other assets
6. Money increases economic growth by assisting transfers from:
A. consumers to investors
B. savers to borrowers
C. businesses to consumers
D. borrowers to investors
7. Financial markets have developed to facilitate the exchange of money between savers and borrowers.
Which of the following is NOT a function of money?
A. A store of value
B. A medium of exchange for settling economic transactions
C. A claim to future cash flows
D. Short-term protection against inflation
,8. Buyers of financial claims lend their excess funds as they:
A. expect to borrow extra funds in the future
B. want surplus funds in the future
C. want to invest in the future
D. want to increase their costs relative to their incomes
9. Sellers of financial claims promise to pay back borrowed funds:
A. by borrowing extra funds in the future
B. based on their expectation of having surplus funds in the future
C. by selling other assets
D. by reducing their costs relative to their incomes
10. A savings-surplus unit is an entity:
A. that needs to borrow funds from a surplus unit
B. whose income exceeds its spending
C. whose spending exceeds its income
D. called a company
11. The process of facilitating the flow of funds between borrowers and lenders performed by the financial
system:
A. is hindered by the problem of ‘double coincidence of wants'
B. greatly reduces the probability of inflation
C. increases the rate of economic growth of a country
D. occurs only through financial intermediaries
12. Which of the following is NOT associated with characteristics of shares?
A. Part ownership of a company
B. Capital gains
C. A fixed interest payment
D. Dividends
13. A financial institution that obtains most of its funds from deposits is a/an:
A. investment bank
B. unit trust
C. commercial bank
D. general insurer
14. Institutions that specialise in off-balance-sheet advisory services are called:
A. depository financial institutions
B. contractual institutions
C. finance companies
D. investment banks
15. A financial intermediary that receives premium payments that are used to purchase assets to cover future
possible payments is a:
A. building society
B. credit union
C. savings bank
D. D: life insurance office
16. Financial institutions, whose liabilities specify that, in return for the payment of periodic funds to the
institution, the institution will make payments in the future, if and when a specified event occurs, are:
A. money market corporations
B. unit trusts
C. contractual savings institutions
D. depository financial institutions
,17. Financial institutions that raise the majority of their funds by selling securities in the money markets
are:
A. commercial banks
B. building societies
C. finance companies
D. life insurance offices
18. Which of the following is NOT a term associated with shares?
A. Residual
B. Ownership
C. Voting rights
D. Contractual claim
19. Which of the following is NOT a characteristic commonly associated with preference shares?
A. A specified, fixed return
B. No voting rights
C. Higher ranking than bond holders on claims on assets
D. No entitlement to take possession of assets if the borrower defaults on payment
20. Long-term debt financing instruments used by companies are called:
A. bills
B. debentures
C. shares
D. equities
21. Which of the following is NOT associated with features of debt instruments?
A. A contractual claim against the borrower
B. Periodic interest payments
C. Higher claim on assets of borrower than equity holders
D. Their prices do not fluctuate as much as shares
22. Which of the following is NOT a feature of futures contracts?
A. They involve an obligation to buy or sell a specified amount.
B. Trading of contracts occurs on an exchange.
C. The contract price is settled at the end of the contract.
D. Trading an opposite contract usually closes out the contract.
23. Which of the following is NOT a feature of forward contracts?
A. They are not standardised.
B. They do not trade on organised exchanges.
C. The contract price may be settled at the end of the contract.
D. They are closed out by trading an opposite contract.
24. Which of the following is NOT a feature of option contracts?
A. When the buyer does not have an obligation to proceed with the contract.
B. When the writer of the contract receives a fee.
C. When the price of the designated asset is determined at the beginning of the contract.
D. When the right to buy is called a put option.
25. Which of the following is NOT a feature of swaps?
A. When there is a contractual arrangement to exchange cash flows.
B. When interest rate swaps exchange principal at the beginning and the end.
C. When a fixed rate obligation may be exchanged for a variable rate obligation.
D. When a swap can involve currencies as well.
, 26. The key reason for the existence of markets of financial assets is:
A. that holders of shares occasionally want to exchange them for bonds and other financial instruments
B. the high expenditure for many individuals and businesses
C. that the lack of money in an economy makes trade in financial assets necessary
D. the refusal of most modern governments to print money on demand
27. Financial markets:
A. facilitate the exchange of financial assets
B. provide information about prices of financial assets
C. provide a channel for funds to flow between the providers and users of funds
D. All of the given answers.
28. The most important function of a financial market is to:
A. provide information about shares
B. provide a market for shares
C. facilitate the flow of funds between lenders and borrowers
D. provide employment for brokers and agents
29. 29: Financial markets:
A. act as intermediaries by holding a collection of assets and issuing claims based on them to savers
B. issue claims on future cash flows of individual borrowers directly to lenders
C. transmit funds indirectly between lenders and borrowers
D. usually provide lenders with lower returns than other financial intermediaries
30. A primary financial market is one that:
A. offers financial assets with the highest expected return
B. offers the greatest number of financial assets
C. involves the sale of financial assets for the first time
D. offers financial assets with the highest historical return
31. Purchasing unsecured notes on the Australian Securities Exchange is an example of:
A. a primary market transaction
B. companies raising finance from another financial intermediary
C. companies raising new finance
D. a secondary market transaction
32. When a security is sold in the financial markets for the first time:
A. funds flow from the saver to the issuer
B. funds flow from the borrower to the saver
C. it represents a secondary transaction to the underwriter
D. it is an asset for the borrower
33. Which of the following is NOT an example of primary market transactions?
A. A company issue of shares to raise funds for an investment project.
B. A government issue of bonds.
C. A mortgage bond.
D. A mortgage loan to buy a house.
34. A ‘primary market' is a market:
A. only for equity issues by major or ‘primary' companies
B. where borrowers sell new financial instruments to buyers
C. where savers sell new financial claims to borrowers
D. where government securities are bought and sold
35. Buying bonds in the long-term debt market is an example of:
A. a secondary market transaction
B. a primary market transaction
C. companies raising new funds
D. companies raising funds from a secondary source
Student: ___________________________________________________________________________
1. Both real and financial assets have four principal attributes that are significant factors in the investment
decision process. These are:
I. liquidity
II. capital gain
III. risk
IV. return or yield
V. time pattern of future cash flows
VI. price and cash flow volatility
A. I, II, III, IV
B. I, III, IV, V
C. I, III, IV, VI
D. II, III, IV, V
2. The exchange of goods and services is made more efficient by:
A. barter
B. money
C. governments
D. some combination of government transfer and barter
3. A nation state that has only a barter system has high transaction costs because:
A. the difficulties of trade result in high legal costs because of the contracts required
B. traders must spend quite a bit of time looking for trading partners
C. taxes under this system consume a large amount of output
D. the difficulties of trade require high insurance premiums
4. The term ‘medium of exchange' for money refers to its use as:
A. coinage
B. currency
C. anything that is widely accepted as payment for goods and services
D. any standard of value that prices can be expressed in
5. The role of money as a store of value refers to:
A. the value of money falling only when the money supply falls
B. the value of money falling only when the money supply increases
C. the fact that money allows worth to be stored readily
D. the fact that money never loses its value compared with other assets
6. Money increases economic growth by assisting transfers from:
A. consumers to investors
B. savers to borrowers
C. businesses to consumers
D. borrowers to investors
7. Financial markets have developed to facilitate the exchange of money between savers and borrowers.
Which of the following is NOT a function of money?
A. A store of value
B. A medium of exchange for settling economic transactions
C. A claim to future cash flows
D. Short-term protection against inflation
,8. Buyers of financial claims lend their excess funds as they:
A. expect to borrow extra funds in the future
B. want surplus funds in the future
C. want to invest in the future
D. want to increase their costs relative to their incomes
9. Sellers of financial claims promise to pay back borrowed funds:
A. by borrowing extra funds in the future
B. based on their expectation of having surplus funds in the future
C. by selling other assets
D. by reducing their costs relative to their incomes
10. A savings-surplus unit is an entity:
A. that needs to borrow funds from a surplus unit
B. whose income exceeds its spending
C. whose spending exceeds its income
D. called a company
11. The process of facilitating the flow of funds between borrowers and lenders performed by the financial
system:
A. is hindered by the problem of ‘double coincidence of wants'
B. greatly reduces the probability of inflation
C. increases the rate of economic growth of a country
D. occurs only through financial intermediaries
12. Which of the following is NOT associated with characteristics of shares?
A. Part ownership of a company
B. Capital gains
C. A fixed interest payment
D. Dividends
13. A financial institution that obtains most of its funds from deposits is a/an:
A. investment bank
B. unit trust
C. commercial bank
D. general insurer
14. Institutions that specialise in off-balance-sheet advisory services are called:
A. depository financial institutions
B. contractual institutions
C. finance companies
D. investment banks
15. A financial intermediary that receives premium payments that are used to purchase assets to cover future
possible payments is a:
A. building society
B. credit union
C. savings bank
D. D: life insurance office
16. Financial institutions, whose liabilities specify that, in return for the payment of periodic funds to the
institution, the institution will make payments in the future, if and when a specified event occurs, are:
A. money market corporations
B. unit trusts
C. contractual savings institutions
D. depository financial institutions
,17. Financial institutions that raise the majority of their funds by selling securities in the money markets
are:
A. commercial banks
B. building societies
C. finance companies
D. life insurance offices
18. Which of the following is NOT a term associated with shares?
A. Residual
B. Ownership
C. Voting rights
D. Contractual claim
19. Which of the following is NOT a characteristic commonly associated with preference shares?
A. A specified, fixed return
B. No voting rights
C. Higher ranking than bond holders on claims on assets
D. No entitlement to take possession of assets if the borrower defaults on payment
20. Long-term debt financing instruments used by companies are called:
A. bills
B. debentures
C. shares
D. equities
21. Which of the following is NOT associated with features of debt instruments?
A. A contractual claim against the borrower
B. Periodic interest payments
C. Higher claim on assets of borrower than equity holders
D. Their prices do not fluctuate as much as shares
22. Which of the following is NOT a feature of futures contracts?
A. They involve an obligation to buy or sell a specified amount.
B. Trading of contracts occurs on an exchange.
C. The contract price is settled at the end of the contract.
D. Trading an opposite contract usually closes out the contract.
23. Which of the following is NOT a feature of forward contracts?
A. They are not standardised.
B. They do not trade on organised exchanges.
C. The contract price may be settled at the end of the contract.
D. They are closed out by trading an opposite contract.
24. Which of the following is NOT a feature of option contracts?
A. When the buyer does not have an obligation to proceed with the contract.
B. When the writer of the contract receives a fee.
C. When the price of the designated asset is determined at the beginning of the contract.
D. When the right to buy is called a put option.
25. Which of the following is NOT a feature of swaps?
A. When there is a contractual arrangement to exchange cash flows.
B. When interest rate swaps exchange principal at the beginning and the end.
C. When a fixed rate obligation may be exchanged for a variable rate obligation.
D. When a swap can involve currencies as well.
, 26. The key reason for the existence of markets of financial assets is:
A. that holders of shares occasionally want to exchange them for bonds and other financial instruments
B. the high expenditure for many individuals and businesses
C. that the lack of money in an economy makes trade in financial assets necessary
D. the refusal of most modern governments to print money on demand
27. Financial markets:
A. facilitate the exchange of financial assets
B. provide information about prices of financial assets
C. provide a channel for funds to flow between the providers and users of funds
D. All of the given answers.
28. The most important function of a financial market is to:
A. provide information about shares
B. provide a market for shares
C. facilitate the flow of funds between lenders and borrowers
D. provide employment for brokers and agents
29. 29: Financial markets:
A. act as intermediaries by holding a collection of assets and issuing claims based on them to savers
B. issue claims on future cash flows of individual borrowers directly to lenders
C. transmit funds indirectly between lenders and borrowers
D. usually provide lenders with lower returns than other financial intermediaries
30. A primary financial market is one that:
A. offers financial assets with the highest expected return
B. offers the greatest number of financial assets
C. involves the sale of financial assets for the first time
D. offers financial assets with the highest historical return
31. Purchasing unsecured notes on the Australian Securities Exchange is an example of:
A. a primary market transaction
B. companies raising finance from another financial intermediary
C. companies raising new finance
D. a secondary market transaction
32. When a security is sold in the financial markets for the first time:
A. funds flow from the saver to the issuer
B. funds flow from the borrower to the saver
C. it represents a secondary transaction to the underwriter
D. it is an asset for the borrower
33. Which of the following is NOT an example of primary market transactions?
A. A company issue of shares to raise funds for an investment project.
B. A government issue of bonds.
C. A mortgage bond.
D. A mortgage loan to buy a house.
34. A ‘primary market' is a market:
A. only for equity issues by major or ‘primary' companies
B. where borrowers sell new financial instruments to buyers
C. where savers sell new financial claims to borrowers
D. where government securities are bought and sold
35. Buying bonds in the long-term debt market is an example of:
A. a secondary market transaction
B. a primary market transaction
C. companies raising new funds
D. companies raising funds from a secondary source
