-
web.groovymark@gmail.com
- November 27, 2024
Question 21
A local start-up company just hit its five-year anniversary and is planning an initial public offering sometime this year. In order to issue public stock, which market will the company use?
a) Secondary market
b) Primary market
c) Derivatives market
d) Private equity market
Correct Answer: b) Primary market
Explanation: When a company issues stock to the public for the first time, it is done through the primary market to raise capital directly from investors.
Question 22
What is a depository institution?
a) An institution that accepts and pays interest on deposits of money, as well as extends loans
b) A firm that buys stocks
c) A company that only sells insurance policies
d) An institution that deals solely with foreign exchange transactions
Correct Answer: a) An institution that accepts and pays interest on deposits of money, as well as extends loans
Explanation: Depository institutions, such as banks and credit unions, accept deposits from the public and provide loans, often with interest, as part of their services.
Question 23
What is the primary role of financial institutions?
a) To engage in trading physical goods
b) To conduct financial transactions such as investments, loans, and deposits
c) To only serve high-net-worth individuals
d) To facilitate international trade agreements
Correct Answer: b) To conduct financial transactions such as investments, loans, and deposits
Explanation: Financial institutions primarily engage in transactions related to investments, loans, and deposits, facilitating the movement of capital and resources in the economy.
Question 24
Which financial institution deals mainly with providing for retirement through employers?
a) Investment bank
b) Central bank
c) Pension fund
d) Credit union
Correct Answer: c) Pension fund
Explanation: Pension funds focus on providing retirement savings and income for employees through employers, investing in various financial instruments to generate returns for future payouts.
Question 25
How do insurance companies pay policyholders when a claim is made?
a) They withdraw funds directly from the policyholder’s savings
b) They use returns from stocks and bonds
c) They generate the payout from new premiums
d) They sell the policyholder’s assets
Correct Answer: b) They use returns from stocks and bonds
Explanation: Insurance companies typically invest premiums into financial instruments like stocks and bonds, and they use the returns from these investments to pay out claims.
Question 26
Which financial institution ensures that a nation’s economy remains healthy by controlling the amount of money circulating in the economy?
a) Central bank
b) Investment bank
c) Commercial bank
d) Mutual fund
Correct Answer: a) Central bank
Explanation: Central banks regulate the money supply and influence interest rates to maintain a healthy economy, with the goal of controlling inflation and unemployment
Question 27
What are the three types of economic indicators?
a) Investment, savings, and capital
b) Leading, lagging, and coincident
c) Primary, secondary, and tertiary
d) Consumer, producer, and market
Correct Answer: b) Leading, lagging, and coincident
Explanation: Economic indicators are classified into three types: leading (predicting future economic activity), lagging (following economic activity), and coincident (reflecting the current state of the economy).
Question 28
Unemployment rate is which type of economic indicator?
a) Leading
b) Coincident
c) Lagging
d) Forecast
Correct Answer: c) Lagging
Explanation: The unemployment rate is considered a lagging indicator because it reflects economic conditions after they have occurred, such as after a downturn or recovery.
Question 29
The Federal Reserve sometimes adjusts the interest rate at which commercial banks can borrow from it. What is the purpose of adjusting the interest rate?
a) To increase profits for commercial banks
b) To regulate inflation and unemployment
c) To decrease the value of the dollar
d) To increase exports
Correct Answer: b) To regulate inflation and unemployment
Explanation: Adjusting interest rates allows central banks to control inflation and influence employment by making borrowing either more or less expensive, impacting economic activity.
Question 30
What would an inverted yield curve signal?
a) It may indicate an economic downturn
b) It signals a booming economy
c) It means the central bank is raising interest rates
d) It shows that inflation is out of control
Correct Answer: a) It may indicate an economic downturn
Explanation: An inverted yield curve, where long-term interest rates are lower than short-term rates, often suggests that investors expect slower economic growth or a recession.
Question 31
In what way are coincident indicators useful?
a) They predict the future economic conditions
b) They provide information about past performance
c) They are analyzed during economic shifts to provide information about the current state of the economy
d) They focus on long-term economic trends
Correct Answer: c) They are analyzed during economic shifts to provide information about the current state of the economy
Explanation: Coincident indicators give real-time insights into the current economic situation, such as industrial production and employment levels.
Question 32
Which responsibility is a focus of the U.S. Securities and Exchange Commission (SEC)?
a) To enforce trade laws between nations
b) To regulate foreign exchange rates
c) To protect investors
d) To set consumer protection laws
Correct Answer: c) To protect investors
Explanation: The SEC ensures transparency, fairness, and protection for investors in the financial markets by enforcing regulations and laws.
Question 33
What characterises an ethical action?
a) An ethical action is based on accepted standards of conduct
b) An ethical action always benefits the individual performing it
c) An ethical action disregards public opinion
d) An ethical action is guided solely by legal requirements
Correct Answer: a) An ethical action is based on accepted standards of conduct
Explanation: Ethical actions align with widely accepted standards of morality and conduct, often transcending legal obligations.
Question 34
What term reflects a person’s beliefs about right and wrong, good and bad, or just and unjust?
a) Legal
b) Moral
c) Ethical
d) Professional
Correct Answer: b) Moral
Explanation: Morals are personal beliefs about what is right, wrong, good, or unjust, and they guide individual behaviour.
Question 35
The system of recording, reporting, and summarizing past financial information and transactions is known as what?
a) Finance
b) Management
c) Accounting
d) Auditing
Correct Answer: c) Accounting
Explanation: Accounting involves systematically recording, summarising, and reporting financial transactions of a business or entity.
Question 36
What does the accounts receivable turnover (AR turnover) ratio measure?
a) How fast a company collects on its sales
b) The total revenue of a company
c) The company’s net income
d) The overall liquidity of a company
Correct Answer: a) How fast a company collects on its sales
Explanation: The AR turnover ratio measures how efficiently a company collects receivables from its customers, indicating the speed of its cash flow.
Question 37
What type of ratio measures how well a company uses its assets to generate sales or cash?
a) Leverage ratios
b) Activity ratios
c) Liquidity ratios
d) Profitability ratios
Correct Answer: b) Activity ratios
Explanation: Activity ratios assess a company's operational efficiency by examining how well it uses its assets to generate revenue.
Question 38
What does a company need when it requires additional financing for future growth?
a) Increased stock dividends
b) Additional funds needed (AFN)
c) Lower interest rates
d) Higher profit margins
Correct Answer: b) Additional funds needed (AFN)
Explanation: AFN refers to the additional financing a company needs to support its expected growth, often raised through debt or equity.
Question 39
What does the term “agency cost” refer to?
a) The cost associated with legal expenses in a firm
b) Costs that arise when management does not act in the best interest of shareholders
c) The cost of acquiring new customers
d) The costs of issuing new stock
Correct Answer: b) Costs that arise when management does not act in the best interest of shareholders
Explanation: Agency costs occur when there is a conflict between management and shareholders, often leading to inefficiencies and additional costs.
Question 40
What is a bond covenant that describes actions the company pledges to take in order to protect bondholders?
a) Restrictive covenants
b) Affirmative covenants
c) Investment covenants
d) Yield covenants
Correct Answer: b) Affirmative covenants
Explanation: Affirmative covenants are terms in a bond contract that outline actions the issuer agrees to take, such as maintaining certain financial ratios, to protect the bondholders' interests.
