Ramon Magsaysay Memorial Colleges

College of Accountancy

Document Name: Chapter 1 Quiz Subject: Fin11-FinMarkets

Instructor: Erma A. Monterde-Caseñas, CPA Date: July 16, 2018

Guidelines and General Instruction:

 No extra papers allowed during the test you may use the test paper and (or) the scratch paper provided for your solving.
 Mobile phones and other gadgets should be set in a silent mode.
 You are not allowed to go out if you haven’t passed your answer sheets.
 You cannot alter your answers once you have already handed your answer sheets to the proctor.
 ERASURES, ALTERATIONS, and/or MODIFICATIONS of answers would be considered wrong.
 STRICTLY NO CHEATING! Once caught cheating will automatically receive a failing grade in the subject.

Name:

1. Which of the following are not considered depository 6. Those participants who receive more money than they
financial institutions? spend are referred to as
a. finance companies a. deficit units.
b. commercial banks b. surplus units.
c. savings institutions c. borrowing units.
d. credit unions d. government units.
e. All of the above are depository financial institutions.
7. Equity securities
2. The main source of funds for ____ is proceeds from a. have a maturity.
selling securities to households and businesses, while b. pay interest on a periodic basis.
their main use of funds is providing loans to households c. represent ownership in the issuer.
and businesses. d. repay the principal amount at maturity.
a. savings institutions
b. commercial banks 8. There is a ____ relationship between the risk of a security
c. mutual funds and the expected return from investing in the security.
d. finance companies a. positive
e. pension funds b. negative
c. indeterminable
3. Which of the following statements is incorrect? d. none of the above
a. Financial markets attract funds from investors and
channel the funds to corporations. 9. The main reason that depository institutions experienced
b. Money markets enable corporations to borrow funds financial problems during the credit crisis was their
on a short-term basis so that they can support their investment in:
existing operations. a. mortgages.
c. Financial institutions serve solely as intermediaries b. money market securities.
with the financial markets and never serve as c. stock.
investors. d. Treasury bonds.
d. Investors seek to invest their funds in the stock of
firms that are presently undervalued and have much 10. Financial markets facilitating the flow of short-term
potential to improve. funds with maturities of less than one year are known as
a. secondary markets.
4. Which of the following is not a typical money market b. capital markets.
security? c. primary markets.
a. Treasury bills d. money markets.
b. Treasury bonds e. none of the above
c. Commercial paper
d. Negotiable certificates of deposit 11. Which of the following transactions would not be
considered a secondary market transaction?
5. Which of the following is not a reason why depository a. An individual investor purchases some existing shares of
financial institutions are popular? stock in IBM through his broker.
a. They offer deposit accounts that can accommodate b. An institutional investor sells some Disney stock through
the amount and liquidity characteristics desired by its broker.
most surplus units. c. A firm that was privately held engages in an offering of
b. They repackage funds received from deposits to stock to the public.
provide loans of the size and maturity desired by d. All of the above are secondary market transactions.
deficit units.
c. They accept the risk on loans provided. 12. ____ maintain a larger amount of assets in aggregate than
d. They use their information resources to act as a the other types of nondepository institutions.
broker, executing securities transactions between two a. Finance companies
parties. b. Mutual funds
e. They have more expertise than individual surplus c. Life insurance companies
units in evaluating the creditworthiness of deficit d. Securities firms
units.
13. A common use of funds for ____ is investment in 22. Equity securities have a ____ expected return than most
stocks and businesses, while their main use of funds is long-term debt securities, and they exhibit a ____ degree of
providing loans to households and businesses. risk.
a. savings institutions a. higher; higher
b. commercial banks b. lower; lower
c. mutual funds c. lower; higher
d. finance companies d. higher; lower
14. Long-term debt securities tend to have a ____ expected
return and ____ risk than money market securities. 23. Money market securities generally have ____. Capital
a. lower; lower market securities are typically expected to have a ____.
b. lower; higher a. less liquidity; higher annualized return
c. higher; lower b. more liquidity; lower annualized return
d. higher; higher c. less liquidity; lower annualized return
d. more liquidity; higher annualized return
15. A five-year security was purchased two years ago by an
investor who plans to resell it. The security will be sold
24. If security prices fully reflect all available information, the
by the investor in the so-called
markets for these securities are
a. secondary market.
a. efficient.
b. primary market.
b. primary.
c. deficit market.
c. overvalued.
d. surplus market.
d. undervalued.
16. ____ obtain funds by issuing securities, then lend the
25. Funds are provided to the initial issuer of securities in
funds to individuals and small businesses.
the
a. Finance companies
a. secondary market.
b. Securities firms
b. primary market.
c. Mutual funds
c. deficit market.
d. Insurance companies
d. surplus market.
17. Households with ____ are served by ____.
a. deficient funds; depository institutions and finance
companies
FIN11-CH1 ANSWER SHEET
b. deficient funds; finance companies only
c. savings; finance companies only
d. savings; pension funds and finance companies
Score:
18. ____ concentrate on mortgage loans.
a. Finance companies
b. Commercial banks
c. Savings institutions
d. Credit unions

19. ____ securities have a maturity of one year or less; Name:

____ securities are generally more liquid.
a. Money market; capital market
b. Money market; money market
c. Capital market; money market
d. Capital market; capital market

20. Which of the following distinguishes credit unions from

commercial banks and savings institutions?
a. Credit unions are non-profit
b. Credit unions accept deposits but do not make loans
c. Credit unions make loans but do not accept deposits
d. Savings institutions restrict their business to
members who share a common bond

21. When a securities firm acts as a broker, it

a. guarantees the issuer a specific price for newly issued
securities.
b. makes a market in specific securities by adjusting its
own inventory.
c. executes transactions between two parties.
d. purchases securities for its own account.