Finance, Banking, Securities, Investing, and Financial Literacy

Why is money referred to as a medium of exchange?

It makes economic transactions easier.

Who offers commercial paper loans?

Large banks and corporations

What type of short-term financing is available to borrowers and provides them with an amount of money they can borrow against and pay back at a certain interest rate for a certain period?

Line of credit

What is the definition of bonds?

Long-term IOUs issued by governments and corporations are contracts on which the issuer pays the buyer interest at regular intervals.

What type of loans are usually repaid over 3 to 20 years and require the borrower sign a promissory note indicating specific installments, have a good credit rating, have collateral, and pay a higher interest rate?

Long-term loans

Select all of the responsibilities of a financial manager.

Making sure that bills are paid Working to reduce the amount of taxes owed Monitoring the accounting department

From the following list, select all of the short-term financing options.

Pledging and factoring Trade credit

What is the term for selling stock only to a small group of large investors, such as insurance companies and pension funds?

Private placements

What is a form of trade credit that is a written contract prepared by a buyer who agrees to pay a seller a certain amount by a certain time?

Promissory note

From the following list, identify two ways of selling stocks.

Public offerings Private placements

From the following list, select all of the pieces of good advice for people who would like to borrow money from their family and friends.

Put the terms of the loan in writing. Make the repayment terms as specific as possible.

From the following list, identify all of the types of equity financing.

Receiving investment capital Retained earnings By selling stock

Which category of short-term financing does using a credit card fall into?

Short-term loans

Individuals who invest their own money in a private company in order to provide short-term financing are known as

angel

A loan in which the borrower pledges some sort of asset, such as personal property, that is forfeited if the loan is not repaid is called a(n)

secured loan

Equity financing is created by ______.

selling ownership in the company

In what denominations are Treasury bonds sold?

$1,000 and $5,000

Commercial paper loans are for amounts over ______.

$100,000

What time frame is appropriate for a financial plan? More than one answer may be correct.

1 month 7 years

In general, when do commercial paper loans become due?

30 to 90 days

Under trade credit, how long does a seller tend to give a buyer to pay an invoice?

30 to 90 days

Approximately how many U.S. small businesses receive loans from commercial banks?

50%

From the following list, select all of the items that could be used as collateral.

A building A diamond ring A motorcycle

In financial terms, what is a portfolio?

A collection of securities representing a person's investments

What is an exchange-trade fund?

A collection of stocks that is traded on an exchange and can be purchased or sold throughout the trading day

What is the best definition of an insurance company?

A company that accepts payments (called premiums) from policyholders

What is the best definition of a brokerage firm?

A company that buys and sells stocks and bonds for individuals

What is the total amount owed to a firm from customers who have purchased goods or services on credit called?

Accounts receivable

What is financial management?

Acquiring funds for a company and using them to accomplish the company's objectives

Which type of investor is least likely to pursue an investment for growth strategy?

An older investor relying on securities for an upcoming retirement

Which investor is following the buying and holding investment strategy?

Antonio, who bought stocks several years ago and is letting them grow in value

What are the four ways in which bonds may pay off?

As callable, serial, sinking-fund, or convertible bonds

Which activity is most central to the role of a financial manager?

Assessing the risk-return trade-off

Select all of the features and benefits of secured bonds.

Backed by collateral Pay interest to buyers at regular intervals

What are true statements about commercial bank lenders? More than one answer may be correct.

Bank of America and Chase are examples of commercial banks. Commercial lenders are popular sources of funding for small businesses.

Credit unions and commercial and savings institutions all fall under what category?

Banks

What are the main components of the banking system?

Banks and nonbank institutions

Select all of the types of investments that are suitable for income investment strategy.

Blue-chip stocks Bonds Preferred stock

From the following list, select all of the ways that commercial banks make money.

By charging interest on loans By charging fees for services By offering a variety of financial products

How is a stock's book value determined?

By dividing total shareholder equity by the number of shares issued or sold

Select all of the ways in which full-service brokers are different from discount brokers.

Charge higher commissions Offer additional services such as tax planning

Some banks offer home mortgages. What method of making money is this an example of?

Charging interest on loans

From the following list, select all the types of accounts that allow writing checks.

Checking Money market NOW

What is the difference between checking accounts and savings accounts?

Checking accounts allow check writing.

In an investment context, what is diversification?

Choosing securities in such a way that a loss in one investment will not have a devastating impact on the total portfolio

Which organizations make high-risk short-term loans to borrowers who can pledge collateral?

Commercial finance companies

Which of the following is a substitute for a bank loan?

Commercial paper

Which investment vehicle has the highest level of risk?

Commodities trading

Which type of bond offers long-term funding to businesses?

Corporate bonds

Which type of short-term loan is considered a last resort?

Credit card loans

What is the best definition of credit unions?

Depositor-owned, nonprofit financial cooperatives that offer a range of banking services to their members

How does a certificate of deposit work?

Depositors receive interest upon the maturity date.

Tanya is managing her company's finances. Select all of the activities that she would perform as part of her job duties.

Determining long-term investments Managing the firm's financial risks Establishing budgets and financial controls

Which stock index tracks 30 large corporations that are considered representative of the entire U.S. economy?

Dow Jones Industrial Average

Which source of long-term financing involves selling ownership in a company?

Equity financing

Which investment vehicle offers investors the most convenience and flexibility?

Exchange-traded funds

Select all of the services associated with a full-service broker.

Executing purchase or sales orders Helping investors plan for taxes Researching investment opportunities

Select all of the features and benefits of general obligation bonds.

Exempt from federal taxes on interest Pay for public projects that will not generate revenue

Select all of the features and benefits of revenue bonds.

Exempt from state taxes in some states. They pay for public projects that will generate revenue Exempt from federal taxes

What is bought and sold on secondary securities markets such as the New York Stock Exchange and the NASDAQ?

Existing securities

Select the two items that are balanced in the risk-return trade-off.

Expected payoff Investment risk

Select all of the characteristics necessary to succeed at a market timing investment strategy.

Familiarity with various analytical tools A strong stomach for risk Wealthy enough to pay fees for frequent trades

What is the main difference between a finance company and a brokerage firm?

Finance companies originate loans; brokerage firms buy and sell stocks.

What is the best definition of savings and loan associations?

Financial institutions that accept deposits and were originally intended to make loans primarily for home mortgages

What are securities?

Financial instruments such as stocks and bonds

What is the best definition of mutual savings banks?

For-profit financial institutions that are similar to savings and loan associations but are owned by their depositors rather than by shareholders

Which type of broker offers personal advice, brokerage research, and tax planning in addition to executing trades for clients?

Full-service

Which type of mutual fund focuses on stocks listed in the Standard & Poor's 500 or the Dow Jones Industrial Average?

Index fund

What is the definition of angel investors?

Individuals who invest their own money in a private company to provide short-term financing

What is the term for when a corporation's stock is offered for sale for the first time?

Initial public offering

What is the easiest way to minimize risk when investing?

Invest in mutual funds and exchange-traded funds

Which investment strategy is most closely associated with volatile securities?

Investing for growth

Which investment strategy is considered ideal for an older investor seeking reliable, long-term returns with low effort and a low level of risk?

Investing for income

What is considered the most difficult investment strategy?

Market timing

From the following list, select the fees that most checking accounts charge.

Monthly service fee Fees for exceeding the check writing limit Insufficient funds fee

Select all of the investment vehicles that are collections of stocks that are traded on an exchange.

Mutual funds Exchange-traded funds

Select all of the markets in which existing securities are bought and sold.

NASDAQ New York Stock Exchange

Which of these are true statements about borrowing from family and friends? More than one answer may be correct.

Owing money to family and friends can cause strain in those relationships. The terms of the loan are often informal.

What is a company that is solvent able to do?

Pay its debts

Why is money referred to as a store of wealth?

People can save it until they need to make new purchases.

What are investors who use an income investment strategy most interested in?

Reliable payouts of interest or dividends

Omar has received a loan that is guaranteed by the bank. Which type of short-term loan has he received?

Revolving credit agreement

What type of loan is guaranteed by a bank and obligates the bank to loan funds up to that limit?

Revolving credit agreement

Select the factors that help determine an investor profile.

Risk Asset allocation Liquidity

the BLANK securities market is the financial market in which existing stocks and bonds are bought and sold by investors.

Secondary

What type of bonds are backed by a firm's collateral?

Secured

Which type of financing involves collateral?

Secured loans

What is a disadvantage for corporations in issuing stock?

Stockholders may vote to change ownership of the company.

What distinguishes the Standard & Poor's 500 from the Dow Jones Industrial Average?

The S&P 500 weights stock prices to reflect the total market value of each stock.

What does profitability refer to?

The ability of a firm to earn more revenue than expense

What happens if a depositor tries to withdraw funds from a certificate of deposit before the maturity date?

The bank will charge a penalty.

What are true statements about pledging accounts receivable? More than one answer may be correct.

The firm is liable for the total amount of the loan. The company pledges its accounts receivable as collateral.

From the following list, select all of the items borrowers can use transaction loans to pay for.

The purchase of new computers for the office The construction of a new store The purchase of new inventory for an upcoming season

What type of loan is extended by a commercial bank or commercial finance company for a specific purpose?

Transaction loan

Yousef owns a pool supply company and he wants to stock up on pool floats for the upcoming summer swim season. What type of loan can Yousef acquire from a commercial bank or commercial finance company to do this?

Transaction loan

From the following list, select all of the major job titles associated with financial management.

Treasurer Controller

A BLANK bill is a short-term obligation of the U.S. Treasury that has a maturity period of one year or less and may be purchased directly from the U.S. government.

Treasury

Select all of the examples of government bonds.Select all of the examples of government bonds.

Treasury bonds Treasury notes

Which investment strategy seeks to purchase stocks that are underpriced in the market with the expectation that other investors will eventually drive up the price?

Value investing

Select all of the benefits of investing in mutual funds.

Varying degrees of risk Run by professional managers Many choices at an economical price

What is equity financing?

When corporations attempt to raise money by selling stock

If your company takes out a long-term loan, what are you likely to encounter?

Your company's credit rating will be checked.

An extremely active investor who makes frequent trades based on anticipated changes in the market value in the hope of earning a fast profit is using ______ investment strategy.

a market timing

A standard of value is ______.

a unit of account, or a common gauge to measure the value of goods and services

When a company sells stock to the general public for the first time, it is called ______.

an initial public offering

Money is defined as ______.

any medium of value that is generally accepted as payment for goods and services

Compared to the past, money today is more likely to ______.

be made of a cheap material that represents something of value

In the financial realm, solvency refers to ______.

being able to pay debts when they become due

Stocks sold by big, reputable companies are often called ______ stocks.

blue-chip

Total shareholder equity divided by the number of shares of a stock determines the stock's

book value

Major investments in tangible or intangible assets are known as

capital expenditures

Investors who sell a security for a price that is higher than what they paid for it have earned a(n)

capital gain

Forecasts that are directly based on anticipated sales and anticipated expenses are known as ______ forecasts.

cash flow

The top financial manager at a company is called the ______.

chief financial officer (CFO)

Assets that are pledged in order to secure a loan are known as

collateral

Stock that allows shareholders to vote on major company decisions but gives them last claim on dividends and company assets is called

common stock

Both types of corporate stocks have disadvantages. Owners of ______ stock are last in line for assets if the issuing company goes out of business, and owners of ______ are not able to vote on major company decisions.

common; preferred

Businesses can secure long-term funding by issuing

corporate bonds

The act of issuing bonds, both secured and unsecured, is known as

debt financing

E-Trade, Ameritrade, and TD Waterhouse are examples of ______ brokerages, which execute buy and sell orders for clients but do not offer investment advice or tax planning.

discount

Managing money effectively is called

efficiency

A(n) ______ offers investors a diversified array of investment vehicles along with low fees and the ability to trade throughout the trading day.

exchange-traded fund

A new investor who wants help with research and tax planning would be best suited by hiring a ______ broker.

full-service

When bonds are issued, the terms of the lending agreement are known as

indenture terms

When a corporation's stock is offered for sale for the first time, it is called a(n

initial public offering.

Large and powerful organizations, such as pension funds and insurance companies, investing their own or others' funds are known as

institutional investors

A company that accepts payments called premiums from policyholders is called a(n)

insurance company

The price paid for the use of money over a certain period is known as the

interest rate

Bonds that are considered ______-grade have a low probability of default.

investment

Companies, such as Goldman Sachs or Morgan Stanley, that engage in buying and reselling new securities are known as

investment bankers

A loan from commercial banks, life insurance companies, pension funds, or commercial finance companies that generally requires repayment in 3 to 7 years is a ______ loan.

long-term

The job of acquiring funds for a firm and using them to accomplish the firm's objectives is called financial

management

In the financial realm, efficiency refers to ______.

managing money in the optimum way

The BLANK value of a stock is the price at which the stock is currently selling.

market

The characteristic of money that means it makes economic transactions easier and eliminates the need to barter makes it a ______.

medium of exchange

A non-deposit institution that provides retirement benefits to workers and their families is called a(n)

pension funds

In the arrangement known as BLANK accounts receivable, a firm uses its accounts receivable as collateral, or security, to obtain a short-term loan, as from a commercial bank.

pledging

a collection of securities representing a person's investments.

portfolio

Which type of stock is most similar to a bond?

preferred stock

The ______ securities market is the financial market in which new securities are first sold to investors.

primary

The end goal of financial management is ______.

profitability

Accounts that pay low interest and do not allow check writing are known as

savings accounts

Bonds backed by some form of the firm's collateral, such as real estate or equipment, are known as

secured bonds

Most investment portfolios include ______, such as stocks and bonds.

securities

The four ways bonds may pay off correspond to callable bonds, sinking-fund bonds, convertible bonds, and

serial bonds

Financial securities that are sold on securities markets and represent shares of ownership in a company are known as

stocks

Money market instruments, bonds, and BLANK are the three types of securities.

stocks

The characteristic of money that means that people can save it until they need to make new purchases makes it a ______.

store of wealth

A promissory note indicating specific installments for repayment, such as monthly or yearly, is known as a ______.

term-loan agreement

On the primary securities market, issues are sold by ______, whereas on the secondary securities market, issues are sold by ______.

the issuing company; investors

What is the best definition of a finance company?

A company that makes short-term loans at higher interest rates to individuals or businesses

Which person is responsible for the day-to-day planning and control of the acquisition and uses of funds for a business?

A financial manager

What is the secondary securities market?

A financial market in which existing stocks and bonds are sold by investors

What is a mutual fund?

A fund in which an investment company pools money from many people to buy an array of diversified securities

What differentiates a Super-NOW account from a standard NOW account?

A higher interest rate

Finance and insurance companies are what type of institution?

A nonbank institution

What is the best definition of a pension fund?

A nondeposit institution that provides retirement benefits to workers and their families

What is a stock certificate?

A paper certificate representing a share of ownership in a company

What is a dividend?

A portion of a company's profits that is distributed to stockholders

What is a term-loan agreement?

A promissory note indicating specific installments, such as monthly or yearly, for repayment

What is a Treasury bill?

A short-term debt security sold directly by the U.S. government

Kim receives financing from a commercial finance company. What type of financing has she received?

A short-term loan

From the following list, select all of the nonbank institutions.

Brokerage firm Pension fund

What are the three parts of a financial plan?

Budget Financial control Forecast

Tony asks Eve, his finance manager, to develop a financial plan for the company. She develops a financial plan that allows managers to anticipate problems, coordinate activities of the business, and control operations. Which of the following terms describes Eve's plan?

Budgeting

What is venture capital?

Funds acquired from wealthy individuals and institutions that invest in promising start-ups or emerging companies in return for their giving up some ownership

Ahmed wants to purchase a new headquarters for his company. What kind of funds does Ahmed need?

Funds for making major investments

From the following list, select all of the requirements that are typically associated with long-term loans.

Good credit rating Collateral An increased interest rate compared to short-term loans

An IOU issued by the U.S. Treasury that matures in 25 years is an example of which type of security?

Government bond

The U.S. Treasury sells which type of bonds?

Government bonds

Select all of the features associated with growth stocks.

Highly volatile Issued by small, innovative companies

In the context of investing, what is a yield?

Income from securities

What is the name for companies that engage in buying and selling new securities?

Investment bankers

Which of the following is a benefit of mutual funds?

Investors do not have to do research or manage the investments themselves.

Which of these actions takes place as part of debt financing?

Issuing corporate bonds

How is a stock's par value determined?

It is set arbitrarily by the issuing company's board of directors.

Select all of the downsides of the value investment strategy.

It requires a significant amount of research and analysis. There is a small window of time in which stocks can be purchased for a good value.

Which type of firm is tracked by the Dow Jones Industrial Average?

Large U.S. corporations

What are institutional investors?

Large and powerful organizations that invest their own or others' funds

Select all of the features of common stock.

Last claim on the company's dividends Voting rights for major company decisions

From the following list, select all of the primary financial management activities.

Managing the company's financial risk Analyzing the company's cash flow

Which method of determining the value of a stock is based on the price at which the stock is currently selling?

Market value

Select the two valuation methods that investors can compare to determine when a stock is underpriced and should be purchased.

Market value Book value

Select all of the features and benefits of Treasury notes.

Mature in 10 years or less from the date of issue Pay the buyer interest at regular intervals Sold in minimum denominations of $100

Select all of the features and benefits of Treasury bonds.

Mature in 25 years or more Sold in denominations of $1,000 and $5,000 Pay interest at regular intervals

Select all of the features and benefits of corporate bonds.

May be backed by by pledges of assets to the bondholders Provide long-term funding for businesses Pay the buyer interest at regular intervals

From the following list, select the three functions of money.

Medium of exchange Store of wealth Standard of value

What is sold in a primary securities market?

New security issues

What is the difference between a commercial bank and a nonbank?

Nonbanks traditionally did not accept deposits.

From the following list, select all of the characteristics of money market accounts.

Offer competitive interest rates Limit check writing Require high minimum balances

Select all of the differences between short- and long-term forecasts.

One is measured in months, while the other is measured in years. They have different timelines.

What is the main difference between savings and loan associations and mutual savings banks?

One is owned by shareholders; the other is owned by depositors.

Select all of the characteristics of an investor for whom a buying and holding investment strategy is ideal.

Patient enough to ride out any downturns in the market Not interested in watching stock values on a day-to-day basis Young enough to invest for the long term

Which considerations should a borrower keep in mind when using credit cards? More than one answer may be correct.

Penalties for late payments can be costly. Interest rates can be high.

To whom do lenders make unsecured loans?

People whom they have known for a very long time

Which of these is a primary financial management activity?

Planning the expenditure of funds

Select the two ways firms can make use of their accounts receivable to generate short-term funds.

Pledging Factoring

Thousands of dollars can be carried in the form of a small credit card. Which of the five characteristics of money does this represent?

Portability

Which item was commonly used as money in the distant past and is still used today?

Precious metals such as silver and gold

What do general obligation bonds pay for?

Public projects that will not generate revenue

What are stocks?

Shares of ownership in a company

Xavier's forecast takes into account the next 8 to 9 months. What kind of forecast is it?

Short-term

Which type of forecasts are defined as predictions for the next year or less?

Short-term forecasts

Which stock index tracks 400 industrial, 40 financial, 40 public utility, and 20 transportation stocks?

Standard & Poor's 500

Select all of the advantages to corporations in issuing stock.

Stockholders do not have to be repaid for their investment. Earnings can be reinvested because the firm is not required to pay dividends. The corporation shares its ownership but does not increase its debt.

Select all of the features of preferred stock.

Stockholders have first claim on company dividends. Stockholders are not allowed to vote on most company decisions. The dividend that stockholders receive is fixed.

What are true statements about factoring accounts receivable? More than one answer may be correct.

The buyer of the accounts receivable is generally a financial institution. The company sells its accounts receivable at a discount. It is an expensive way to acquire short-term funds.

What must occur for an investor to earn a capital gain?

The investor must sell a security for a price higher than the original purchase price.

What is a net period?

The length of time for which the supplier (the seller) extends trade credit

Who pays interest on a loan?

The person borrowing the money

What is used to back unsecured bonds?

The reputation of the issuing firm

Select all of the features and benefits of unsecured bonds.

They pay the buyer interest at regular intervals. They are backed only by the issuing company's reputation.

What are true statements about commercial finance companies? More than one answer may be correct.

They require borrowers to pledge collateral. They charge high interest rates to borrowers. They make high-risk short-term loans.

Why do mutual funds and exchange-traded funds carry the lowest level of risk?

They spread an investor's risk across a collection of securities.

From the following list, select all of the characteristics of savings accounts.

Time deposits Low interest rates

From the following list, select all of the reasons why firms borrow money.

To keep enough inventory available To make major investments To manage everyday business activities

If a company is unable to obtain a long-term loan, it may try to issue corporate ______, contracts between the issuer and the buyer in which the purchase price represents a loan by the buyer and for which the issuing firm pays the buyer interest.

bonds

A company that buys and sells stocks and bonds for individuals and competes with banks by offering high-interest-rate combination checking-and-savings accounts is called a(n)

brokerage firms

Investing in securities and leaving them alone to gain value over a period of several years is known as a(n) ______ strategy.

buying and holding

Depositor-owned, nonprofit financial cooperatives that offer a range of banking services to their members are known as

credit unions

The practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet, is known as

crowdfunding

Unsecured bonds, which are backed only by the issuing company's reputation, are also known as

debenture bonds

Corporations can demonstrate a strong financial position and make the stock more appealing by issuing BLANK , or part of the company's profits, to stockholders.

dividends

In the arrangement known as BLANK accounts receivable, a firm sells its accounts receivable at a discount to a financial institution.

factoring

A company that makes short-term loans at higher interest rates to individuals or businesses is called a(n)

finance company

Any medium of value that is generally accepted as payment for goods and services is known as

money

Accounts that pay brokerage-competitive interest and offer some check writing are known as

money market accounts

A fund operated by an investment company that brings together money from many people and invests it in an array of diversified stocks, bonds, or other securities is known as a(n)

mutual fund

For-profit financial institutions that are similar to savings and loan associations but are owned by their depositors rather than by shareholders are known as

mutual savings banks

The length of time for which the supplier (the seller) extends credit is known as the

net period

The main components of the banking system are banks and

nonbanks

Public offerings involve ______.

selling stock to the general public in securities markets

When a company uses private placements, it ______.

sells stock to only a small group of large investors such as insurance companies and pension funds

When money acts as a common way to measure the value of goods and services, it is acting as a ______.

standard of value

Crowdfunding is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via ______.

the Internet

Indenture terms refer to the terms of ______.

the lending agreement associated with bonds

The process by which a firm buys a product, then receives a bill (an invoice) from the supplier, then pays it later, usually in 30 to 90 days, is known as a

trade credit

A loan in which the borrower does not post collateral is known as a(n)

unsecured loan

Money acquired from wealthy individuals and institutions that invest in promising start-ups or emerging companies and often provide management expertise in return for some ownership is called ______.

venture capital

The regular payout of interest or dividends from a security is called the security's

yield