FIN 200 CHAPTER 1 EXAM QUESTIONS
AND ANSWERS ALL CORRECT
The bond markets are important because
A) they are easily the most widely followed financial markets in the United States.
B) they are the markets where interest rates are determined.
C) they are the markets where foreign exchange rates are determined.
D) all of the above. - Answer- B
Interest rates are important to financial institutions since an interest rate increase
________ the cost of acquiring funds and ________ the income from assets.
A) decreases; decreases
B) increases; increases
C) decreases; increases
D) increases; decreases - Answer- B
Typically, increasing interest rates
A) discourages individuals from saving.
B) discourages corporate investments.
C) encourages corporate expansion.
D) encourages corporate borrowing. - Answer- B
Compared to interest rates on long-term U.S. government bonds, interest rates on
________ fluctuate more and are lower on average.
A) medium-quality corporate bonds
B) low-quality corporate bonds
C) high-quality corporate bonds
D) three-month Treasury bills - Answer-
Compared to interest rates on long-term U.S. government bonds, interest rates on
________ fluctuate more and are lower on average.
A) medium-quality corporate bonds
B) low-quality corporate bonds
C) high-quality corporate bonds
D) three-month Treasury bills
E) none of the above - Answer- D
Compared to interest rates on long-term U.S. government bonds, interest rates on
three-month Treasury bills fluctuate ________ and are ________ on average.
, A) more; lower
B) less; lower
C) more; higher
D) less; higher - Answer- A
The stock market is important because
A) it is where interest rates are determined.
B) it is the most widely followed financial market in the United States.
C) it is where foreign exchange rates are determined.
D) all of the above. - Answer- B
Stock prices since the 1980s have been
A) relatively stable, trending upward at a steady pace.
B) relatively stable, trending downward at a moderate rate.
C) extremely volatile.
D) unstable, trending downward at a moderate rate. - Answer- C
The largest one-day drop in the history of the American stock markets occurred in
A) 1929.
B) 1987.
C) 2000.
D) 2001. - Answer- B
A declining stock market index due to lower share prices
A) reduces people's wealth and as a result may reduce their willingness to spend.
B) increases people's wealth and as a result may increase their willingness to spend.
C) decreases the amount of funds that business firms can raise by selling newly issued
stock.
D) both A and C of the above.
E) both B and C of the above. - Answer- D
Changes in stock prices
A) affect people's wealth and their willingness to spend.
B) affect firms' decisions to sell stock to finance investment spending.
C) are characterized by considerable fluctuations.
D) all of the above.
E) only A and B of the above. - Answer- D
(I) Debt markets are often referred to generically as the bond market.
(II) A bond is a security that is a claim on the earnings and assets of a corporation.
A) (I) is true, (II) false.
B) (I) is false, (II) true.
C) Both are true.
D) Both are false. - Answer- A
AND ANSWERS ALL CORRECT
The bond markets are important because
A) they are easily the most widely followed financial markets in the United States.
B) they are the markets where interest rates are determined.
C) they are the markets where foreign exchange rates are determined.
D) all of the above. - Answer- B
Interest rates are important to financial institutions since an interest rate increase
________ the cost of acquiring funds and ________ the income from assets.
A) decreases; decreases
B) increases; increases
C) decreases; increases
D) increases; decreases - Answer- B
Typically, increasing interest rates
A) discourages individuals from saving.
B) discourages corporate investments.
C) encourages corporate expansion.
D) encourages corporate borrowing. - Answer- B
Compared to interest rates on long-term U.S. government bonds, interest rates on
________ fluctuate more and are lower on average.
A) medium-quality corporate bonds
B) low-quality corporate bonds
C) high-quality corporate bonds
D) three-month Treasury bills - Answer-
Compared to interest rates on long-term U.S. government bonds, interest rates on
________ fluctuate more and are lower on average.
A) medium-quality corporate bonds
B) low-quality corporate bonds
C) high-quality corporate bonds
D) three-month Treasury bills
E) none of the above - Answer- D
Compared to interest rates on long-term U.S. government bonds, interest rates on
three-month Treasury bills fluctuate ________ and are ________ on average.
, A) more; lower
B) less; lower
C) more; higher
D) less; higher - Answer- A
The stock market is important because
A) it is where interest rates are determined.
B) it is the most widely followed financial market in the United States.
C) it is where foreign exchange rates are determined.
D) all of the above. - Answer- B
Stock prices since the 1980s have been
A) relatively stable, trending upward at a steady pace.
B) relatively stable, trending downward at a moderate rate.
C) extremely volatile.
D) unstable, trending downward at a moderate rate. - Answer- C
The largest one-day drop in the history of the American stock markets occurred in
A) 1929.
B) 1987.
C) 2000.
D) 2001. - Answer- B
A declining stock market index due to lower share prices
A) reduces people's wealth and as a result may reduce their willingness to spend.
B) increases people's wealth and as a result may increase their willingness to spend.
C) decreases the amount of funds that business firms can raise by selling newly issued
stock.
D) both A and C of the above.
E) both B and C of the above. - Answer- D
Changes in stock prices
A) affect people's wealth and their willingness to spend.
B) affect firms' decisions to sell stock to finance investment spending.
C) are characterized by considerable fluctuations.
D) all of the above.
E) only A and B of the above. - Answer- D
(I) Debt markets are often referred to generically as the bond market.
(II) A bond is a security that is a claim on the earnings and assets of a corporation.
A) (I) is true, (II) false.
B) (I) is false, (II) true.
C) Both are true.
D) Both are false. - Answer- A
