FIN122/ FIN 122 Exam 1 | questions and answers latest spring 2026/27 - California State University, Fresno.

Exam 1 Study Guide – FIN122 Spring 2026 • 50 multiple choice questions, 2 points per question • Short answer questions: total of 20 points These are SAMPLE questions, purely memorizing each question might lead you to a disadvantage. The goal is to show you how questions will be written on concepts presented in this class. Chapter 1: Introduction to Finance: Markets, Investments, and Financial Management 1. True or False: Finance is the study of how individuals, institutions, and businesses acquire, spend and manage money and other financial resources. 2. True or False: Personal finance is the study of how growth-driven performance-focused, early stage firms raise financial capital and manage operations and assets. 3. True or False: Financial environment is the country or countries being studied. 4. True or False: The six principles of finance include (1) Money has a time value, (2) Higher returns are expected for taking on more risk, (3) Diversification of investments can reduce risk, (4) Financial markets are efficient in pricing securities, (5) Manager and stockholder objectives may differ, and (6) Reputation matters. 5. True or False: Receiving one dollar today has the same value as receiving one dollar in one year. 6. True or False: The riskier the investment, the lower the return. 7. True or False: One of the most significant functions of the financial system is the creation of money, which serves as a medium of exchange. 8. Finance has its origins in: a. economics and statistics b. accounting and sociology c. accounting and economics d. psychology and mathematics 9. The financial environment: a. encompasses the financial markets and global interactions that contribute to an efficiently operating economy. b. encompasses the financial institutions and financial markets that contribute to an efficiently operating economy. c. encompasses the financial system, financial institutions, financial markets, business firms, individuals, and global interactions that contribute to an efficiently operating d. encompasses the trade in goods and services by financial instruments. 10. Economists use a ___________________ framework to explain how the prices and quantities of goods and services are determined in a free-market economic system. a. opportunity b. marginal cost c. supply-and-demand d. anti-monopoly 11. This involves the sale or marketing of securities, the analysis of securities, and the management of investment risk through portfolio diversification. a. Financial managementb. Investments c. Financial markets d. Financial institutions e. Financial environment 12. ____________________ provide the record-keeping mechanism for showing ownership of the financial instruments used in the flow of financial funds between savers and borrowers and record revenues, expenses, and profitability of organizations that produce and exchange goods and services. a. Financial Managers b. Accountants c. Operations Managers d. Statisticians 13. Financial markets encourage investment by: a. providing capital at lower rates than provided by banks b. providing electronic execution of transactions which are faster and cheaper than other methods c. providing the means for savers to easily and quickly convert financial assets into cash when needed d. encouraging people not to buy goods and services 14. $1,000 invested today at 6% interest would be worth ________ one year from now a. $1,600 b. $1,060 1000*.06 = $60, $60+$1000 = 1060 c. $1,160 d. $1,006 15. The _________________ is primarily responsible for the amount of money that is created, although most of the money is actually created by depository institutions. a. Securities Exchange Commission b. Federal Treasury c. Federal Reserve System d. Financial Asset Oversight Board 16. __________ are where debt securities of one year or less are issued or traded. a. Money markets b. Capital markets c. Primary markets d. Secondary markets Chapter 3: Banks and Other Financial Institutions 17. True or False: A mortgage is a loan backed by real property in the form of buildings and houses. 18. True or False: Depository institutions include commercial banks, savings and loans, mutual savings banks, and credit unions. 19. True or False: Commercial banks accept deposits and make loans to individuals and businesses. 20. True or False: Investment banking firms sell shares in their firms to businesses and invest thepooled proceeds in corporate and government securities. 21. True or False: Financial diversification is the process by which individual savings are accumulated in depository institutions and, in turn, lent or invested. 22. True or False: The Federal Reserve Act of 1913 created a system of central banks in the United States. 23. True or False: The 2007–08 financial crisis and the 2008–09 Great Recession led to the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. 24. True or False: The primary types of assets on a bank’s balance sheet include cash, securities, and loans. 25. A debt security created by pooling together a group of mortgage loans. a. Mortgage-backed security b. Serial mortgage c. Mortgage package d. Secured mortgage 26. Which of the following are not thrift institutions? a. credit unions b. savings and loan institutions c. commercial banks d. mutual savings banks 27. An open-end investment company that can issue an unlimited number of its shares to investors and use the pooled proceeds to purchase corporate and government securities is called a(n) a. mutual fund. b. pension fund. c. insurance company. d. brokerage firm. 28. An organization that received contributions from employees and/or their employers and invests the proceeds on behalf of the employees for use during their retirement years is called a(n) a. mutual fund. b. savings bank. c. pension fund. d. retirement fund. 29. An organization that provides loans directly to consumers and businesses or aid individuals in obtaining financing for durable goods is called a(n) a. commercial bank. b. investment bank. c. savings and loan.d. finance company. 30. _______________ accept the savings of individuals and lend pooled savings to individuals primarily in the form of mortgage loans and operate almost entirely in New England, New York, and New Jersey, with most of their assets continuing to be invested in mortgage loans. a. Commercial banks b. Thrift institutions c. Savings banks d. Credit unions 31. _______________ sell or market new securities issued by businesses to individual and institutional investors, whereas ______________ firms assist individuals who want to purchase new or existing securities issues or who want to sell previously purchased securities. a. Brokerage firms, investment banks b. Investment banks, brokerage firms c. savings banks, investment banks d. Brokerage firms, savings banks 32. If $5,000 is borrowed on a discount basis and the rate is 10 percent, the annual percentage interest rate on this loan would be a. 10 percent. b. 10.1 percent. c. 11 percent. d. 11.1 percent. 5000* .10 = 500 5000-500 = 4500 500/4500= 0.111 = 11.1% 33. The principal liabilities of all depository institutions are a. reserves. b. deposits. c. loans. d. securities. 34. In general, the effective rate of interest on a discount loan a. is lower than that on standard loan. b. is higher than that on a standard loan. c. is identical to that on a standard loan. d. is unknown because it’s not disclosed. 35. The principal assets of savings banks are a. securities. b. vault cash and deposits at other banks. c. real estate mortgages. d. deposits. 36. The principal assets of banks do not include a. cash. b. loans. c. time deposits. d. securities owned.37. The item on the assets side of a bank’s balance sheet that represents the largest proportion of bank assets is a. deposits. b. owner’s capital. c. securities. d. loans. 38. Percent annual rate on a discount loan. a. Interest paid / Amount borrowed x 100 b. Discount amount / (Amount borrowed – Discount amount) x 100 c. Company equity / Total assets x 100 d. Tier 1 capital / Risk-adjusted assets x 100 e. Tier 1 + Tier 2 capital / Risk-adjusted assets x 100 39. Reasons that banks become insolvent include all of the following except a. excessive credit risk. b. interest rate risk. c. insufficient collateral. d. continued operating losses. Chapter 8: Interest Rates 40. True or False: The interest rate is the basic price that equates the demand for supply of loanable funds in the financial markets. 41. True or False: The demand for loanable funds comes from all sectors of the economy. 42. True or False: Equilibrium interest rate is the tax rate that equates the demand for and supply of loanable funds. 43. True or False: Historically, one of the biggest borrowers has been the federal government. 44. True or False: Demand-pull inflation may be defined as an excessive demand for goods and services during periods of economic expansion as a result of large increases in the money supply. 45. True or False: Junk bonds and high-yield bonds are the same thing. 46. True or False: The default risk premiums on Baa corporate bonds are generally better indicators of investor pessimism or optimism about economic expectations than are those on Aaa-rated bonds. 47. True or False: It is illegal for individuals to own Treasury notes in this country. 48. In an inflationary period, interest rates have a tendency to: a. rise b. fall c. stay the same d. act erratically 49. The basic price that equates the demand for and supply of loanable funds in the financial markets is the __________: a. interest rate b. yield curve c. term structure d. cash price 50. The basic sources of loanable funds are: a. short-term funds and currencyb. current savings and the creation of new funds through the expansion of credit by depository institutions c. contractual savings and commercial bank credit d. bank loans and the creation of new funds through the contraction of credit by depository institutions 51. An increase in the demand for loanable funds, holding supply constant, will cause interest rates to: a. increase b. decrease c. stay the same d. increase rapidly then decrease rapidly 52. The major factor that determines the volume of savings, corporate as well as individual, is the: a. volume of spending b. level of national income c. amount of private pension plans d. amount of life insurance policies 53. ___________________ states that interest rates are a function of the supply and demand for loanable funds. a. The expectations theory b. The market segmentation theory c. The liquidity preference theory d. The loanable funds theory 54. As interest rates rise, the prices of existing bonds will: a. rise b. stay the same c. fall d. either a or b, depending on the state of the economy 55. If the nominal rate of interest is 11%, the risk-free rate of interest is 2%, the default premium is 4%, the liquidity premium is 0.5%, and the maturity premium is 1.5%, then the inflation premium must be ______. a. 2.0% b. 2.5% c. 3.0% d. 3.5% 56. Long-run inflation expectations in the capital markets can be estimated by: a. subtracting a real return component from the rate on short-term Treasury bills b. adding a real return component to interest rates on long-term corporate bonds c. subtracting a real return component from the rate on long-term Treasury securities d. adding a real return component to interest rates on short-term corporate securities 57. The federal debt is owned primarily by: a. foreign and international investors b. commercial banks c. insurance companies d. the sum of all private investors 58. A government securities issued with maturities up to one year.a. Treasury notes b. Treasury certificate c. Treasury bills d. Treasury bonds 59. When referring to an “upward sloping” yield curve, interest rates: a. are flat across all maturities b. decrease as maturity increases c. increase as maturity decreases d. increase as maturity increases 60. As the economy begins moving out of a recessionary period, the yield curve is generally: a. upward sloping b. flattened out c. downward sloping d. discontinuous 61. When referring to a “downward sloping” yield curve: a. as maturities shorten, interest rates decline b. as maturities shorten, interest rates rise c. as maturities lengthen, interest rates remain the same d. as maturities lengthen, interest rates rise 62. Assume that these current yields exist: long-term government securities yield 9 percent, five-year Treasury securities yield 8.5 percent, and one-year Treasury bills yield 8 percent. What type of yield curve is depicted? a. downward sloping b. flat or level c. upward sloping d. U shaped 63. In reaction to the then developing financial crisis, short-term interest rates _______ sharply and were ______ than ______ percent by October, 2008. a. declined, less, 0.5 b. rose, more, 10 c. declined, more, 6. d. declined, less, 20 64. Inflation caused by an increase in the money supply is called: a. demand-pull inflation b. cost-push inflation c. administrative inflation d. a combination of administrative and speculative inflation 65. In response to the financial crisis of , the yield spread between AAA corporate bonds and treasury bonds: a. widened b. narrowed c. remained the same d. has no relationship Short Answer