,TESTBANK for Introduction to Finance 17e
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, Chapter 1
The Financial Environment
TRUE-FALSE QUESTIONS
1. Finance is the study of how individuals, institutions, and businesses acquire, spend and
manage money and other financial resources.
Answer: T
Difficulty Level: Easy
Subject Heading: What is Finance?
L.O. 1.1
2. Financial management is the study of financial planning, asset management and fund
raising by businesses and financial institutions.
Answer: T
Difficulty Level: Easy
Subject Heading: What is Finance?
L.O. 1.1
3. Personal finance is the study of how growth-driven performance-focused, early-stage
firms raise financial capital and manage operations and assets.
Answer: F
Difficulty Level: Easy
Subject Heading: Two Themes
L.O. 1.1
4. Personal finance is the study of how individuals prepare for financial emergencies,
protect against premature death and property losses, and accumulate wealth.
Answer: T
Difficulty Level: Easy
Subject Heading: Two Themes
L.O. 1.1
5. Financial markets provide the mechanism for allocating financial resources or funds from
savers to borrowers.
Answer: T
Difficulty Level: Easy
Subject Heading: What is Finance?
L.O. 1.1
,6. The financial environment is organizations or intermediaries that help the financial
system operate efficiently and transfer funds from savers and investors to individuals,
businesses, and governments that seek to spend or invest the funds in physical assets
(inventories, buildings, and equipment).
Answer: F
Difficulty Level: Easy
Subject Heading: What is Finance?
L.O. 1.1
7. The primary goal of the financial manager in a profit-seeking organization is to maximize
the owners’ wealth.
Answer: T
Difficulty Level: Easy
Subject Heading: What is Finance?
L.O. 1.1
8. Financial environment is the country or countries being studied.
Answer: F
Difficulty Level: Easy
Subject Heading: What is Finance?
L.O. 1.1
9. The terms financial system, institutions, and intermediaries are all interchangeable.
Answer: T
Difficulty Level: Easy
Subject Heading: What is Finance?
L.O. 1.1
10. Most of the impetus for growth in the U.S. economy comes from large companies.
Answer: F
Difficulty Level: Easy
Subject Heading: Small Business Practice
L.O. 1.2
11. While the financial press chooses to highlight examples of unethical behavior, most
individuals exhibit sound ethical behavior in their personal and business dealings and
practices.
Answer: T
Difficulty Level: Easy
Subject Heading: Reputation Matters
L.O. 1.3
,12. 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.
Answer: T
Difficulty Level: Medium
Subject Heading: Six Principles of Finance
L.O. 1.3
13. The principle of finance that "money has a time value" implies Money in hand today is
worth less than the promise of receiving the same amount in the future because a sum
of money today could be invested and grow over time.
Answer: F
Difficulty Level: Medium
Subject Heading: Six Principles of Finance
L.O. 1.3
14. Receiving one dollar today has the same value as receiving one dollar in one year.
Answer: F
Difficulty Level: Medium
Subject Heading: Six Principles of Finance
L.O. 1.3
15. The principle of finance that "lower returns are expected for taking on less risk" implies
that rational investors would choose a risky investment only if they feel the expected
return is high enough to justify the greater risk.
Answer: T
Difficulty Level: Medium
Subject Heading: Six Principles of Finance
L.O. 1.3
16. The riskier the investment, the lower the return.
Answer: F
Difficulty Level: Easy
Subject Heading: Six Principles of Finance
L.O. 1.3
17. The principle of finance that "financial markets are efficient in pricing securities" implies
that the prices of securities reflect some information available to the public and that
when new information becomes available, prices change over time to reflect that
information.
Answer: F
Difficulty Level: Medium
Subject Heading: Six Principles of Finance
L.O. 1.3
,18. All investment risk is not the same.
Answer: T
Difficulty Level: Medium
Subject Heading: Six Principles of Finance
L.O. 1.3
19. Some risk can be removed by investing in several different assets or securities.
Answer: T
Difficulty Level: Medium
Subject Heading: Six Principles of Finance
L.O. 1.3
20. The principle of finance that "management objectives may differ from owner objectives"
implies that owner returns may suffer as a result of manager objectives.
Answer: T
Difficulty Level: Medium
Subject Heading: Six Principles of Finance
L.O. 1.3
21. Markets have informational efficiency.
Answer: T
Difficulty Level: Easy
Subject Heading: Six Principles of Finance
L.O. 1.3
22. The principle of finance that "management objectives may differ from owner objectives"
can be resolved by increasing manager salaries.
Answer: F
Difficulty Level: Medium
Subject Heading: Six Principles of Finance
L.O. 1.3
23. The principle of finance that "reputation matters" implies that for institutions or
businesses to be successful, they must have the trust and confidence of their customers,
employees, and owners, as well as the community and society within which they
operate.
Answer: T
Difficulty Level: Medium
Subject Heading: Six Principles of Finance
L.O. 1.3
,24. The principle of finance that "reputation matters" sometimes is harmed by the different
objectives of owners and managers.
Answer: T
Difficulty Level: Medium
Subject Heading: Six Principles of Finance
L.O. 1.3
25. The U.S. Treasury Department is primarily responsible for the amount of money that is
created in the U.S. economy.
Answer: F
Difficulty Level: Easy
Subject Heading: Overview of the Financial System
L.O. 1.4
26. In the United States, the central bank is the Federal Reserve System.
Answer: T
Difficulty Level: Easy
Subject Heading: Overview of the Financial System
L.O. 1.4
27. Financial system functions include accumulating savings and lending funds.
Answer: T
Difficulty Level: Easy
Subject Heading: Overview of the Financial System
L.O. 1.4
28. Three financial system components are the U.S. Treasury, financial institutions, and
financial markets.
Answer: F
Difficulty Level: Easy
Subject Heading: Overview of the Financial System
L.O. 1.4
29. Individuals and businesses hold money for purchases or payments they expect to make
in the near future.
Answer: T
Difficulty Level: Easy
Subject Heading: Transferring Money
L.O. 1.4
30. One of the most significant functions of the financial system is the creation of money,
which serves as a medium of exchange.
Answer: T
Difficulty Level: Medium
Subject Heading: Financial System
L.O. 1.4
,31. An effective financial system is a complex mix of government and policy makers, a
monetary system, financial institutions, and financial markets that interact to expedite the
flow of financial capital from savings into investment.
Answer: T
Difficulty Level: Medium
Subject Heading: Financial System
L.O. 1.4
32. The role of the monetary system is to print and circulate currency.
Answer: F
Difficulty Level: Medium
Subject Heading: Figure 1.2
L.O. 1.4
33. The role of financial markets is to market and facilitate the transfer of financial assets.
Answer: T
Difficulty Level: Medium
Subject Heading: Figure 1.2
L.O. 1.4
34. The secondary securities markets are involved in creating and issuing new securities,
mortgages, and other claims to wealth.
Answer: F
Difficulty Level: Easy
Subject Heading: Financial Markets: Characteristics and Types
L.O. 1.5
35. Money markets are the markets where generally short-term assets are traded.
Answer: T
Difficulty Level: Easy
Subject Heading: Financial Markets: Characteristics and Types
L.O. 1.5
36. Capital markets are markets where equity securities and debt securities with maturities
of greater than one year are traded.
Answer: T
Difficulty Level: Easy
Subject Heading: Financial Markets: Characteristics and Types
L.O. 1.5
37. Money markets are markets where equity securities and debt securities with maturities
of greater than one year are traded.
Answer: F
Difficulty Level: Easy
Subject Heading: Financial Markets: Characteristics and Types
L.O. 1.5
,38. Because the relative values of currencies may change, firms cannot use the currency
exchange markets to reduce the risk of holding too much of certain currencies.
Answer: F
Difficulty Level: Easy
Subject Heading: Major Types of Financial Markets
L.O. 1.5
39. Money markets are where debt securities with maturities of one year or more are issued and
traded.
Answer: F
Difficulty Level: Medium
Subject Heading: Money and Capital Markets
L.O. 1.5
40. Derivative securities may be used to speculate on the future price direction of the
underlying financial assets or to reduce price risk associated with holding the underlying
financial assets.
Answer: T
Difficulty Level: Medium
Subject Heading: Financial Markets: Characteristics and Types
L.O. 1.5
41. The bond markets are where money market securities, bonds, and mortgages are
originated and traded.
Answer: F
Difficulty Level: Hard
Subject Heading: Major Types of Financial Markets
L.O. 1.5
, 42. Larger businesses or corporations divide their finance activities into treasury and
monitoring functions, whereas smaller firms often combine these functions.
Answer: F
Difficulty Level: Hard
Subject Heading: Careers in Finance
L.O. 1.6
Melicher
Hello all ,
We have all what you need with best price
Our email :
Our website :
testbanks-store.com
, Chapter 1
The Financial Environment
TRUE-FALSE QUESTIONS
1. Finance is the study of how individuals, institutions, and businesses acquire, spend and
manage money and other financial resources.
Answer: T
Difficulty Level: Easy
Subject Heading: What is Finance?
L.O. 1.1
2. Financial management is the study of financial planning, asset management and fund
raising by businesses and financial institutions.
Answer: T
Difficulty Level: Easy
Subject Heading: What is Finance?
L.O. 1.1
3. Personal finance is the study of how growth-driven performance-focused, early-stage
firms raise financial capital and manage operations and assets.
Answer: F
Difficulty Level: Easy
Subject Heading: Two Themes
L.O. 1.1
4. Personal finance is the study of how individuals prepare for financial emergencies,
protect against premature death and property losses, and accumulate wealth.
Answer: T
Difficulty Level: Easy
Subject Heading: Two Themes
L.O. 1.1
5. Financial markets provide the mechanism for allocating financial resources or funds from
savers to borrowers.
Answer: T
Difficulty Level: Easy
Subject Heading: What is Finance?
L.O. 1.1
,6. The financial environment is organizations or intermediaries that help the financial
system operate efficiently and transfer funds from savers and investors to individuals,
businesses, and governments that seek to spend or invest the funds in physical assets
(inventories, buildings, and equipment).
Answer: F
Difficulty Level: Easy
Subject Heading: What is Finance?
L.O. 1.1
7. The primary goal of the financial manager in a profit-seeking organization is to maximize
the owners’ wealth.
Answer: T
Difficulty Level: Easy
Subject Heading: What is Finance?
L.O. 1.1
8. Financial environment is the country or countries being studied.
Answer: F
Difficulty Level: Easy
Subject Heading: What is Finance?
L.O. 1.1
9. The terms financial system, institutions, and intermediaries are all interchangeable.
Answer: T
Difficulty Level: Easy
Subject Heading: What is Finance?
L.O. 1.1
10. Most of the impetus for growth in the U.S. economy comes from large companies.
Answer: F
Difficulty Level: Easy
Subject Heading: Small Business Practice
L.O. 1.2
11. While the financial press chooses to highlight examples of unethical behavior, most
individuals exhibit sound ethical behavior in their personal and business dealings and
practices.
Answer: T
Difficulty Level: Easy
Subject Heading: Reputation Matters
L.O. 1.3
,12. 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.
Answer: T
Difficulty Level: Medium
Subject Heading: Six Principles of Finance
L.O. 1.3
13. The principle of finance that "money has a time value" implies Money in hand today is
worth less than the promise of receiving the same amount in the future because a sum
of money today could be invested and grow over time.
Answer: F
Difficulty Level: Medium
Subject Heading: Six Principles of Finance
L.O. 1.3
14. Receiving one dollar today has the same value as receiving one dollar in one year.
Answer: F
Difficulty Level: Medium
Subject Heading: Six Principles of Finance
L.O. 1.3
15. The principle of finance that "lower returns are expected for taking on less risk" implies
that rational investors would choose a risky investment only if they feel the expected
return is high enough to justify the greater risk.
Answer: T
Difficulty Level: Medium
Subject Heading: Six Principles of Finance
L.O. 1.3
16. The riskier the investment, the lower the return.
Answer: F
Difficulty Level: Easy
Subject Heading: Six Principles of Finance
L.O. 1.3
17. The principle of finance that "financial markets are efficient in pricing securities" implies
that the prices of securities reflect some information available to the public and that
when new information becomes available, prices change over time to reflect that
information.
Answer: F
Difficulty Level: Medium
Subject Heading: Six Principles of Finance
L.O. 1.3
,18. All investment risk is not the same.
Answer: T
Difficulty Level: Medium
Subject Heading: Six Principles of Finance
L.O. 1.3
19. Some risk can be removed by investing in several different assets or securities.
Answer: T
Difficulty Level: Medium
Subject Heading: Six Principles of Finance
L.O. 1.3
20. The principle of finance that "management objectives may differ from owner objectives"
implies that owner returns may suffer as a result of manager objectives.
Answer: T
Difficulty Level: Medium
Subject Heading: Six Principles of Finance
L.O. 1.3
21. Markets have informational efficiency.
Answer: T
Difficulty Level: Easy
Subject Heading: Six Principles of Finance
L.O. 1.3
22. The principle of finance that "management objectives may differ from owner objectives"
can be resolved by increasing manager salaries.
Answer: F
Difficulty Level: Medium
Subject Heading: Six Principles of Finance
L.O. 1.3
23. The principle of finance that "reputation matters" implies that for institutions or
businesses to be successful, they must have the trust and confidence of their customers,
employees, and owners, as well as the community and society within which they
operate.
Answer: T
Difficulty Level: Medium
Subject Heading: Six Principles of Finance
L.O. 1.3
,24. The principle of finance that "reputation matters" sometimes is harmed by the different
objectives of owners and managers.
Answer: T
Difficulty Level: Medium
Subject Heading: Six Principles of Finance
L.O. 1.3
25. The U.S. Treasury Department is primarily responsible for the amount of money that is
created in the U.S. economy.
Answer: F
Difficulty Level: Easy
Subject Heading: Overview of the Financial System
L.O. 1.4
26. In the United States, the central bank is the Federal Reserve System.
Answer: T
Difficulty Level: Easy
Subject Heading: Overview of the Financial System
L.O. 1.4
27. Financial system functions include accumulating savings and lending funds.
Answer: T
Difficulty Level: Easy
Subject Heading: Overview of the Financial System
L.O. 1.4
28. Three financial system components are the U.S. Treasury, financial institutions, and
financial markets.
Answer: F
Difficulty Level: Easy
Subject Heading: Overview of the Financial System
L.O. 1.4
29. Individuals and businesses hold money for purchases or payments they expect to make
in the near future.
Answer: T
Difficulty Level: Easy
Subject Heading: Transferring Money
L.O. 1.4
30. One of the most significant functions of the financial system is the creation of money,
which serves as a medium of exchange.
Answer: T
Difficulty Level: Medium
Subject Heading: Financial System
L.O. 1.4
,31. An effective financial system is a complex mix of government and policy makers, a
monetary system, financial institutions, and financial markets that interact to expedite the
flow of financial capital from savings into investment.
Answer: T
Difficulty Level: Medium
Subject Heading: Financial System
L.O. 1.4
32. The role of the monetary system is to print and circulate currency.
Answer: F
Difficulty Level: Medium
Subject Heading: Figure 1.2
L.O. 1.4
33. The role of financial markets is to market and facilitate the transfer of financial assets.
Answer: T
Difficulty Level: Medium
Subject Heading: Figure 1.2
L.O. 1.4
34. The secondary securities markets are involved in creating and issuing new securities,
mortgages, and other claims to wealth.
Answer: F
Difficulty Level: Easy
Subject Heading: Financial Markets: Characteristics and Types
L.O. 1.5
35. Money markets are the markets where generally short-term assets are traded.
Answer: T
Difficulty Level: Easy
Subject Heading: Financial Markets: Characteristics and Types
L.O. 1.5
36. Capital markets are markets where equity securities and debt securities with maturities
of greater than one year are traded.
Answer: T
Difficulty Level: Easy
Subject Heading: Financial Markets: Characteristics and Types
L.O. 1.5
37. Money markets are markets where equity securities and debt securities with maturities
of greater than one year are traded.
Answer: F
Difficulty Level: Easy
Subject Heading: Financial Markets: Characteristics and Types
L.O. 1.5
,38. Because the relative values of currencies may change, firms cannot use the currency
exchange markets to reduce the risk of holding too much of certain currencies.
Answer: F
Difficulty Level: Easy
Subject Heading: Major Types of Financial Markets
L.O. 1.5
39. Money markets are where debt securities with maturities of one year or more are issued and
traded.
Answer: F
Difficulty Level: Medium
Subject Heading: Money and Capital Markets
L.O. 1.5
40. Derivative securities may be used to speculate on the future price direction of the
underlying financial assets or to reduce price risk associated with holding the underlying
financial assets.
Answer: T
Difficulty Level: Medium
Subject Heading: Financial Markets: Characteristics and Types
L.O. 1.5
41. The bond markets are where money market securities, bonds, and mortgages are
originated and traded.
Answer: F
Difficulty Level: Hard
Subject Heading: Major Types of Financial Markets
L.O. 1.5
, 42. Larger businesses or corporations divide their finance activities into treasury and
monitoring functions, whereas smaller firms often combine these functions.
Answer: F
Difficulty Level: Hard
Subject Heading: Careers in Finance
L.O. 1.6
