Business Finance - Pre Test
  • 1. It is a financial intermediary handling individual savings. It receives premium payments placed in loans or investments to accumulate funds to cover future benefits.
A) commercial bank
B) life insurance company
C) credit union
D) savings bank
  • 2. Which of the following is NOT a financial institution?
A) An insurance company
B) A commercial bank
C) A newspaper publisher
D) A pension fund
  • 3. It is a set up so that employees of corporations or governments can receive income after retirement.
A) pension fund
B) savings bank
C) credit union
D) life insurance company
  • 4. It is a type of financial intermediary that pools savings of individuals and makes them available to business and government users. Funds obtained through the sale of shares.
A) Credit Union
B) Commercial banks
C) Savings and loans
D) Mutual Funds
  • 5. Most businesses raise money by selling their securities in a
A) public offering
B) private placement
C) stock exchange
D) direct placement
  • 6. Which of the following is NOT a service provided by financial institutions?
A) Investing customers’ savings in stocks and bonds
B) Lending money to customers
C) Paying savers’ interest on deposit
D) Buying the businesses of customers
  • 7. By definition, the money market involves the buying and selling of
A) short-term funds
B) funds that mature in more than one year.
C) stocks and bonds.
D) flows of funds.
  • 8. It creates financial relationship between suppliers and users of short-term funds.
A) financial market
B) money market
C) capital market
D) stock market
  • 9. Firms that require funds from external sources can obtain them from
A) financial markets
B) financial institutions
C) private placement
D) All of the above.
  • 10. The science and art of managing money
A) Management
B) Finance
C) Financial Management
D) Personal Finance
  • 11. What are the two management functions reinforce each other for the success of an organization?
A) Planning and Controlling
B) Organizing and Planning
C) Staffing and Planning
D) Controlling and Directing
  • 12. Which of the following is NOT part of financial planning process?
A) Set goals/Objectives
B) Identify resources
C) Establish strong Management
D) Identify goal related task
  • 13. A plan expresses in quantitative terms, which emphasizes the resource use and resource allocation of an entity over a specified period of time?
A) Cash Budget
B) Sales
C) Sales Budget
D) Budget
  • 14. Which of the process to closely monitoring of in and out of cash in the business?
A) Cash flow statement
B) Income statement
C) Statement of financial Position
D) Budgeting
  • 15. It is a tool of the company to set an overall goal of what the company’s performance and position will be for and as of the end of the year.
A) Forecasting
B) Inventory
C) Projected Financial Statement
D) Budgeting
  • 16. Components of a firm’s cash conversion cycle include:
A) average payment, average collection period
B) average collection period, average age of inventory
C) average age of inventory and average payment period
D) average age of inventory, average collection period and average payment
  • 17. Which of the following statements is true regarding working capital management?
A) There is a risk and profitability tradeoff in working capital management
B) A firm’s working capital is not essential in managing its operations
C) Cash, inventory and long-term receivables are common working capital components
D) All statements are true
  • 18. Which of the following is NOT a common collection technique for accounts receivables?
A) writing off customer’s accounts
B) making phone calls
C) sending letter of demands
D) sending legal notices
  • 19. It is a technique used in granting credit to customers.
A) Credit limit
B) Credit standards
C) Credit score
D) All of the above
  • 20. It represents assets of the entity that expected to be collected and thus, converted to cash.
A) Cash Management
B) Accounts Receivable Management
C) Marketable Securities Management
D) Inventory Management
  • 21. In a loan amortization schedule, interest payments for each period would most probably
A) Remain the same
B) Increase overtime
C) There are no interest payments in the schedule
D) Decrease overtime
  • 22. The formula (1 + i)n is also called
A) present value factor for lump-sum payment
B) future value factor for ordinary annuity
C) present value factor for ordinary annuity
D) future value factor for lump-sum payment
  • 23. An increase in the present value may be caused by
A) increase in the discount rate
B) discount rate does not affect the present value
C) none of the above
D) decrease in the discount rate
  • 24. Interest payments that are based on the original principal and previous interest recognized is based on
A) simple interest rate
B) future value
C) present value
D) compound interest rate
  • 25. The time value of money suggest that a peso received today is worth
    a peso received in the future.
A) none of the above
B) less than
C) more than
D) the same as
  • 26. What is a bond?
A) It is a security that represents the debt of a government or a business that promises to pay a fixed amount.
B) None of the above.
C) It is a security that represents the equity of a government or a business that promises to pay a fixed interest.
D) It is a security that represents partial ownership in a business.
  • 27. A business owned by two or more people and operated for profit.
A) Cooperative
B) Partnership
C) Corporation
D) Sole Proprietorship
  • 28. An entity created by law owned by shareholders. Overall objective of a shareholder should be wealth maximization
A) Sole Proprietorship
B) Corporation
C) Partnersip
D) Cooperative
  • 29. Rational investors will seek efficient portfolios because these portfolios are optimal based on:
A) Risk
B) Expected return and risk
C) Transaction cost
D) Expected return
  • 30. Most investors are assumed ________.
A) Risk averse
B) Risk seekers
C) Risk moderators
D) Risk neutral
  • 31. Who will decide on the declaration of dividends in a corporation?
A) The president of the company
B) The board of directors of the firm
C) The stock exchange on which the stock is listed
D) The shareholders of the corporation
  • 32. What is the difference between shares and bonds?
A) Bonds represent ownership whereas shares do not.
B) Shares and bonds both represent liabilities
C) Shares and bonds both represent equity
D) Shares represent ownership whereas bonds do not.
  • 33. How should one think of stocks?
A) One should think of stocks as pieces of businesses.
B) Both A and B
C) One should not think of stocks as being synonymous with a good business.
D) One should think of stocks as chips in the casino.
  • 34. Why do different investors estimate inputs differently? Because _____
A) every investor has his/her own risk/return preferences
B) there is an inherent uncertainty in security analysis
C) there is a random selection process used by individual investors
D) every investor has access to different information about securities
  • 35. Of the following four investments, which is considered the safest?
A) Treasury bills
B) corporate bonds
C) Commercial papers
D) Treasury bonds
  • 36. Shares and bonds are floated in _________
A) Capital market
B) Money market
C) Commercial bank
D) Equity market
  • 37. If you want to deposit money in a bank, which will be a wise choice?
A) Compounding daily
B) Compounding annually
C) Compounding monthly
D) Compounding semi-annually
  • 38. Which of the following help determine risk tolerance?
A) Expected return and risk
B) Net worth and net earnings
C) Net worth and risk capital
D) Assets and liabilities
  • 39. Which of the following assets are considered medium risk investments?
A) Money market
B) Government bonds
C) High income bonds
D) Bank deposits
  • 40. Which are NOT considered as key participants in the investment process?
A) Business
B) Individuals
C) Government
D) Charitable institutions
  • 41. Saving money means giving up the opportunity cost to
A) have money in the future
B) spend in the present
C) apply for credit cards
D) save money
  • 42. What is term for the money you earn?
A) Expense
B) Savings
C) Income
D) Interest
  • 43. In order to effectively manage money, you need a:
A) High paying job
B) Budget
C) Computer
D) Online checking account
  • 44. Which of the following money management principles describe frugality?
A) The perfect is the enemy of good.
B) You are the boss of you.
C) Large amounts matter more.
D) Small amounts matter.
  • 45. Practice thrift, but always be looking for Big Wins, best illustrates what principle of saving?
A) Small amounts matter.
B) Large amounts matter more.
C) You are the boss of you.
D) The perfect is the enemy of good.
  • 46. To make the most of your income and savings it is important to become:
A) Financial Literate
B) Proactive
C) All of these
D) Smart
  • 47. The expenses listed below all reduce the amount of cash an individual has available for saving and investing EXCEPT
A) Travel
B) Entertainment
C) Stocks
D) Food
  • 48. This relates to the purchase of assets that are expected to generate a rate of return, with the hope that over time the individual will receive back more money than they originally invested.
A) Protection
B) Investing
C) Saving
D) Income
  • 49. These sources of income all generate cash that an individual can use to either spend, save, or invest EXCEPT
A) Mutual funds
B) Hourly wages
C) Taxes
D) Bonuses
  • 50. This refers to a source of cash inflow that an individual receives and then uses to support themselves and their family.
A) Investing
B) Saving
C) Income
D) Spending
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