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