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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) savings bank
B) life insurance company
C) commercial bank
D) credit union
  • 2. Which of the following is NOT a financial institution?
A) A newspaper publisher
B) A pension fund
C) A commercial bank
D) An insurance company
  • 3. It is a set up so that employees of corporations or governments can receive income after retirement.
A) pension fund
B) life insurance company
C) savings bank
D) credit union
  • 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) Savings and loans
B) Mutual Funds
C) Credit Union
D) Commercial banks
  • 5. Most businesses raise money by selling their securities in a
A) direct placement
B) private placement
C) stock exchange
D) public offering
  • 6. Which of the following is NOT a service provided by financial institutions?
A) Buying the businesses of customers
B) Lending money to customers
C) Investing customers’ savings in stocks and bonds
D) Paying savers’ interest on deposit
  • 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) stock market
C) money market
D) financial market
  • 9. Firms that require funds from external sources can obtain them from
A) financial institutions
B) private placement
C) All of the above.
D) financial markets
  • 10. The science and art of managing money
A) Personal Finance
B) Financial Management
C) Management
D) Finance
  • 11. What are the two management functions reinforce each other for the success of an organization?
A) Planning and Controlling
B) Controlling and Directing
C) Staffing and Planning
D) Organizing and Planning
  • 12. Which of the following is NOT part of financial planning process?
A) Identify resources
B) Establish strong Management
C) Identify goal related task
D) Set goals/Objectives
  • 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) Sales
B) Budget
C) Sales Budget
D) Cash 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) Budgeting
D) Projected Financial Statement
  • 16. Components of a firm’s cash conversion cycle include:
A) average collection period, average age of inventory
B) average payment, average collection period
C) average age of inventory, average collection period and average payment
D) average age of inventory and average payment period
  • 17. Which of the following statements is true regarding working capital management?
A) All statements are true
B) There is a risk and profitability tradeoff in working capital management
C) Cash, inventory and long-term receivables are common working capital components
D) A firm’s working capital is not essential in managing its operations
  • 18. Which of the following is NOT a common collection technique for accounts receivables?
A) writing off customer’s accounts
B) sending legal notices
C) making phone calls
D) sending letter of demands
  • 19. It is a technique used in granting credit to customers.
A) Credit standards
B) Credit score
C) All of the above
D) Credit limit
  • 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) Cash Management
D) Accounts Receivable 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) future value factor for lump-sum payment
B) present value factor for lump-sum payment
C) present value factor for ordinary annuity
D) future value factor for ordinary annuity
  • 23. An increase in the present value may be caused by
A) discount rate does not affect the present value
B) decrease in the discount rate
C) none of the above
D) increase in the discount rate
  • 24. Interest payments that are based on the original principal and previous interest recognized is based on
A) present value
B) future value
C) simple interest rate
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) the same as
B) none of the above
C) more than
D) less than
  • 26. What is a bond?
A) It is a security that represents partial ownership in a business.
B) None of the above.
C) It is a security that represents the debt of a government or a business that promises to pay a fixed amount.
D) It is a security that represents the equity of a government or a business that promises to pay a fixed interest.
  • 27. A business owned by two or more people and operated for profit.
A) Partnership
B) Cooperative
C) Sole Proprietorship
D) Corporation
  • 28. An entity created by law owned by shareholders. Overall objective of a shareholder should be wealth maximization
A) Corporation
B) Sole Proprietorship
C) Cooperative
D) Partnersip
  • 29. Rational investors will seek efficient portfolios because these portfolios are optimal based on:
A) Transaction cost
B) Expected return
C) Risk
D) Expected return and risk
  • 30. Most investors are assumed ________.
A) Risk seekers
B) Risk averse
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 shareholders of the corporation
C) The board of directors of the firm
D) The stock exchange on which the stock is listed
  • 32. What is the difference between shares and bonds?
A) Shares and bonds both represent liabilities
B) Shares represent ownership whereas bonds do not.
C) Shares and bonds both represent equity
D) Bonds represent ownership whereas shares do not.
  • 33. How should one think of stocks?
A) One should not think of stocks as being synonymous with a good business.
B) Both A and B
C) One should think of stocks as chips in the casino.
D) One should think of stocks as pieces of businesses.
  • 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) Commercial papers
B) corporate bonds
C) Treasury bills
D) Treasury bonds
  • 36. Shares and bonds are floated in _________
A) Money market
B) Capital market
C) Equity market
D) Commercial bank
  • 37. If you want to deposit money in a bank, which will be a wise choice?
A) Compounding semi-annually
B) Compounding daily
C) Compounding monthly
D) Compounding annually
  • 38. Which of the following help determine risk tolerance?
A) Net worth and risk capital
B) Expected return and risk
C) Assets and liabilities
D) Net worth and net earnings
  • 39. Which of the following assets are considered medium risk investments?
A) Government bonds
B) High income bonds
C) Bank deposits
D) Money market
  • 40. Which are NOT considered as key participants in the investment process?
A) Government
B) Business
C) Individuals
D) Charitable institutions
  • 41. Saving money means giving up the opportunity cost to
A) spend in the present
B) apply for credit cards
C) save money
D) have money in the future
  • 42. What is term for the money you earn?
A) Income
B) Expense
C) Interest
D) Savings
  • 43. In order to effectively manage money, you need a:
A) Online checking account
B) Computer
C) Budget
D) High paying job
  • 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) The perfect is the enemy of good.
B) Large amounts matter more.
C) Small amounts matter.
D) You are the boss of you.
  • 46. To make the most of your income and savings it is important to become:
A) Smart
B) Financial Literate
C) Proactive
D) All of these
  • 47. The expenses listed below all reduce the amount of cash an individual has available for saving and investing EXCEPT
A) Entertainment
B) Travel
C) Food
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) Investing
B) Saving
C) Income
D) Protection
  • 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) Hourly wages
D) Taxes
  • 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) Investing
C) Saving
D) Income
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