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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) credit union
C) commercial bank
D) life insurance company
  • 2. Which of the following is NOT a financial institution?
A) A commercial bank
B) An insurance company
C) A pension fund
D) A newspaper publisher
  • 3. It is a set up so that employees of corporations or governments can receive income after retirement.
A) savings bank
B) life insurance company
C) credit union
D) pension fund
  • 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) Savings and loans
C) Credit Union
D) Mutual Funds
  • 5. Most businesses raise money by selling their securities in a
A) private placement
B) public offering
C) stock exchange
D) direct placement
  • 6. Which of the following is NOT a service provided by financial institutions?
A) Lending money to customers
B) Paying savers’ interest on deposit
C) Buying the businesses of customers
D) Investing customers’ savings in stocks and bonds
  • 7. By definition, the money market involves the buying and selling of
A) short-term funds
B) flows of funds.
C) funds that mature in more than one year.
D) stocks and bonds.
  • 8. It creates financial relationship between suppliers and users of short-term funds.
A) capital market
B) stock market
C) financial market
D) money market
  • 9. Firms that require funds from external sources can obtain them from
A) All of the above.
B) private placement
C) financial markets
D) financial institutions
  • 10. The science and art of managing money
A) Financial Management
B) Personal Finance
C) Management
D) Finance
  • 11. What are the two management functions reinforce each other for the success of an organization?
A) Controlling and Directing
B) Organizing and Planning
C) Staffing and Planning
D) Planning and Controlling
  • 12. Which of the following is NOT part of financial planning process?
A) Establish strong Management
B) Identify goal related task
C) Identify resources
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 Budget
B) Cash Budget
C) Sales
D) Budget
  • 14. Which of the process to closely monitoring of in and out of cash in the business?
A) Income statement
B) Cash flow 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) Budgeting
C) Projected Financial Statement
D) Inventory
  • 16. Components of a firm’s cash conversion cycle include:
A) average age of inventory, average collection period and average payment
B) average age of inventory and average payment period
C) average payment, average collection period
D) average collection period, average age of inventory
  • 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) All statements are true
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) sending legal notices
B) writing off customer’s accounts
C) making phone calls
D) sending letter of demands
  • 19. It is a technique used in granting credit to customers.
A) All of the above
B) Credit limit
C) Credit score
D) Credit standards
  • 20. It represents assets of the entity that expected to be collected and thus, converted to cash.
A) Accounts Receivable Management
B) Inventory Management
C) Marketable Securities Management
D) Cash Management
  • 21. In a loan amortization schedule, interest payments for each period would most probably
A) There are no interest payments in the schedule
B) Increase overtime
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) 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) compound interest rate
B) simple 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) none of the above
B) the same as
C) less than
D) more than
  • 26. What is a bond?
A) It is a security that represents partial ownership in a business.
B) It is a security that represents the equity of a government or a business that promises to pay a fixed interest.
C) None of the above.
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) Sole Proprietorship
C) Cooperative
D) Partnership
  • 28. An entity created by law owned by shareholders. Overall objective of a shareholder should be wealth maximization
A) Cooperative
B) Sole Proprietorship
C) Corporation
D) Partnersip
  • 29. Rational investors will seek efficient portfolios because these portfolios are optimal based on:
A) Expected return
B) Transaction cost
C) Risk
D) Expected return and risk
  • 30. Most investors are assumed ________.
A) Risk averse
B) Risk neutral
C) Risk moderators
D) Risk seekers
  • 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 liabilities
B) Shares represent ownership whereas bonds do not.
C) Bonds represent ownership whereas shares do not.
D) Shares and bonds both represent equity
  • 33. How should one think of stocks?
A) One should think of stocks as chips in the casino.
B) One should think of stocks as pieces of businesses.
C) One should not think of stocks as being synonymous with a good business.
D) Both A and B
  • 34. Why do different investors estimate inputs differently? Because _____
A) there is an inherent uncertainty in security analysis
B) every investor has his/her own risk/return preferences
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 bonds
B) Commercial papers
C) Treasury bills
D) corporate bonds
  • 36. Shares and bonds are floated in _________
A) Commercial bank
B) Capital market
C) Money market
D) Equity market
  • 37. If you want to deposit money in a bank, which will be a wise choice?
A) Compounding annually
B) Compounding semi-annually
C) Compounding monthly
D) Compounding daily
  • 38. Which of the following help determine risk tolerance?
A) Assets and liabilities
B) Expected return and risk
C) Net worth and risk capital
D) Net worth and net earnings
  • 39. Which of the following assets are considered medium risk investments?
A) Bank deposits
B) Government bonds
C) Money market
D) High income bonds
  • 40. Which are NOT considered as key participants in the investment process?
A) Individuals
B) Business
C) Government
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) Expense
B) Income
C) Interest
D) Savings
  • 43. In order to effectively manage money, you need a:
A) Online checking account
B) Computer
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) You are the boss of you.
D) Large amounts matter more.
  • 45. Practice thrift, but always be looking for Big Wins, best illustrates what principle of saving?
A) Large amounts matter more.
B) You are the boss of you.
C) Small amounts matter.
D) The perfect is the enemy of good.
  • 46. To make the most of your income and savings it is important to become:
A) Proactive
B) Financial Literate
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) Food
B) Travel
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) Saving
C) Income
D) Investing
  • 49. These sources of income all generate cash that an individual can use to either spend, save, or invest EXCEPT
A) Hourly wages
B) Bonuses
C) Mutual funds
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) Saving
B) Income
C) Spending
D) Investing
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