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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) life insurance company
B) savings bank
C) commercial bank
D) credit union
  • 2. Which of the following is NOT a financial institution?
A) A commercial bank
B) A newspaper publisher
C) A pension fund
D) An insurance company
  • 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) pension fund
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) Credit Union
B) Commercial banks
C) Savings and loans
D) Mutual Funds
  • 5. Most businesses raise money by selling their securities in a
A) stock exchange
B) public offering
C) private placement
D) direct placement
  • 6. Which of the following is NOT a service provided by financial institutions?
A) Paying savers’ interest on deposit
B) Buying the businesses of customers
C) Lending money to customers
D) Investing customers’ savings in stocks and bonds
  • 7. By definition, the money market involves the buying and selling of
A) flows of funds.
B) funds that mature in more than one year.
C) stocks and bonds.
D) short-term funds
  • 8. It creates financial relationship between suppliers and users of short-term funds.
A) financial market
B) stock market
C) money market
D) capital 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) Finance
D) Personal Finance
  • 11. What are the two management functions reinforce each other for the success of an organization?
A) Organizing and Planning
B) Controlling and Directing
C) Staffing and Planning
D) Planning and Controlling
  • 12. Which of the following is NOT part of financial planning process?
A) Identify goal related task
B) Establish strong Management
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) Cash flow statement
B) Budgeting
C) Income statement
D) Statement of financial Position
  • 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) Inventory
D) Projected Financial Statement
  • 16. Components of a firm’s cash conversion cycle include:
A) average age of inventory and average payment period
B) average payment, average collection period
C) average collection period, average age of inventory
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) 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) making phone calls
C) sending letter of demands
D) writing off customer’s accounts
  • 19. It is a technique used in granting credit to customers.
A) Credit limit
B) Credit standards
C) All of the above
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) Cash Management
C) Inventory Management
D) Accounts Receivable 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) Decrease overtime
C) Remain the same
D) Increase overtime
  • 22. The formula (1 + i)n is also called
A) present value factor for ordinary annuity
B) future value factor for lump-sum payment
C) present value factor for lump-sum payment
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) future value
B) compound interest rate
C) present value
D) simple 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) the same as
D) more than
  • 26. What is a bond?
A) It is a security that represents the equity of a government or a business that promises to pay a fixed interest.
B) It is a security that represents the debt of a government or a business that promises to pay a fixed amount.
C) It is a security that represents partial ownership in a business.
D) None of the above.
  • 27. A business owned by two or more people and operated for profit.
A) Partnership
B) Corporation
C) Sole Proprietorship
D) Cooperative
  • 28. An entity created by law owned by shareholders. Overall objective of a shareholder should be wealth maximization
A) Cooperative
B) Partnersip
C) Sole Proprietorship
D) Corporation
  • 29. Rational investors will seek efficient portfolios because these portfolios are optimal based on:
A) Transaction cost
B) Expected return and risk
C) Risk
D) Expected return
  • 30. Most investors are assumed ________.
A) Risk averse
B) Risk moderators
C) Risk seekers
D) Risk neutral
  • 31. Who will decide on the declaration of dividends in a corporation?
A) The shareholders of the corporation
B) The stock exchange on which the stock is listed
C) The president of the company
D) The board of directors of the firm
  • 32. What is the difference between shares and bonds?
A) Shares represent ownership whereas bonds do not.
B) Shares and bonds both represent equity
C) Shares and bonds both represent liabilities
D) Bonds represent ownership whereas shares do not.
  • 33. How should one think of stocks?
A) Both A and B
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) One should think of stocks as chips in the casino.
  • 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 an inherent uncertainty in security analysis
D) there is a random selection process used by individual investors
  • 35. Of the following four investments, which is considered the safest?
A) Commercial papers
B) Treasury bills
C) corporate bonds
D) Treasury bonds
  • 36. Shares and bonds are floated in _________
A) Equity market
B) Commercial bank
C) Capital market
D) Money 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) Net worth and risk capital
B) Expected return and risk
C) Net worth and net earnings
D) Assets and liabilities
  • 39. Which of the following assets are considered medium risk investments?
A) High income bonds
B) Government bonds
C) Bank deposits
D) Money market
  • 40. Which are NOT considered as key participants in the investment process?
A) Business
B) Charitable institutions
C) Government
D) Individuals
  • 41. Saving money means giving up the opportunity cost to
A) save money
B) spend in the present
C) apply for credit cards
D) have money in the future
  • 42. What is term for the money you earn?
A) Savings
B) Income
C) Expense
D) Interest
  • 43. In order to effectively manage money, you need a:
A) High paying job
B) Computer
C) Budget
D) Online checking account
  • 44. Which of the following money management principles describe frugality?
A) You are the boss of you.
B) Large amounts matter more.
C) The perfect is the enemy of good.
D) Small amounts matter.
  • 45. Practice thrift, but always be looking for Big Wins, best illustrates what principle of saving?
A) You are the boss of you.
B) Large amounts matter more.
C) The perfect is the enemy of good.
D) Small amounts matter.
  • 46. To make the most of your income and savings it is important to become:
A) Proactive
B) All of these
C) Financial Literate
D) Smart
  • 47. The expenses listed below all reduce the amount of cash an individual has available for saving and investing EXCEPT
A) Stocks
B) Food
C) Entertainment
D) Travel
  • 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) Income
B) Saving
C) Investing
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) Hourly wages
C) Taxes
D) Mutual funds
  • 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) Income
C) Spending
D) Saving
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