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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) commercial bank
C) savings bank
D) credit union
  • 2. Which of the following is NOT a financial institution?
A) A pension fund
B) An insurance company
C) A newspaper publisher
D) A commercial bank
  • 3. It is a set up so that employees of corporations or governments can receive income after retirement.
A) credit union
B) pension fund
C) life insurance company
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) Credit Union
B) Savings and loans
C) Commercial banks
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) Lending money to customers
B) Buying the businesses of 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) stocks and bonds.
B) flows of funds.
C) funds that mature in more than one year.
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 markets
B) financial institutions
C) All of the above.
D) private placement
  • 10. The science and art of managing money
A) Management
B) Personal Finance
C) Finance
D) Financial Management
  • 11. What are the two management functions reinforce each other for the success of an organization?
A) Controlling and Directing
B) Planning and Controlling
C) Staffing and Planning
D) Organizing and Planning
  • 12. Which of the following is NOT part of financial planning process?
A) Identify resources
B) Identify goal related task
C) Establish strong Management
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) Budget
B) Cash Budget
C) Sales Budget
D) Sales
  • 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) 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) A firm’s working capital is not essential in managing its operations
B) Cash, inventory and long-term receivables are common working capital components
C) There is a risk and profitability tradeoff in working capital management
D) All statements are true
  • 18. Which of the following is NOT a common collection technique for accounts receivables?
A) sending legal notices
B) making phone calls
C) writing off customer’s accounts
D) sending letter of demands
  • 19. It is a technique used in granting credit to customers.
A) Credit score
B) All of the above
C) Credit standards
D) Credit limit
  • 20. It represents assets of the entity that expected to be collected and thus, converted to cash.
A) Inventory Management
B) Cash Management
C) Accounts Receivable Management
D) Marketable Securities 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) Increase overtime
D) Remain the same
  • 22. The formula (1 + i)n is also called
A) future value factor for lump-sum payment
B) present value factor for ordinary annuity
C) future value factor for ordinary annuity
D) present 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) decrease in the discount rate
D) none of the above
  • 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) none of the above
B) less than
C) the same as
D) more 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 the debt of a government or a business that promises to pay a fixed amount.
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) Sole Proprietorship
B) Cooperative
C) Partnership
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) Expected return and risk
B) Expected return
C) Transaction cost
D) Risk
  • 30. Most investors are assumed ________.
A) Risk seekers
B) Risk neutral
C) Risk averse
D) Risk moderators
  • 31. Who will decide on the declaration of dividends in a corporation?
A) The shareholders of the corporation
B) The board of directors of the firm
C) The president of the company
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 and bonds both represent equity
C) Shares represent ownership whereas bonds do not.
D) Bonds represent ownership whereas shares do not.
  • 33. How should one think of stocks?
A) One should think of stocks as pieces of businesses.
B) One should not think of stocks as being synonymous with a good business.
C) One should think of stocks as chips in the casino.
D) Both A and B
  • 34. Why do different investors estimate inputs differently? Because _____
A) there is a random selection process used by individual investors
B) every investor has his/her own risk/return preferences
C) every investor has access to different information about securities
D) there is an inherent uncertainty in security analysis
  • 35. Of the following four investments, which is considered the safest?
A) Commercial papers
B) Treasury bonds
C) Treasury bills
D) corporate bonds
  • 36. Shares and bonds are floated in _________
A) Equity market
B) Capital market
C) Commercial bank
D) Money market
  • 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 net earnings
B) Expected return and risk
C) Net worth and risk capital
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) Government
B) Business
C) Charitable institutions
D) Individuals
  • 41. Saving money means giving up the opportunity cost to
A) spend in the present
B) have money in the future
C) apply for credit cards
D) save money
  • 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) Computer
B) Online checking account
C) High paying job
D) Budget
  • 44. Which of the following money management principles describe frugality?
A) You are the boss of you.
B) The perfect is the enemy of good.
C) Small amounts matter.
D) Large amounts matter more.
  • 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) Smart
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) Food
C) Travel
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) Saving
B) Income
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) Hourly wages
B) Mutual funds
C) Bonuses
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) Investing
B) Saving
C) Income
D) Spending
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