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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) commercial bank
C) savings bank
D) life insurance company
  • 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) savings bank
B) pension fund
C) life insurance company
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) Mutual Funds
B) Savings and loans
C) Credit Union
D) Commercial banks
  • 5. Most businesses raise money by selling their securities in a
A) stock exchange
B) public offering
C) direct placement
D) private 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) stocks and bonds.
B) funds that mature in more than one year.
C) flows of funds.
D) short-term funds
  • 8. It creates financial relationship between suppliers and users of short-term funds.
A) financial market
B) money market
C) capital market
D) stock market
  • 9. Firms that require funds from external sources can obtain them from
A) private placement
B) financial markets
C) financial institutions
D) All of the above.
  • 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) Staffing and Planning
B) Planning and Controlling
C) Controlling and Directing
D) Organizing and Planning
  • 12. Which of the following is NOT part of financial planning process?
A) Set goals/Objectives
B) Identify resources
C) Identify goal related task
D) Establish strong Management
  • 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) Budget
C) Cash Budget
D) Sales
  • 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) Inventory
B) Projected Financial Statement
C) Forecasting
D) Budgeting
  • 16. Components of a firm’s cash conversion cycle include:
A) average payment, average collection period
B) average age of inventory, average collection period and average payment
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) There is a risk and profitability tradeoff in working capital management
C) All statements are true
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) making phone calls
B) sending legal notices
C) writing off customer’s accounts
D) sending letter of demands
  • 19. It is a technique used in granting credit to customers.
A) Credit limit
B) All of the above
C) Credit score
D) Credit standards
  • 20. It represents assets of the entity that expected to be collected and thus, converted to cash.
A) Cash Management
B) Inventory Management
C) Marketable Securities Management
D) Accounts Receivable Management
  • 21. In a loan amortization schedule, interest payments for each period would most probably
A) Increase overtime
B) Decrease overtime
C) There are no interest payments in the schedule
D) Remain the same
  • 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) 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) decrease in the discount rate
B) increase in the discount rate
C) discount rate does not affect the present value
D) none of the above
  • 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) 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 the debt of a government or a business that promises to pay a fixed amount.
B) It is a security that represents partial ownership in a business.
C) It is a security that represents the equity of a government or a business that promises to pay a fixed interest.
D) None of the above.
  • 27. A business owned by two or more people and operated for profit.
A) Sole Proprietorship
B) Partnership
C) Corporation
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) Corporation
D) Sole Proprietorship
  • 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 moderators
C) Risk neutral
D) Risk seekers
  • 31. Who will decide on the declaration of dividends in a corporation?
A) The president of the company
B) The board of directors of the firm
C) The shareholders of the corporation
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 equity
B) Shares and bonds both represent liabilities
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 not think of stocks as being synonymous with a good business.
B) One should think of stocks as pieces of businesses.
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 an inherent uncertainty in security analysis
B) there is a random selection process used by individual investors
C) every investor has access to different information about securities
D) every investor has his/her own risk/return preferences
  • 35. Of the following four investments, which is considered the safest?
A) Treasury bills
B) Commercial papers
C) corporate bonds
D) Treasury bonds
  • 36. Shares and bonds are floated in _________
A) Capital market
B) Money market
C) Commercial bank
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 daily
D) Compounding monthly
  • 38. Which of the following help determine risk tolerance?
A) Expected return and risk
B) Net worth and risk capital
C) Assets and liabilities
D) Net worth and net earnings
  • 39. Which of the following assets are considered medium risk investments?
A) High income bonds
B) Money market
C) Government bonds
D) Bank deposits
  • 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) 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) Interest
B) Income
C) Expense
D) Savings
  • 43. In order to effectively manage money, you need a:
A) High paying job
B) Online checking account
C) Computer
D) Budget
  • 44. Which of the following money management principles describe frugality?
A) The perfect is the enemy of good.
B) You are the boss of you.
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) 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) Financial Literate
B) Proactive
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) 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) Income
B) Protection
C) Investing
D) Saving
  • 49. These sources of income all generate cash that an individual can use to either spend, save, or invest EXCEPT
A) Taxes
B) Mutual funds
C) Hourly wages
D) Bonuses
  • 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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