Name: _____________________________________ Course/Year: _____________ Date/Score: ____________

I. Multiple Choice: Choose the alternative that best complete the statement/s. Write the letter of your answer on the
space before each numbers. (40 points)
1. Which of the following is not a role of a stock exchange?
a. Manage products b. Primary market c. Secondary market d. Tertiary market
2. Which of the following is not a goal of financial regulation?
a. Provide information to investors b. Ensuring soundness of financial system
c. Encouraging home ownership d. Ensuring investors never suffer loss
3. An important financial institution that assists in the initial sale of securities in the financial market.
a. Stock exchange b. Commercial bank c. Brokerage houses d. Investment bank
4. It is the sequence of economic activities in a nation’s economy that is typically characterized by four (4) phases
such as recession, recovery growth and decline – that repeat themselves over time.
a. Business cycle b. Operating cycle c. Accounting cycle d. Life cycle
5. Referred to as contraction or downturn stage of business. Characterized by decreased level of consumer
purchases, especially durable goods and subsequently, reduced production of business.
a. Decline b. Recession c. Recovery d. Fluctuation
6. Which of the following is not one of the factors that shape the business cycle?
a. Consistent importation and exports b. Volatility of investment spending
c. Fluctuations in government spending d. Technological innovations
7. Inflation can have positive effects in the economy which include:
a. Loss in stability in the real value of money and other monetary items over time
b. Mitigation of economic recessions and debt relief by reducing the real level of debt
c. Uncertainty about future inflation may discourage investment an savings
d. Shortages of goods if consumers start hoarding in anticipation of price increases in the future
8. Economists generally agree that high rates and hyperinflation are caused by excessive growth of the money
supply. Central banks may control the size of the money supply by:
a. Setting interest rates b. Requiring some banks to shut down
c. Setting banking reserve requirements d. Conducting open market operations
9. This refers to the decrease in the general price level of goods and services in the market.
a. Inflation b. Deflation c. Disinflation d. Recession
10. A shift in the supply curve may result from the following, except:
a. Change in production technology b. Change in the number of sellers in the market
c. Change in the number of buyers in the market d. Changes or expected changes in prices of resources
11. In the long run, firms may experience increasing returns because they operate more efficiently. With growth
comes specialization of labor and related production efficiencies related to the law of diminishing returns.
a. Law of diminishing returns b. Efficiency variance
c. Economies of scale d. Law of supply and demand
12. It is the total amount of expenditures for consumer goods and investment for a period of time. It includes
purchases by consumers, business entities, government and foreign entities.
a. Goss domestic product b. Gross national product
c. Aggregate demand d. Macro consumption
13. Personal income minus personal taxes equals:
a. Net income b. Income after tax c. Take-home pay d. Disposable income
14. Which of the following is the most effective fiscal policy program to reduce demand-pull inflation?
a. Increase both government spending and taxes b. Increase government spending and decrease taxes
c. Decrease the money supply d. Decrease government spending and increase taxes
15. Which of the following is not an instrument of monetary policy by which the money supply is controlled?
a. Changing the discount rate b. Open market operations
c. Changing the reserve ratio d. Manipulation of government spending
16. The rate of unemployment caused by contractions of the economy is referred to as:
a. Cyclical unemployment rate b. Full-employment unemployment rate
c. Frictional unemployment rate d. Structural unemployment rate
17. The rate that the central bank charges for loans to commercial banks is called:
e. Discount rate f. Premium rate g. Reservation rate h. Market rate
18. The difference between real and nominal rate is called:
a. Inflation premium b. Credit premium c. Credit risk d. Default premium

Financial Market_Activity 4
Intro to Finance
 19. Exchange rates are determined by
a. The United Nations (UN) b. Supply and demand in the forex market
c. The central bank’s monetary board d. International monetary fund (IMF)
20. Which of the following is the most restrictive barrier to exporting to a country?
a. Tariffs b. Embargoes c. Quotas d. Value-added taxes
21. When a country imports more than it exports:
a. It has negative net imports b. It has negative net exports
c. The country is experiencing income boom d. The country suffers from inflation
22. A country’s foreign exchange rate is least likely affected by that country’s
a. Inflation rate b. Interest rate c. Tax rate d. Political stability
23. It is primarily designed to manage firm’s relationships with suppliers by sharing key information all along the
supply chain.
a. Information technology b. Competitor analysis
c. Supply chain management d. Communication management
24. Financing inventory build-up with long term debt is an example of:
a. Aggressive working capital policy b. Matching policy
c. Conservative working capital policy d. Hedging policy
25. Which of the following is not a marketable security?
a. Treasury bills b. Commercial papers c. CBCIs d. Convertible bonds
26. In cash management, the difference between the bank balance and of the firm’s account and the balance shown
on its own books is called:
a. Bank charges b. Interest income c. Reconciling item d. Float
27. When managing cash and short term investments in marketable securities, the treasurer of a corporation is more
concerned with what?
a. Tax avoidance b. Maximizing rate of return
c. Maximizing risk d. Liquidity and safety
28. Which of the following forms of short-term credit is a secured borrowing?
a. Chattel mortgage b. Commercial paper c. Banker’s acceptance d. Line of credit
29. In terms of managing capital structure, which of the brings additional capitalization to the firm?
a. Exercise of warrants b. Conversion of bonds to common stock
c. 2 for 1 stock split d. Issuance of stock dividend
30. When reviewing potential investment in stocks, you found that the firm has high degree of operating leverage
than the industry average. This means that:
a. Has profits but sensitive to changes in sales volume b. Is more profitable
c. Is less risky d. Has higher sales
31. Ideally, a firm’s capital structure balances the cost of debt and equity capital and their associated risk levels.
The optimal capital structure minimizes the firms:
a. Weighted average cost of capital b. Cost of equity capital
c. Cost of debt d. Earnings per share
32. Which of the following is not a source of long-term financing,
a. Floating lien b. Common stocks c. Bonds d. Preferred stock
33. It is a hybrid of debt and equity. It has fixed charge and increases leverage, but payment of dividends is not a
legal obligation.
a. Preferred stocks b. Common stocks c. Bonds d. Commercial paper
34. The conversion of barter economy to the one that uses money increases efficiency by reducing:
a. Transaction costs b. The need to exchange goods
c. The need to specialize d. The need to employ team production methods
35. Which of the following is not a function of money?
a. A claim for future cash flows b. A store of value
c. A medium of exchange d. A short term protection against inflation
36. A financial market where existing securities are sold.
a. Secondary market b. Economic market c. Security market d. Primary market
37. The main participants in a financial system are individuals, corporations and governments. Individuals are
generally ____ of funds and corporations are net ____ of funds.
a. Suppliers/Users b. Users/Suppliers c. Borrowers/Providers d. Demanders/Users
38. All of the following are financial services provided by the financial system, except:
a. Profitability b. Liquidity c. Information d. Risk transfer

Financial Market_Activity 4
Intro to Finance
 39. Currency includes:
a. Bills & coins b. Bills, coins, checks & deposits c. Bills & checks d. Bills, coins & checks
40. Allows underlying contract holders to either buy or sell the instrument at some future date.
a. Derivative market b. Spot market c. Cash market d. Critical market

Financial Market_Activity 4
Intro to Finance