FIN 072 – FINANCIAL MARKETS

PERIOD 1 – QUIZ 1 Materials:

Writing Materials and Ballpen

Part 1: Multiple Choice. Write the letter of the best answer.

1) Every financial market has the following characteristic:

a. It determines the level of interest rates.
b. It allows common stock to be traded.
c. It allows loans to be made.
d. It channels funds from lenders-savers to borrowers-spenders.

2) Financial markets have the basic function of

a. Bringing together people with funds to lend and people who want to borrow funds.
b. Assuring that the swings in the business cycle are less pronounced.
c. Assuring the governments need never resort to printing money.
d. Both (a) and (b) of the above.
e. Both (b) and (c) of the above.

3) Money markets are markets for

a. Foreign currencies
b. Consumer automobile loans
c. Common stocks
d. Long-term bonds
e. Short-term debt securities such as Treasury bills and commercial paper

4) Statement 1: The present value of a future sum decreases as either the discount rate or the number of periods per year increases, other
things held constant.

Statement 2: The present value of a future sum increases as either the discount rate or the number of periods per year increases, other
things held constant.
a. Statement 1 is true; Statement 2 is true
b. Statement 1 is true; Statement 2 is false
c. Statement 1 is false; Statement 2 is true
d. Statement 1 is false; Statement 2 is false

5) Which of the following statements is CORRECT?

a. As a result of compounding, the effective annual rate on a bank deposit (or a loan) is always equal to or less than the nominal
rate on the deposit (or loan).
b. When a loan is amortized, a relatively high percentage of the payment goes to reduce the outstanding principal in the early
years, and the principal repayment's percentage declines in the loan's later years.
c. When a loan is amortized, a relatively low percentage of the payment goes to reduce the outstanding principal in the early
years, and the principal repayment's percentage declines in the loan's later years.
d. Midway through the life of an amortized loan, the percentage of the payment that represents interest must be equal to the
percentage that represents repayment of principal. This is true regardless of the original life of the loan or the interest rate on
the loan.

Part 2: Enumeration/Essay/Discussion

1) Enumerate the 10 axioms of financial management and choose 2 axioms which do you think are the most significant over the
others. Explain your choices and give specific examples.
2) Why is it so important for an economy to have fully developed financial markets?
3) What is your understanding of the time value of money concept? Explain by giving example/s.

***end of quiz***
 FIN 072 | FINANCIAL MARKETS

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

ANSWERS:

Part 1
1)
2)
3)
4)
5)

Part 2

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