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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) commercial bank
B) life insurance company
C) credit union
D) savings bank
  • 2. Which of the following is NOT a financial institution?
A) A commercial bank
B) An insurance company
C) A newspaper publisher
D) A pension fund
  • 3. It is a set up so that employees of corporations or governments can receive income after retirement.
A) life insurance company
B) savings bank
C) credit union
D) pension fund
  • 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) Commercial banks
C) Credit Union
D) Savings and loans
  • 5. Most businesses raise money by selling their securities in a
A) private placement
B) stock exchange
C) direct placement
D) public offering
  • 6. Which of the following is NOT a service provided by financial institutions?
A) Buying the businesses of customers
B) Paying savers’ interest on deposit
C) Investing customers’ savings in stocks and bonds
D) Lending money to customers
  • 7. By definition, the money market involves the buying and selling of
A) funds that mature in more than one year.
B) flows of funds.
C) short-term funds
D) stocks and bonds.
  • 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) financial institutions
B) private placement
C) financial markets
D) All of the above.
  • 10. The science and art of managing money
A) Personal Finance
B) Finance
C) Financial Management
D) Management
  • 11. What are the two management functions reinforce each other for the success of an organization?
A) Planning and Controlling
B) Controlling and Directing
C) Organizing and Planning
D) Staffing and Planning
  • 12. Which of the following is NOT part of financial planning process?
A) Identify goal related task
B) Set goals/Objectives
C) Establish strong Management
D) Identify resources
  • 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) Sales Budget
C) Sales
D) Cash Budget
  • 14. Which of the process to closely monitoring of in and out of cash in the business?
A) Cash flow statement
B) Statement of financial Position
C) Budgeting
D) Income 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) Projected Financial Statement
B) Forecasting
C) Budgeting
D) Inventory
  • 16. Components of a firm’s cash conversion cycle include:
A) average age of inventory, average collection period and average payment
B) average age of inventory and average payment period
C) average collection period, average age of inventory
D) average payment, average collection period
  • 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) Cash, inventory and long-term receivables are common working capital components
C) A firm’s working capital is not essential in managing its operations
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) All of the above
B) Credit standards
C) Credit limit
D) Credit score
  • 20. It represents assets of the entity that expected to be collected and thus, converted to cash.
A) Cash Management
B) Marketable Securities 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) Remain the same
C) Increase overtime
D) Decrease overtime
  • 22. The formula (1 + i)n is also called
A) future value factor for lump-sum payment
B) future value factor for ordinary annuity
C) present 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) none of the above
C) increase in the discount rate
D) discount rate does not affect the present value
  • 24. Interest payments that are based on the original principal and previous interest recognized is based on
A) present value
B) simple interest rate
C) compound interest rate
D) future 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) the same as
C) more than
D) less than
  • 26. What is a bond?
A) None of the above.
B) It is a security that represents partial ownership in a business.
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 the equity of a government or a business that promises to pay a fixed interest.
  • 27. A business owned by two or more people and operated for profit.
A) Corporation
B) Partnership
C) Cooperative
D) Sole Proprietorship
  • 28. An entity created by law owned by shareholders. Overall objective of a shareholder should be wealth maximization
A) Sole Proprietorship
B) Corporation
C) Cooperative
D) Partnersip
  • 29. Rational investors will seek efficient portfolios because these portfolios are optimal based on:
A) Transaction cost
B) Risk
C) Expected return and risk
D) Expected return
  • 30. Most investors are assumed ________.
A) Risk moderators
B) Risk neutral
C) Risk seekers
D) Risk averse
  • 31. Who will decide on the declaration of dividends in a corporation?
A) The stock exchange on which the stock is listed
B) The president of the company
C) The board of directors of the firm
D) The shareholders of the corporation
  • 32. What is the difference between shares and bonds?
A) Bonds represent ownership whereas shares do not.
B) Shares and bonds both represent equity
C) Shares and bonds both represent liabilities
D) Shares represent ownership whereas bonds 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) there is an inherent uncertainty in security analysis
B) every investor has his/her own risk/return preferences
C) there is a random selection process used by individual investors
D) every investor has access to different information about securities
  • 35. Of the following four investments, which is considered the safest?
A) Treasury bills
B) Treasury bonds
C) corporate bonds
D) Commercial papers
  • 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 daily
C) Compounding monthly
D) Compounding semi-annually
  • 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) Money market
B) Bank deposits
C) Government bonds
D) High income bonds
  • 40. Which are NOT considered as key participants in the investment process?
A) Business
B) Individuals
C) Government
D) Charitable institutions
  • 41. Saving money means giving up the opportunity cost to
A) have money in the future
B) apply for credit cards
C) save money
D) spend in the present
  • 42. What is term for the money you earn?
A) Interest
B) Savings
C) Income
D) Expense
  • 43. In order to effectively manage money, you need a:
A) Computer
B) High paying job
C) Budget
D) Online checking account
  • 44. Which of the following money management principles describe frugality?
A) Small amounts matter.
B) The perfect is the enemy of good.
C) You are the boss of you.
D) Large amounts matter more.
  • 45. Practice thrift, but always be looking for Big Wins, best illustrates what principle of saving?
A) The perfect is the enemy of good.
B) Large amounts matter more.
C) Small amounts matter.
D) You are the boss of you.
  • 46. To make the most of your income and savings it is important to become:
A) Proactive
B) Smart
C) All of these
D) Financial Literate
  • 47. The expenses listed below all reduce the amount of cash an individual has available for saving and investing EXCEPT
A) Stocks
B) Travel
C) Food
D) Entertainment
  • 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) Protection
B) Saving
C) Income
D) Investing
  • 49. These sources of income all generate cash that an individual can use to either spend, save, or invest EXCEPT
A) Taxes
B) Hourly wages
C) Mutual funds
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) Income
C) Saving
D) Investing
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