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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) savings bank
B) credit union
C) life insurance company
D) commercial bank
  • 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) pension fund
B) savings bank
C) credit union
D) life insurance company
  • 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) Savings and loans
D) Credit Union
  • 5. Most businesses raise money by selling their securities in a
A) stock exchange
B) private placement
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) Investing customers’ savings in stocks and bonds
C) Lending money to customers
D) Paying savers’ interest on deposit
  • 7. By definition, the money market involves the buying and selling of
A) flows of funds.
B) short-term funds
C) funds that mature in more than one year.
D) stocks and bonds.
  • 8. It creates financial relationship between suppliers and users of short-term funds.
A) stock market
B) money market
C) capital market
D) financial market
  • 9. Firms that require funds from external sources can obtain them from
A) financial markets
B) private placement
C) All of the above.
D) financial institutions
  • 10. The science and art of managing money
A) Management
B) Personal Finance
C) Financial Management
D) Finance
  • 11. What are the two management functions reinforce each other for the success of an organization?
A) Organizing and Planning
B) Planning and Controlling
C) Staffing and Planning
D) Controlling and Directing
  • 12. Which of the following is NOT part of financial planning process?
A) Identify goal related task
B) Identify resources
C) Set goals/Objectives
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
B) Sales Budget
C) Budget
D) Cash Budget
  • 14. Which of the process to closely monitoring of in and out of cash in the business?
A) Statement of financial Position
B) Cash flow statement
C) Income statement
D) Budgeting
  • 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) Budgeting
B) Inventory
C) Forecasting
D) Projected Financial Statement
  • 16. Components of a firm’s cash conversion cycle include:
A) average collection period, average age of inventory
B) average payment, average collection period
C) average age of inventory, average collection period and average payment
D) average age of inventory and average payment 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) A firm’s working capital is not essential in managing its operations
C) Cash, inventory and long-term receivables are common working capital components
D) All statements are true
  • 18. Which of the following is NOT a common collection technique for accounts receivables?
A) writing off customer’s accounts
B) sending legal notices
C) making phone calls
D) sending letter of demands
  • 19. It is a technique used in granting credit to customers.
A) All of the above
B) Credit score
C) Credit limit
D) Credit standards
  • 20. It represents assets of the entity that expected to be collected and thus, converted to cash.
A) Marketable Securities Management
B) Inventory Management
C) Cash 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) future value factor for ordinary annuity
B) present value factor for lump-sum payment
C) present value factor for ordinary annuity
D) future value factor for lump-sum payment
  • 23. An increase in the present value may be caused by
A) none of the above
B) increase in the discount rate
C) decrease 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) future value
B) simple interest rate
C) present value
D) compound interest rate
  • 25. The time value of money suggest that a peso received today is worth
    a peso received in the future.
A) more than
B) the same as
C) none of the above
D) less than
  • 26. What is a bond?
A) It is a security that represents partial ownership in a business.
B) None of the above.
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) Cooperative
C) Partnership
D) Sole Proprietorship
  • 28. An entity created by law owned by shareholders. Overall objective of a shareholder should be wealth maximization
A) Corporation
B) Sole Proprietorship
C) Partnersip
D) Cooperative
  • 29. Rational investors will seek efficient portfolios because these portfolios are optimal based on:
A) Risk
B) Expected return
C) Transaction cost
D) Expected return and risk
  • 30. Most investors are assumed ________.
A) Risk neutral
B) Risk moderators
C) Risk averse
D) Risk seekers
  • 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) Shares and bonds both represent equity
B) Shares and bonds both represent liabilities
C) Bonds represent ownership whereas shares do not.
D) Shares represent ownership whereas bonds do not.
  • 33. How should one think of stocks?
A) One should think of stocks as pieces of businesses.
B) One should think of stocks as chips in the casino.
C) Both A and B
D) One should not think of stocks as being synonymous with a good business.
  • 34. Why do different investors estimate inputs differently? Because _____
A) there is a random selection process used by individual investors
B) there is an inherent uncertainty in security analysis
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) Equity market
B) Capital market
C) Money market
D) Commercial bank
  • 37. If you want to deposit money in a bank, which will be a wise choice?
A) Compounding semi-annually
B) Compounding monthly
C) Compounding daily
D) Compounding annually
  • 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) Bank deposits
C) Money market
D) Government bonds
  • 40. Which are NOT considered as key participants in the investment process?
A) Individuals
B) Business
C) Charitable institutions
D) Government
  • 41. Saving money means giving up the opportunity cost to
A) have money in the future
B) spend in the present
C) apply for credit cards
D) save money
  • 42. What is term for the money you earn?
A) Expense
B) Interest
C) Savings
D) Income
  • 43. In order to effectively manage money, you need a:
A) High paying job
B) Budget
C) Online checking account
D) Computer
  • 44. Which of the following money management principles describe frugality?
A) Small amounts matter.
B) You are the boss of you.
C) Large amounts matter more.
D) The perfect is the enemy of good.
  • 45. Practice thrift, but always be looking for Big Wins, best illustrates what principle of saving?
A) Large amounts matter more.
B) Small amounts matter.
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) All of these
C) Proactive
D) Smart
  • 47. The expenses listed below all reduce the amount of cash an individual has available for saving and investing EXCEPT
A) Travel
B) Entertainment
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) Saving
C) Protection
D) Investing
  • 49. These sources of income all generate cash that an individual can use to either spend, save, or invest EXCEPT
A) Hourly wages
B) Bonuses
C) Mutual funds
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) Saving
B) Spending
C) Investing
D) Income
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