Financial Management
Mock Exam
Course Introduction
Financial Management is a foundational course designed to introduce students to the principles and practices of managing an organizations financial resources. The course covers key topics including financial analysis, planning and forecasting, budgeting, capital structure decisions, investment analysis, risk management, and working capital management. Students will learn how to evaluate financial statements, assess the cost of capital, and make informed decisions related to funding, investment opportunities, and the allocation of assets. Emphasis is placed on both the theoretical concepts and practical tools necessary for effective financial decision-making in businesses of all sizes.
Recommended Textbook
Introduction to Finance Markets Investments and Financial Management 14th Edition by Ronald
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18 Chapters
2711 Verified Questions
2711 Flashcards
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Chapter 1: The Financial Environment
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Sample Questions
Q1) The six principles of finance include (1)Money has a time value,(2)Higher returns are expected for taking on more risk,(3)Diversification of investments can reduce risk,(4)Financial markets are efficient in pricing securities,(5)Manager and stockholder objectives may differ,and (6)Reputation matters.
A)True
B)False
Answer: True
Q2) ___________________ are intermediaries,such as banks,insurance companies,and investment companies that engage in financial activities to aid the flow of funds from savers to borrowers or investors.
A)Financial Institutions
B)Financial market organizations
C)Federal agencies
D)International financial organizations
E)none of the above
Answer: A
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Chapter 2: Money and the Monetary System
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Sample Questions
Q1) _____________ believe that a change in the money supply first causes a change in interest rate levels,which,in turn,alters the demand for goods and services.
A)Monetarists
B)Supply Siders
C)Neo Classicalists
D)none of the above
Answer: D
Q2) A rise in prices not offset by increases in quality is called:
A)deflation
B)inflation
C)stagflation
D)none of the above
Answer: B
Q3) Money is perfectly liquid.
A)True
B)False
Answer: True
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Chapter 3: Banks and Other Financial Institutions
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Sample Questions
Q1) __________________ accept and invest individual savings and also facilitate the sale and transfer of securities between investors.
A)Securities firms
B)Pension funds
C)Asset management companies
D)none of the above
Answer: A
Q2) _______________ accept the savings of individuals and lend pooled savings to individuals primarily in the form of mortgage loans and operate almost entirely in New England ,New York,and New Jersey,with most of their assets continuing to be invested in mortgage loans.
A)Commercial banks
B)Thrift institutions
C)Savings banks
D)Credit unions
E)none of the above
Answer: C
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Page 5
Chapter 4: Federal Reserve System
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Sample Questions
Q1) Total deposits can be contracted by holding the amount of reserves constant but raising the reserve requirement.
A)True
B)False
Q2) The seven-member board of the Federal Reserve that sets monetary policy is called
A)the Federal Reserve Open Market Committee
B)the Federal Reserve Board of Governors
C)the Federal Reserve Advisory Committee
D)none of the above
Q3) The Fed Board of Governors is composed of seven members who are appointed for a term of 12 years.
A)True
B)False
Q4) Paul Volcker was chairman of the Fed prior to the appointment of Alan Greenspan.
A)True
B)False
Q5) In addition to the 12 Reserve Banks,25 branch banks have been established.
A)True
B)False
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Chapter 5: Policy Makers and the Money Supply
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Sample Questions
Q1) Assume that a bank receives a primary deposit of $1,000,and the reserve requirement is 15%.Which of the following would reflect the asset side of the balance sheet after a maximum loan amount has just been made?
A)reserves of $1,000
B)deposits of $1,000
C)reserves of $1,000 and loans of $150
D)reserves of $1,000 and loans of $850
Q2) The President of the United States has no influence over the Federal Reserve System nor exerts any pressure on the Fed.
A)True
B)False
Q3) The primary types of policy decisions used by policy makers to achieve economic objectives include trade policy,exchange rate policy,and regulatory decisions. A)True
B)False
Q4) The government body primarily responsible for monetary policy is Congress. A)True
B)False
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Chapter 6: International Finance and Trade
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Sample Questions
Q1) In recent years,the principal market for bankers' acceptances has been:
A)domestic banks
B)domestic business corporations
C)foreign business corporations
D)all of the above
E)none of the above
Q2) The exchange rate is the rate at which a given unit of foreign currency is quoted in terms of:
A)commodity prices
B)the domestic currency
C)the foreign currency
D)gold
Q3) A statement by a bank guaranteeing acceptance and payment of a draft up to a stated amount is called a (n)
A)bill of exchange
B)commercial letter of credit
C)time draft
D)documentary draft
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Chapter 7: Savings and Investment Process
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Sample Questions
Q1) The life stages of an individual saver include all of the following EXCEPT:
A)the formative/education developing stage
B)the career earning/family creating stage
C)the wealth building stage
D)all of the above are life stages of savers
Q2) Direct financing involves the use of securities that represent specific contracts between savers and borrowers.
A)True
B)False
Q3) Voluntary savings are financial assets set aside for use in the future.
A)True
B)False
Q4) Personal consumption expenditures (PCE)does not include:
A)individual expenditures for durable goods
B)individual expenditures for nondurable goods
C)individual expenditures for services
D)individual savings
E)all the above are included
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Chapter 8: Interest Rates
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Sample Questions
Q1) Business will increase long-term borrowing if they forecast a decrease in interest rates.
A)True
B)False
Q2) There are two basic sources of loanable funds: current savings and the expansion of deposits of depository institutions.
A)True
B)False
Q3) Which of the following is not considered to be a basic theory used to explain the term structure of interest rates?
A)expectations theory
B)loanable funds theory
C)liquidity premium theory
D)market segmentation theory
Q4) Holding demand constant,a decrease in the supply of loanable funds will result in an increase in interest rates.
A)True
B)False
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Page 10
Chapter 9: Time Value of Money
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Sample Questions
Q1) If the quarterly rate of interest is 2.5% and interest is compounded quarterly,then the EAR is:
A)10.38%
B)10.00%
C)2.50%
D)none of the above
Q2) The _________ value of a savings or investment is its amount or value at the present time.
A)present
B)future
C)book
D)none of the above
Q3) If a Canadian Savings bond can be purchased for $29.50 and has a maturity value at the end of 25 years of $100,what is the annual rate of return on the bond?
A)5%
B)6%
C)7%
D)8%
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11
Chapter 10: Bonds and Stocks: Characteristics and Valuation
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Sample Questions
Q1) The three types of risk faced by investors in domestic bonds include all of the following EXCEPT:
A)political risk
B)credit risk
C)interest rate risk
D)reinvestment rate risk
Q2) A trustee represents the company to ensure that the covenants of the bond indenture are met.
A)True
B)False
Q3) The bond issuer does not necessarily know who is receiving interest payments on bearer bonds.
A)True
B)False
Q4) Zero coupon bonds are not suited for tax-exempt accounts such as IRAs or pension funds.
A)True
B)False
Page 12
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Chapter 11: Securities Markets
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Sample Questions
Q1) Over the counter markets are organized exchanges for trading securities such as the American Stock Exchange.
A)True
B)False
Q2) An option is ______________ if its exercise price is equal to the current market price of the underlying asset.
A)in-the-money
B)out-of-the-money
C)at-the money
D)on-the-money
Q3) The secondary markets provide pricing information and liquidity to investors.
A)True
B)False
Q4) An important function of the Securities and Exchange Commission is to pass judgment on the investment merit of a security.
A)True
B)False
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Chapter 12: Financial Return and Risk Concepts
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Sample Questions
Q1) Which of the following statements is most correct?
A)An efficient portfolio maximizes return for a given level of risk,or minimizes risk for a given level of return.
B)A collection of assets is called a portfolio
C)The goal of an efficient portfolio is to minimize risk for a given level of return.
D)Combining negatively correlated assets having the same expected return results in a portfolio with the same level of expected return and a lower level of risk.
E)all of the above
Q2) The ____________ the coefficient of variation,the ____________ the risk.
A)lower,lower
B)higher,lower
C)lower,higher
D)more stable,higher
E)none of the above
Q3) In general,large company stocks are less risky than small company stocks.
A)True
B)False
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Chapter 13: Business Organization and Financial Data
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Sample Questions
Q1) All of the following accounts are considered to be current assets on the balance sheet except:
A)cash
B)accruals
C)accounts receivable
D)inventory
E)none of the above
Q2) Of the following forms of business organization,which have the advantage of limited liability but no stockholders?
A)proprietorships
B)partnerships
C)corporations
D)limited partnerships
Q3) Paid-in-capital in excess of par represents:
A)the net proceeds from the original sale of stock
B)the proceeds from resale of treasury stock
C)the current market value of the stock
D)the current book value of the stock
E)none of the above
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Page 15
Chapter 14: Financial Analysis and Long-Term Financial Planning
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Sample Questions
Q1) If a firm has a receivables turnover of 12,on average,which of the following would be the firm's average collection period?
A)12 months
B)1 month
C)8.67
D)not enough information given
Q2) The ability of a firm to meet its short-term debt obligations as they come due is indicated by which of the following ratios:
A)liquidity ratios
B)asset utilization ratios
C)financial leverage ratios
D)profitability ratios
Q3) The current ratio is computed by dividing the sum of cash,marketable securities,and accounts receivable by the current liabilities.
A)True
B)False
Q4) Net working capital is current assets plus current liabilities.
A)True
B)False
Page 16
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Chapter 15: Managing Working Capital
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Sample Questions
Q1) BP has a cash conversion cycle of 80 days,an average collection period of 25 days,and an average age of inventory of 70 days.Based on this information,BPs operating cycle is ________ days.
A)95
B)85
C)75
D)65
E)none of the above
Q2) In June,Erie Plastics had an ending cash balance of $35,000.In July,the firm had total cash receipts of $40,000 and total cash disbursements of $50,000.The minimum cash balance required by the firm is $25,000.At the end of July,Erie Plastics had
A)an excess cash balance of $25,000
B)An excess cash balance of $0
C)required financing of $10,000
D)required financing of $25,000
E)none of the above
Q3) The operating cycle can be reduced by lengthening the accounts payable period. A)True
B)False
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Page 17
Chapter 16: Short-Term Business Financing
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Sample Questions
Q1) Stocks and bonds are rarely used as collateral for short-term loans.
A)True
B)False
Q2) A factor engages in accounts receivable financing for business by taking accounts receivable as collateral for making short-term loans.
A)True
B)False
Q3) Large U.S.corporations of high credit quality can issue or sell short-term promissory notes called:
A)revolving credit agreements
B)commercial paper
C)trade credit
D)inventory loans
Q4) Which is not a risk of short-term financing?
A)infrequent renewals
B)borrowing costs may rise if short-term interest rates increase
C)bank may not renew loan
D)all the above
E)none of the above
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Chapter 17: Capital Budgeting Analysis
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Sample Questions
Q1) The stage in the capital budgeting process that requires estimating relevant cash inflows and outflows and discussing the pros and cons of each project is called the _____________ stage.
A)follow-up.
B)selection.
C)identification.
D)development.
E)none of the above are included
Q2) A firm's cost of capital represents a firm's weighted average cost of financing.
A)True
B)False
Q3) With independent projects,NPV and IRR provide identical accept/reject decisions.If,however,you have two mutually exclusive projects to evaluate,the most accurate thing you could say about the eventual results is that:
A)NPV and IRR may give conflicting results
B)NPV and IRR never give the same result
C)NPV and IRR always give the same result
D)IRR is more lenient in accepting
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Chapter 18: Capital Structure and the Cost of Capital
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Sample Questions
Q1) A firm's mix of debt and equity defines the firm's:
A)capital structure
B)working capital
C)net working capital
D)degree of operating leverage
Q2) Which of the following is a different concept from the other three?
A)required rate of return
B)cost of capital
C)discount rate
D)net profit margin
Q3) The sustainable growth rate measures how quickly a firm can grow when it uses both internal equity and debt financing to keep its capital structure constant over time.
A)True
B)False
Q4) The cost of retained earnings is:
A)the cheapest component cost
B)zero because the firm does not have to pay interest or dividend to itself
C)always less than the cost of new common stock
D)typically cheaper than the cost of preferred stock
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