Type:
Test Bank
Resource:
Introduction to Corporate Finance
Edition:
5th Edition
Author(s):
Laurence Booth Sean Cleary Ian Rakita
An Introduction to Finance
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MULTIPLE CHOICE QUESTIONS 1. Finance is the study of how and under what terms a) savings are allocated between lenders and borrowers. b) investments are allocated between investors and brokers. c) institutions with excess money make share purchase decisions. d) households allocate money between spending and saving. Answer: a Type: Definition Difficulty: Easy Learning Objective: Define finance and explain what is involved in the study of finance. Section Reference: Finance Defined Blooms: Knowledge AACSB: Analytic CPA: Finance
2. A financial security is a) a jail term for a financial manager that has committed fraud. b) a contract that is created only when a new stock is issued to the public. c) a financial contract created whenever funds are transferred. d) a contract that is created only when a new bond is first sold. Answer: c Type: Definition Difficulty: Easy Learning Objective: Define finance and explain what is involved in the study of finance. Section Reference: Finance Defined Blooms: Knowledge AACSB: Analytic CPA: Finance 3. Which of the following does NOT appear as an item on Canada’s balance sheet, as presented in the text?
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Test Bank for Introduction to Corporate Finance, Fifth Canadian Edition
a) non-residential structures b) net worth or equity c) net foreign liabilities d) net foreign assets Answer: c Type: Definition Difficulty: Medium Learning Objective: List the major financial and real assets held by Canadians. Section Reference: Real versus Financial Assets Blooms: Knowledge AACSB: Analytic CPA: Finance
4. Human capital is a) based on only the current skills, but not the education, of a country’s citizens. b) based on only the education, but not the current skills, of a country’s citizens. c) based on the skills and education of citizens and should be included in a country’s wealth. d) difficult to measure and should therefore not be included in a country’s wealth. Answer: c Type: Definition Difficulty: Easy Learning Objective: List the major financial and real assets held by Canadians. Section Reference: Real versus Financial Assets Blooms: Knowledge AACSB: Analytic CPA: Finance
5. Which of the following items is NOT a real asset? a) land b) television c) bond d) gold mine Answer: c Type: Definition Difficulty: Easy Learning Objective: List the major financial and real assets held by Canadians. Section Reference: Real versus Financial Assets Blooms: Knowledge AACSB: Analytic CPA: Finance
6. In the following list, which item is a financial asset?
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An Introduction to Finance
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a) land b) bond c) building d) inventory Answer: b Type: Definition Difficulty: Easy Learning Objective: List the major financial and real assets held by Canadians. Section Reference: Real versus Financial Assets Blooms: Knowledge AACSB: Analytic CPA: Finance
7. What is the main difference between real assets and financial assets? a) Real assets are tangible and financial assets are intangible. b) Real assets have known values, while the values of financial assets are not known. c) Real assets are intangible and financial assets are tangible. d) Real assets have unknown values, while the values of financial assets are known. Answer: a Type: Definition Difficulty: Easy Learning Objective: List the major financial and real assets held by Canadians. Section Reference: Real versus Financial Assets Blooms: Knowledge AACSB: Analytic CPA: Finance
8. If Canadian households, in aggregate, own real assets with a market value of $3.194 trillion, and also own net financial assets with a market value of $2.344 trillion, the total net assets of Canadian households have a market value of a) $3.194 trillion b) $5.538 trillion c) $–0.850 trillion d) $0.850 trillion Answer: b Type: Calculation Difficulty: Easy Learning Objective: List the major financial and real assets held by Canadians. Section Reference: Real versus Financial Assets Feedback: $5.538 = $3.194 + $2.344 Blooms: Application AACSB: Analytic CPA: Finance
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Test Bank for Introduction to Corporate Finance, Fifth Canadian Edition
9. Given the following hypothetical information regarding the real and financial assets in Canada for 2022 (numbers in $ billions):
Government Business Households
Real Assets 677 2,202 3,194
Net Financial Assets –658 –1,635 2,344
What is the value of the total net assets in Canada for 2022? a) $5,842 billion b) $6,086 billion c) $6,124 billion d) $6,105 billion Answer: c Type: Calculation Difficulty: Medium Learning Objective: List the major financial and real assets held by Canadians. Section Reference: Real versus Financial Assets Feedback: $6,124 = $677 + $2,202 + $3,194 – $658 – $1,635 + $2,344 Blooms: Application AACSB: Analytic CPA: Finance
10. You are provided with the following hypothetical information regarding the real and financial assets in Canada for 2022 (numbers in $ billions):
Government Business Households
Real Assets 677 2,202 3,194
Net Financial Assets –658 –1,635 2,344
What is the value of the net financial assets owned by non-residents for 2022? a) $901 billion b) $51 billion c) $2,293 billion d) There is not enough information to answer the question. Answer: b Type: Calculation Difficulty: Difficult Learning Objective: List the major financial and real assets held by Canadians. Section Reference: Real versus Financial Assets
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An Introduction to Finance
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Feedback: $51 billion = $2,344 – $658 – $1,635. The value of net financial assets held by nonresidents is equal to the negative of the sum of the net financial assets of government, businesses, and households. Blooms: Application AACSB: Analytic CPA: Finance
11. Which of the following sectors is NOT a user of savings in the economy? a) business sector b) household sector c) government sector d) banking sector Answer: b Type: Concept Difficulty: Easy Learning Objective: List the major financial and real assets held by Canadians. Section Reference: Real versus Financial Assets Blooms: Knowledge AACSB: Analytic CPA: Finance
12. In Canada, the primary provider of funds to business and government is (are) a) international banks. b) large Canadian banks. c) the household sector. d) market intermediaries. Answer: c Type: Definition Difficulty: Easy Learning Objective: Explain how money is transferred from lenders to borrowers and the role played by market and financial intermediaries. Section Reference: The Financial System Blooms: Knowledge AACSB: Analytic CPA: Finance
13. Entities that invest funds on behalf of others and change the nature of the transactions are called a) brokers. b) financial intermediaries. c) dealers. d) market intermediaries. Answer: b
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Test Bank for Introduction to Corporate Finance, Fifth Canadian Edition
Type: Definition Difficulty: Easy Learning Objective: Explain how money is transferred from lenders to borrowers and the role played by market and financial intermediaries. Section Reference: The Financial System Blooms: Knowledge AACSB: Analytic CPA: Finance
14. Joe has just borrowed $5,000 from his aunt in order to make a down payment on a car. This borrowing transaction is an example of a) indirect intermediation. b) direct intermediation. c) external intermediation. d) market transaction. Answer: b Type: Definition Difficulty: Easy Learning Objective: Explain how money is transferred from lenders to borrowers and the role played by market and financial intermediaries. Section Reference: The Financial System Blooms: Knowledge AACSB: Analytic CPA: Finance
15. An example of direct intermediation would be a) an individual borrowing money from a bank. b) an individual borrowing money from their mother. c) an individual using a real estate broker to finance their home purchase. d) a stockbroker selling securities to an individual. Answer: b Type: Concept Difficulty: Easy Learning Objective: Explain how money is transferred from lenders to borrowers and the role played by market and financial intermediaries. Section Reference: The Financial System Blooms: Knowledge AACSB: Analytic CPA: Finance
16. The three intermediation channels that transfer money from lenders to borrowers are a) direct, indirect, and financial intermediation. b) direct, indirect, and monetary intermediation.
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