[Security] 1. A claim on the borrower’s future income that is sold by the borrower to the lender.

[Financial Markets] 2. Markets in which funds are transferred from people who have a surplus of available.
funds to people who have a shortage of available funds.

[Financial derivatives] 3. Instruments that have payoffs that are linked to previously issued securities and are
extremely useful risk-reduction tools.

[Financial Innovation] 4. The development of new financial products and services.

[Preferred stock] 5. Stock on which a fixed dividend must be paid before common dividends are distributed. It
often does not mature and usually does not give the holder voting rights in the company.

[Banks] 6. Financial institutions that accept deposits and make loans (such as commercial banks, savings and
loan associations, and credit unions).

[Money] 7. Is any item or commodity that is generally accepted as a means of payment of goods and
services or for repayment of debt, and that serves as an asset to its holder.

[Capital] 8. Wealth, either financial or physical, that is employed to produce more wealth.

[Capital Market] 9. A financial market in which longer-term debt (maturity of greater than one year)
and equity instruments are traded.

[Collateral] 10. Property that is pledged to the lender to guarantee payment in the event that the borrower
should be unable to make debt payments.

[Derivatives] 11. Are financial instruments that "derive their value on contractually required cash flows from
some other security or index.

[Bonds] 12. A debt security that promises to make payments periodically for a specified period of time.

[Contract] 13. Refers to an agreement between two or more parties that has clear economic consequences that
the parties have little if any, discretion to avoid, usually because the agreement is enforceable by law.

[Diversification] 14. Investing in a collection (portfolio) of assets whose returns do not always move together,
with the result that overall risk is lower than for individual assets.

[Financial intermediaries] 15. Institutions (such as banks, insurance companies, mutual funds, pension funds,
and finance companies) that borrow funds from people who have saved and then make loans to others.

[Interest rate] 16. The cost of borrowing funds (or the payment of lending funds) usually expressed as a
percentage of the amount borrowed.

[Blockchain] 17. Is a system of recording information in a way that makes it difficult or impossible to change,
hack, or cheat the system.

[distributed ledger] 18. Is a database that is consensually shared and synchronized across multiple sites,
institutions, or geographies, accessible by multiple people.
[Bitcoin] 19. Is a digital currency created in January 2009. It follows the ideas set out in a whitepaper by the
mysterious and pseudonymous Satoshi Nakamoto.

[cryptocurrency] 20. Is a digital or virtual currency that is secured by cryptography, which makes it nearly
impossible to counterfeit or double-spend.

1. Financial institutions are what make the financial market work. TRUE

2. Stocks are the most important source of external financing for businesses. FALSE
3. Financial markets, such as bond and stock markets, are crucial to promoting greater economic efficiency by
channeling funds from people who do not have a productive use for them to those who do. TRUE
4. Indirect finance, which involves the activities of financial intermediaries, is many times more important than
direct finance, in which businesses raise funds directly from lenders in financial markets. TRUE
5. Interest rates are important on a number of levels. On a personal level, high interest rates could deter you
from buying a house or a car because the cost of financing it would be low. FALSE

6. The stock market is also an important factor in business investment decisions because the price of shares
affects the amount of funds that can be raised by selling newly issued stock to finance investment spending.
TRUE

7. When the financial system seizes up and produces a financial crisis, financial firms fail, which causes
no damage to the economy. FALSE

8. Activities in financial markets have indirect effects on individuals’ wealth, the behavior of businesses, and
the efficiency of our economy. FALSE

9. Because monetary policy affects interest rates, inflation, and business cycles, all of which have an important
impact on financial markets and institutions, we need to understand how monetary policy is conducted by
different central banks in the world. TRUE

10. One solution to the problem of high transaction costs is to bundle the funds of many investors together so
that they can take advantage of economies of scale, the reduction in transaction costs per dollar of investment as
the size (scale) of transactions increases. TRUE

11. Financial intermediaries are financial institutions that acquire funds by issuing liabilities and, in turn, use
those funds to acquire assets by purchasing securities or making loans. TRUE

12. Not enough money will slow down the economy, and too much money can cause deflation because of
higher price level. FALSE

13. Banks make profits through the process of asset transformation: They borrow short (accept deposits) and
lend long (make loans). When a bank takes in additional deposits, it loses an equal amount of reserves; when it
pays out deposits, it gains an equal amount of reserves. FALSE

14. The world's most-traded currency is the European euro with about 47% share of global payments and 87%
of the forex market's daily turnover. FALSE

15. The concepts of adverse selection and moral hazard explain the origin of many credit risk management
principles involving loan activities, including screening and monitoring, development of long-term customer
relationships, loan commitments, collateral, compensating balances, and credit rationing. TRUE
16. The second most traded currency is the US Dollar, having about 33% of the daily forex transactions and
28% share of the international bank payments. FALSE
17. The changes in the supply of money will not affect the interest rate and therefore the cost of borrowing
money. FALSE

18. The International Monetary Funds' resources mainly come from the money that countries pay as their capital
subscription (quotas) when they become members. Each member of the IMF is assigned a quota, based broadly
on its relative position in the world economy. Countries can then borrow from this pool when they fall into
financial difficulty. TRUE

19. Generally, an over-supply of goods or services causes prices to go down, which results in higher demand—
while an under-supply or shortage causes prices to go up resulting in less demand. The balancing effect of
supply and demand results in a state of equilibrium. TRUE

20. The three basic tools of monetary policy are open market operations, discount policy, and reserve
requirements. Open market operations are the primary tool used by the Fed to control interest rates. TRUE
21. Intermediaries who link buyers and sellers by buying and selling securities at stated prices are called
- dealers.
22. The main sources of financing for businesses, in order of importance, are
- financial intermediaries, issuing bonds, issuing stocks.
23. Which of the following are investment intermediaries?
- Finance companies AND Mutual funds
24. The creator or the developer of bitcoin - Satoshi Nakamoto
25. When the borrower engages in activities that make it less likely that the loan will be repaid, _____________
is said to exist. - moral hazard
26. Financial institutions expect that
- opportunistic behavior will occur, as the least desirable credit risks will be the ones most likely to seek
out loans.
27. The first country in the world to adopt bitcoin as a legal tender - El salvador
28. Is a unique proof-of-stake cryptocurrency that is aimed at delivering interoperability among other
blockchains. - Polkadot
28. Is a decentralized digital currency, without a central bank or single administrator, that can be sent from user
to user on the peer-to-peer network without the need for intermediaries.The first blockchain-based
cryptocurrency. - Bitcoin
29. Every financial market has the following characteristic:
- It channels funds from lenders-savers to borrowers-spenders.
30. Financial markets improve economic welfare because
- they allow funds to move from those without productive investment opportunities to those who have
such opportunities.
- they allow consumers to time their purchases better.
31. Financial intermediaries
- are involved in the process of indirect finance.
- improve the lot of the small saver.
- exist because there are substantial information and transaction costs in the economy.
32. Compute for the Present value of P1,000 at the end of year 1 (one) the interest rate is 10% - 909
32. Is a binary data designed to work as a medium of exchange wherein individual coin ownership records are
stored in a ledger existing in a form of a computerized database using strong cryptography to secure transaction
records, to control the creation of additional coins, and to verify the transfer of coin ownership. –
cryptocurrency
33. Is a peer-to-peer cryptocurrency and open-source software project released under the MIT/X11 license. –
Litecoin
34. The government regulates financial markets for three main reasons:
- to ensure soundness of the financial system, to improve control of monetary policy, and to increase the
information available to investors.
35. In financial markets, lenders typically have inferior information about potential returns and risks associated
with any investment project. This difference in information is called
- asymmetric information.
36. Which of the following are securities?
- A certificate of deposit, A share of Texaco common stock AND A Treasury bill
37. Compute for the future value of P1000 after 10 years the interest rate is 10% - 2594
38. Which of the following financial intermediaries are depository institutions?
- A savings and loan association, A commercial bank, AND A credit union
38. Which of the following are primary markets? - None of the above
39. Financial markets have the basic function of
- bringing together people with funds to lend and people who want to borrow funds.
40. Which of the following are long-term financial instruments? - A Treasury bond
41. Is the amount of money that an investment with a fixed, compounded interest rate will grow to by some
future date. - Future Value
42. Is an amount today that is equivalent to a future payment or series of payments, that has been discounted by
an appropriate interest rate. - Present Value
43. Which of the following can be described as involving indirect finance?
- A corporation takes out loans from a bank, People buy shares in a mutual fund, and A corporation buys
commercial paper in a secondary market.
44. Which of the following statements about financial markets and securities are true?
- All of the above are true.
45. The creator or the developer of Ethereum - Vitalik Buterin
46. Financial intermediaries can substantially reduce transaction costs per dollar of transactions because their
large size allows them to take advantage of - economies of scale.
47. Is a decentralized software platform that enables smart contracts and decentralized applications (dapps) to
be built and run without any downtime, fraud, control, or interference from a third party.
- Ethereum
48. is a computer that connects to a cryptocurrency network. it supports the relevant cryptocurrency's network
through either; relaying transactions, validation or hosting a copy of the blockchain.
- Nodes
49. Which of the following are short-term financial instruments?
- Both (A) and (B) of the above
50. When the lender and the borrower have different amounts of information regarding a transaction,
______________ is said to exist. - asymmetric information
51. Successful financial intermediaries have higher earnings on their investments because they are better
equipped than individuals to screen out good from bad risks, thereby reducing losses due to - adverse selection.
52. Intermediaries who are agents of investors and match buyers with sellers of securities are called - brokers.

QUIZ 2: FINANCIAL INSTRUMENTS

A - Primary Financial Instruments B - Derivative Financial Instruments
1. Forward Contracts – B
2. Options Contracts – B
3. Ordinary Shares – A
4. Preferred Shares – A
5. Equity Securities – A
6. Debt Securities – A
7. Futures Contracts – B
8. Interest Rate Swaps – B
9. Foreign Currency Futures – B
10. Long-Term Corporate Bonds – A
11. Deposit of Cash – A
12. Receivable/Payables – A
13. Letters of Credit – B
14. Financial Guarantees – B
15. Promissory Notes – A
1. The following relates to financial instruments. Choice the characteristics of a derivative financial
instrument. (note: Answer should be more than one)
❖ The derivative requires either no initial net investment or an initial small net investment.
In other words, there is no payment or there is only a small payment for the derivative on
the date of contract.
❖ The derivatives is readily settled at a future date by a net cash payment
❖ The value of the derivative changes in response to the change in an “underlying” variable.
2. An example of a notional is - Number of barrels of oil
3. Is the uncertainty about future interest rates and their impact on cash flows and the fair value of the
financial instruments - Interest Rate Risk
4. Financial Liabilities include all of the following, except - Income Tax Payable
5. This is a sample image a paper bill of what foreign currency? - won
6. Is the uncertainty over whether a counterparty or the party on the other side of the contract will honor
the terms of the contract - Credit Risk
7. Financial assets include all of the following, except - Prepaid Expenses
8. The very purpose of the derivative is - Risk Management
9. Entities use derivative financial instruments to manage financial statement risk - FALSE
10. This image is a sample contract of what financial instruments? - Derivative Instrument
11. Which of the following financial instruments would not be classified as financial liability?
A written call option that gives the holder the right to purchase a fixed number of the
entity's ordinary shares in return for a fixed price
12. A financial instrument is any contract that gives rise to
A financial asset of one entity and a financial liability or equity instrument of another
equity
13. The image is evidence of ownership of what securities? - Equity Securities
14. Any Financial or physical variable that has either observable changes or objectively verifiable changes
qualifies as - Underlying
15. Which of the following is not a derivative financial instrument? - Variable annuity contract
16. Which of the following is not considered a derivative financial instrument? - Bank certificate of
deposit
17. Is the uncertainty about the future price of an asset - Price Risk
18. Is any contract that gives rise to a financial asset of one entity and a financial liability or equity
instrument of another entity - Financial Instruments
19. Which of the following would not qualify as an underlying? - Equity Shares, Equity Shares
20. Which of the following is not a derivative financial instrument? - Trade Accounts Receivable
21. Is the uncertainty about future Philippine peso cash flows stemming from assets and liabilities
denominated in foreign currency - Foreign Currency Risk
22. Financial Risk may originate from the following sources, except: Changes in Equity
23. Which of the following is a financial liability?
An obligation to deliver own shares worth a fixed amount of cash
24. The following are account balances of ABC Corporation in its financial statements: - 7,740,000
25.