FM 415 - Financial Markets

Quiz #1

Directions: Shade the letter of your final answer.

Test I. True or False

1. Financial Markets allow suppliers and users of funds to meet.
2. Financial Institutions can act as intermediaries.
3. Asset transformers are financial institutions.
4. Insurance companies allow their owners to collect consistent cash inflow for a long time
before having to pay the beneficiaries.
5. Everyone has access to mutual funds.
6. Everyone has access to hedge funds.
7. When financial institutions fail, financial markets also fail.
8. Convertible bonds are financial instruments.
9. Interest rate risk exists because we cannot predict how central banks will react to
different economic conditions.
10. Maturity intermediation is the conversion of assets or securities with short-term
maturities into assets or securities with longer-term maturities or vice.
11. Denomination intermediation is the process where small investors can buy pieces of
assets that generally are sold only in large denominations.
12. Financial companies provide services by taking loans from individuals and businesses.
13. Mutual funds pool financial resources from exclusively rich individuals and invest in
diversified portfolios.
14. Because of interest rates, BSP had to increase or decrease the inflation rate.
15. Foreign exchange markets are where derivative securities trade.
16. Operational risk is the day-to-day risk assumed by the business as it runs its operations.
17. Globe is a financial institution because Gcash provides payment services.
18. From the point of view of lenders, interest rates are the premium that must be paid in
order to acquire goods sooner and pay for them later.
19. An increase in the supply of loanable funds in the market will shift the supply line to the
left.
20. High-interest rates encourage spending and stimulate the economy.

Test II. Multiple Choice

21. Which is not a component of Money Interest?
a. Risk premium c. real interest rate
b. Inflation rate d. nominal interest rate

22. Reflects the expectation that the loan will be repaid with pesos of less purchasing power
as the result of inflation.
a. Risk premium c. real interest rate
b. Inflation rate d. nominal interest rate

23. It is the difference in yields between assets with different levels of default risk.
a. Risk premium c. real interest rate
b. Inflation rate d. nominal interest rate

24. When the suppliers of loans in the market presume there will be market crisis, they will…

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 a. Increase the interest rate charged
b. Spend available funds now by consuming goods and services
c. Invest in government-issued bonds
d. Invest in corporate bonds

25. It is where the supply and demand of loanable funds in the market is equal.
a. Money market equilibrium c. Real interest rate
b. Interest rate d. Default risk premium

26. It is important to lenders and investors because it represents the true yield of their
investment.
a. Nominal interest rate c. Default risk premium
b. Real interest rate d. Inflationary premium

27. The percentage increase in the prices of commodities.

a. Nominal interest rate c. Inflation rate
b. Real interest rate d. Default risk premium

28. Which statement is False?

a. The default risk premium is equal to the market interest rate less risk-free rate
b. Government-issued bonds are deemed safe bonds.
c. A real interest rate is an interest rate that has been adjusted to remove the
effects of inflation.
d. Liquidy preference refers to people's preference to spend in the present over the
future.

29. Which is not a function of financial markets?

a. Raising capital c. Investing
b. Regulator d. Intermediary

30. Which is an example of a debt instrument?

a. Government-issued bond c. Stocks
b. Debentures d. Derivative securities

31. PSE composite index is based on

a. The average performance of all publicly listed companies
b. The performance of carefully selected thirteen companies
c. The performance of carefully selected thirty companies
d. The average performance of the top ten publicly listed companies

32. It provides liquidity and marketability to listed securities.

a. Listing c. Stock market index
b. Exchange d. Liquidation

33. Which is false about bonus issue?

a. Bonus issue of shares are made whenever there is significant increase in the
income of the business
b. Bonus issue dilutes the dividend per share received by shareholders when their
is no change in the income of the business
c. Bonus issue is when the shares are divided into two or more shares

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 d. Securities of a business cna be listed at the time of bonus issue of shares

34. It is the buy and sell of shares, currency, or other financial instruments in a single day.
a. Forex trading c. Scalping
b. Day trading d. Forex exchange

35. A trading strategy geared towards profiting from minor price changes in a stock's price.
a. Forex trading c. Scalping
b. Day trading d. Forex exchange

36. When you pay only a certain percentage of your investment cost, while borrowing the rest
of the money you need from your broker.
a. Market data c. Scalping
b. Margin trading d. Bid-offer spread

37. The difference between the price at which you can buy a share and the price at which you
can sell it.
a. Bid-offer spread c. Margin trading
b. Scalping d. Default risk premium spread

38. Financial institution that specializes in writing contracts to protect their policyholders from
the risk of financial losses associated with particular events, such as automobile accidents
or fires.
a. Insurance companies c. Pension Funds
b. Hedge funds d. Finance companies

39. Nonbank financial intermediaries that raise funds through sales of commercial paper and
other securities and use the funds to make small loans to households and firms.
a. Insurance companies c. Pension Funds
b. Hedge funds d. Finance companies

40. A company engaged in the business of dealing with financial and mentary transactions
such as desposits, loans, investments, and currency exchange.
a. Financial institution c. Financial intermediaries
b. Financial market d. Financial system

41. It involves the money and time spent carrying out financial transactions.
a. Monitoring cost c. Transaction costs
b. Liquidity and price risk d. Denomination intermediation

42. Any person engaged in the business of effecting securities transactions and earns through
commission basis.
a. Securities dealer c. Financial manager
b. Securities broker d. Investor

43. It provides housing loans to both government and private employees.

a. Social Security System
b. Government Service Insurance System
c. Finance Companies
d. Pag-ibig

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44. Financial market prices offer the best way to determine the value of a firm or of the firm’s
assets, or property.
a. Price setting c. Arbitrage
b. Asset valuation d. Risk management

45. Financial market allows firms and individuals to trade risks so they can reduce their
exposure to some while retaining exposure to others.
a. Price setting c. Arbitrage
b. Asset valuation d. Risk management

46. The market for securities which isn’t well known to the public because selling of securities
to initial buyers often takes place behind closed door.
a. Primary market c. Capital market
b. Secondary market d. Money market

47. An organized secondary market where securities like shares, debentures of public
companies, government securities and bonds issued by municipalities, public corporations,
utility undertakings, port trusts and such other local authorities are purchased and sold.
a. Forex exchange c. Derivative securities exchange
b. Stock exchange d. Bond exchange

48. A force of change in the financial markets that allowed investors to access market data
more quickly and encouraged the growth of entirely new types of financial instruments.
a. Technology c. Liberalization
b. Deregulation d. Consolidation

49. A force of change that happened when businesses merged to take advantage of
economies of scale or to enter other areas of finance.
a. Technology c. Liberalization
b. Deregulation d. Consolidation

50. It refers to the network of corporations, financial institutions, investors and governments
which deal with the flow of short-term capital.
a. Primary market c. Capital market
b. Secondary market d. Money market

***End of Exam***
Good Luck!