St.

Mary’s University
Faculty of Accounting and Finance
Financial Market and Institution

1. One is odd from other

A. Commercial bank
B. Investment bank
C. Microfinance institution
D.Saving and loan association

2. Based on Standard & Poor’s Corporation ratings Micro soft company is ranked as
AAA and Toyota Car assembly is ranked as BBB. Which one is true about this
report?
A. Securities of Micro soft are more risk than Toyota
B. Toyota has good credit worthiness than micro soft
C. Micro soft company has high probability of future payments on its debts
than Toyota
D. Toyota has high probability of future payment than Micro soft

3. Which one of the following is true about present value of debt instruments?
A. The present value of a coupon bond is calculated as the sum of the present
values of all the coupon payments plus the present value of the final
payment of the face value of the bond.
B. The present value of the fixed payment loan is calculated as the sum of the
present values of all cash out flows.
C. The yield to maturity for a one year discount bond equals the increase over
the year divided by the initial price
D. All of the above

4. Which one of the following statement is incorrect about real and nominal interest
rate?
A. The fisher equation states that the nominal interest rate “i” equals the real
interest rate “i”, plus the expected rate of inflation ╥ e.
B. Real interest rate is more accurately reflects the true cost of borrowing
C. Nominal interest rate is most important to economic decisions
D. Real interest rate equals the nominal interest rate minus the expected
inflation rate.

5. Which one is false about financial markets?

A. Financial markets acts as intermediary between surplus and deficit budget
units in the economy
B. Financial market is a market for new and existing financial instruments
C. Financial market include markets for currencies of different countries
D. Financial market can further classified as money, capital and foreign
exchange market
6. Which one of the following is an incorrect statement?
A. Money market enables economic units to raise funds for capital
budgeting decision
B. A security or loan maturing within one year or less is considered to
be a money market instrument.
C. In a money market, individuals and institutions with temporary
surpluses of funds meet the needs of borrowers who have
temporary shortages of funds.
D. Commercial banks are key participant in the market.

7. Which one of the following is a wrong statement?

A. Any one may participate as buyer or seller in an open market.
B. Only a few bidders seek to trade assets in a negotiated market.
C. New financial instruments are traded in primary market
D. Initial public offerings are exchanged in a secondary market.

8. A country whose financial markets function poorly is likely to

A. Efficiently allocate its capital resources.
B. increase its standard of living
C. Enjoy high productivity.
D. Experience economic hardship and financial crises.

9. Financial market participants who provide funds are called

A. deficit units
B. surplus units
C. primary units.
D. secondary units.

10. Equity securities have a ____ expected return than most long-term debt securities, and they
exhibit a____ degree of risk.
A. higher; higher C. lower; higher
B. lower; lower D. higher; lower

11. The round-trip cost or turn-around cost represents _________.

A. Divisibility C. Reversibility
B. Moneyness D. Liquidity

12. Assisting, buying and selling securities are the function of _______.
A. Dealers function
B. Brokerage function

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 C. Underwriting function
D. Asset transformation function
13. Which of the following is NOT a type of financial market?
A. Stock market
B. Money market
C. Bond market
D. Real estate market

14. What is the key characteristic of derivative markets?

A. They involve the exchange of physical goods
B. They facilitate borrowing and lending of funds
C. They derive their value from underlying assets
D. They primarily deal with government securities

15. Which regulatory body oversees the functioning of securities markets in the United States?
A. Securities and Exchange Commission (SEC)
B. Federal Reserve System (Fed)
C. Financial Industry Regulatory Authority (FINRA)
D. Commodity Futures Trading Commission (CFTC)

16. Which one is correct about financial system

A. Facilitates the practice of exchanging funds between one entity to another.
B. It involves various players such as insurance companies, stock exchanges, investment
banks, and more
C. Regulated, as their processes influence and contribute to the growth of many assets.
D. All

17. Which one is not functions of financial institutions

A. Sale of merchandise
B. banking services
C. capital formation
D. monetary supply regulation, pension fund services, and the economic growth of a
nation
18. which one is a type of financial institution
A. Credit union C. Investment banks
B. Commercial banks D. All

19. What must a central bank provide to set an interest rate?

A. It must show convincing reasons to the government on why it wants to fix the interest
rate
B. The bank must be able to provide or withdraw liquidity in any amount needed

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 C. The central bank is not allowed to fix the interest rate
D. The bank can set the interest rate in any case under any circumstance
20. What are the two segments of the financial market?
A. Asset market and money market
B. Capital market and money market
C. Cash market and finance market
D. Stock market and bond market

21. What is the purpose of the derivatives market?

A. To buy crypto currencies for financial institutions
B. To trade exchange rates with foreign companies
C. To sell commodities to multiple organizations
D. To transfer risk among market participants

22. The Ethiopian banking sector is currently comprised of

A. National bank of Ethiopia
B. One state owned development bank
C. State owned and Private commercial bank
D. All

23. Markets in which funds are transferred from those who have excess funds available to those
who have a shortage of available funds are called
A. Financial markets
B. Funds markets
C. Derivative exchange markets
D. Commodity markets

24. A rate of return paid by a borrower of funds to a lender of funds.

A. Interest Rate
B. Intrinsic Rate
C. Inflation Rate
D. Deflation Rate

25. When the commercial banks deposit interest rate is currently greater than debt instrument
interest rates the effect of these condition would be:
A. Increase opportunity cost and no effect on the interest rate.
B. Increase opportunity cost and decrease interest rate.
C. No effect on both opportunity cost and interest rate.
D. Decrease opportunity cost and increase interest rate

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26. According to_______, the rate of interest is determined by the interaction of savings and
investment.
A. Neo-classical Theory
B. Classical Theory
C. Liquidity Theory
D. Loanable Funds Theory

27. When the government sells security:

A. Interest rate will increase and loanable supply decrease.
B. Interest rate will decrease and loanable supply decrease.
C. Interest rate will increase and loanable supply increase.
D. Interest rate will decrease and loanable supply increase.

28. Market price is greater than fair value, financial instrument is

A. Undervalued C. Fairly valued
B. Overvalued D. No Valuation

29. When the government buys more securities, the level of interest rate and the loan supply:
A. Both will increase
B. Increase in interest rate and decrease in loan supply
C. Decrease in interest rate and increase loan supply
D. Both will decrease

30. Which one of the following factors that affect interest rates determination?
A. Inflation C. Deflation
B. Supply and Demand D. Government

31. A contractual agreement by the borrower to pay the holder of the instrument fixed Birr
amounts at regular intervals until a specified date.
A. Debt Instrument C. Stocks
B. Equity Instrument D. Retained Earnings

32. The primary securities markets are

A. the markets for previously issued securities such as the New York
Stock Exchange
B. the markets where financial assets such as stocks and bonds are
initially issued
C. the market operate based on “first come first serve” basis
D. the markets for stocks and bonds only

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 33. a market in which financial instruments such as forward contract,
futures contracts, and options are traded is called
A. Foreign exchange market
B. Capital market
C. Derivative market
D. Money market

34. All are the reason for financial sector regulation except
A. prevent issuers of securities from defrauding investors
B. promote competition and fairness in the trading of financial
securities
C. promote instability of financial institutions
D. restrict activities of foreign concerns in domestic markets and
institutions

35. Which of the following is not a goal of financial regulation?

A. Ensuring the soundness of the financial system
B. Reducing moral hazard
C. Reducing adverse selection
D. Ensuring that investors never suffer losses

36. Which of the following is not an argument against financial

regulations?
A. Causes depositors as well as banks to behave less cautiously
B. May be biased towards banks rather than depositors
C. Prevents mergers and acquisitions and allows inefficient firms to
stay in business
D. Markets may not produce outcomes that are socially just

37. Which of the following is correct about the Ethiopian financial system?
A. There is both primary & secondary market in Ethiopia
B. There is only primary market even though it is not formal
C. The only capital market is the Ethiopian commodity exchange
market
D. All except “A”

38. The regulatory agency that sets reserve requirements for all banks in
Ethiopia is
A. National Bank of Ethiopia
B. Development Bank of Ethiopia

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 C. Ministry of Finance & Economic Development
D. None of the above

39. Identify wrong statement about the Ethiopian financial system?

A. Foreign nationals are not allowed to buy&sell shares of financial
institutions.
B. Real asset investment is huge compared with investment in
financial assets.
C. Latest minimum capital requirement for commercial banking
business is 2 billion
D. Regulating banking business is the responsibility of National Bank of
Ethiopia

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