Multiple Choice Questions

1. In 2005, ____________ was the most significant real asset of U. S. nonfinancial 

businesses in terms of total value. 

A) equipment and software 

B) inventory 

C) real estate 

D) trade credit 

E) marketable securities 

Answer: C Difficulty: Easy 

Rationale: See Table 1.4.

2. In 2005, ____________ was the least significant real asset of U. S. nonfinancial 

businesses in terms of total value. 

A) equipment and software 

B) inventory 

C) real estate 

D) trade credit 

E) marketable securities 

Answer: B Difficulty: Easy 

Rationale: See Table 1.4.

3. In 2005, ____________ was the least significant liability of U. S. nonfinancial 

businesses in terms of total value. 

A) bonds and mortgatges 

B) bank loans 

C) inventories 

D) trade debt 

E) marketable securities 

Answer: B Difficulty: Easy 

Rationale: See Table 1.4.

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4. In 2005, ____________ was the most significant financial asset of U. S. nonfinancial 

businesses in terms of total value. 

A) cash 

B) trade credit 

C) trade debt 

D) inventory 

E) marketable securities 

Answer: B Difficulty: Easy 

Rationale: See Table 1.4.

5. The material wealth of a society is equal to the sum of _________. 

A) all financial assets 

B) all real assets 

C) all financial and real assets 

D) all physical assets 

E) none of the above 

Answer: B Difficulty: Easy 

Rationale: Financial assets do not directly contribute the productive capacity of the 

economy.

6. ____________ of an investment bank. 

A) Citigroup is an example 

B) Merrill Lynch is an example 

C) Goldman is an example

D) B and C are each examples

E) Each of the above is an example 

Answer: E Difficulty: Easy 

7. _______ are financial assets. 

A) Bonds 

B) Machines 

C) Stocks 

D) A and C 

E) A, B and C 

Answer: D Difficulty: Easy 

Rationale: Machines are real assets; stocks and bonds are financial assets.

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8. An example of a derivative security is ______. 

A) a common share of General Motors 

B) a call option on Mobil stock 

C) a commodity futures contract 

D) B and C 

E) A and B 

Answer: D Difficulty: Easy 

Rationale: The values of B and C are derived from that of an underlying financial asset; 

the value of A is based on the value of the firm only.

9. _______ was the first to introduce mortgage pass-through securities. 

A) Chase Manhattan 

B) Citicorp 

C) FNMA 

D) GNMA 

E) None of the above 

Answer: D Difficulty: Easy 

10. A bond issue is broken up so that some investors will receive only interest payments 

while others will receive only principal payments, which is an example of ________. 

A) bundling 

B) credit enhancement 

C) unbundling 

D) financial engineering 

E) C and D 

Answer: E Difficulty: Easy 

Rationale: Unbundling is one of many examples of financial engineering that offer 

more alternatives to the investor