FM Quiz 1

Which of the following is the primary goal of a corporation?

• Profit maximization

• Social responsibility

• Shareholder wealth maximization

• Employee satisfaction

The market where corporations sell new securities to investors is called the:

• Secondary market

• Money market

• Derivative market

• Primary market

Which of the following is an example of a corporation being socially responsible?

• Ignoring environmental regulations

• Maximizing profits at all costs

• Providing fair wages to employees

• Reducing product quality to cut costs

Which of the following is NOT an example of an agency relationship?

• Shareholders and managers

• Managers and debtors

• Employees and customers

• Investors and financial advisors

An agent in business is someone who:

• Owns the company

• Makes decisions on behalf of another person or organization

• Buys and sells company products

• Invests in stocks and bonds

Which of the following is a function of financial markets?

• Producing goods and services

• Channeling funds from savers to borrowers

• Setting tax policies

• Regulating minimum wage laws

The derivatives market deals with:

• Physical goods like machinery

• Stocks and bonds

• Futures and options contracts

• Government tax collection

How can corporations align management incentives with shareholder interests?

• Paying fixed salaries only

• Offering stock options and performance bonuses

• Ignoring agency problems

• Reducing employee wages

What does the term “liquidity” refer to in financial markets?

• The ease of converting assets into cash

• The amount of debt a company has

• The profitability of a company

• The number of employees in a company

Which type of financial market primarily deals with long-term securities?

• Money market

• Capital market

• Derivative market

• Foreign exchange market