Topic 6, Lessons 5-7 Quiz

What are three advantages that dealing with financial intermediaries offer?

• Diversification, information, and liquidity

• Free travel, entertainment, and food

• Higher taxes, more paperwork, and less security

• Unlimited spending, no regulations, and instant wealth

Define diversification.

• The practice of spreading investments among different financial assets to reduce risk

• The process of saving money in a single account

• The act of borrowing money from a bank

• The calculation of interest rates

What can financial intermediaries do?

• Help channel funds from savers to borrowers

• Only provide loans to businesses

• Only accept deposits

• Only issue stocks

Laura is considering different assets to invest in. She wants to make sure she can quickly access her money if she needs it for an emergency. What is the term for the ability of an asset to be used as, or directly converted to, cash?

• liquidity

• risk

• return

• interest

Whenever individuals evaluate an investment, they must balance what?

• Risk and return

• Price and demand

• Supply and demand

• Interest and inflation

Bonds are basically what?

• Loans to businesses or governments

• Shares of businesses or governments

• Costs incurred by businesses or governments

• Profits from businesses or governments

What is a money market mutual fund?

• A fund that invests in short-term, low-risk securities

• A fund that only invests in stocks

• A fund that invests in real estate

• A fund that focuses on long-term bonds

What are the four types of stocks?

• Common, preferred, growth, and income stocks

• Savings, checking, bond, and mutual stocks

• Real estate, commodity, index, and bond stocks

• Treasury, municipal, junk, and corporate stocks

Why is purchasing stock considered risky?

• Because the value of stocks can fluctuate and you may lose money

• Because stocks always increase in value

• Because stocks are insured by the government

• Because stocks are not affected by market conditions

What is a stock exchange?

• A marketplace where stocks are bought and sold

• A place where groceries are traded

• A bank that lends money

• A government office for taxes