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| 1 | |
A risk averse person will: |
| | A) | accept a fair bet. |
| | B) | accept an unfavourable bet. |
| | C) | never insure himself. |
| | D) | will accept some favourable bets. |
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| 2 | |
A fair gamble on average yields: |
| | A) | zero monetary profit. |
| | B) | normal profit. |
| | C) | super-normal profit. |
| | D) | a loss. |
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| 3 | |
A person who finds that they get less and less enjoyment from eating more and more chocolate is experiencing: |
| | A) | gluttony. |
| | B) | diminishing marginal utility. |
| | C) | increasing utility. |
| | D) | negative marginal rate of substitution. |
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| 4 | |
Lloyds insurance market is an example of: |
| | A) | risk pooling. |
| | B) | risk aversion. |
| | C) | risk sharing. |
| | D) | a fair gamble. |
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| 5 | |
When individuals use their inside information to accept or reject a contract this is an example of: |
| | A) | risk sharing. |
| | B) | risk pooling. |
| | C) | risk aversion. |
| | D) | adverse selection. |
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| 6 | |
Dividends are the regular payments of profit to directors. |
| | A) | True |
| | B) | False |
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| 7 | |
Which of the following would you normally not expect to find in a financial portfolio? |
| | A) | gold |
| | B) | mineral water |
| | C) | shares |
| | D) | bonds |
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| 8 | |
Beta measures how much an asset’s ______moves with the return on the whole stock market. |
| | A) | cost |
| | B) | depreciation |
| | C) | return |
| | D) | appreciation |
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| 9 | |
Forward markets set a price _____ for ______ delivery of and payment for goods. |
| | A) | today, future |
| | B) | today, today |
| | C) | future, today |
| | D) | future, future |
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| 10 | |
The cost of risk-bearing can be reduced by risk-pooling and risk-spreading. |
| | A) | True |
| | B) | False |
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| 11 | |
In the insurance industry, high-risk customers are more likely to take out insurance. This is an example of: |
| | A) | moral hazard. |
| | B) | risk aversion. |
| | C) | adverse selection. |
| | D) | a poor gamble. |
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| 12 | |
Moral hazard means that the act of insuring _____________that the desired outcome will occur. |
| | A) | reduces the likelihood |
| | B) | increases the likelihood |
| | C) | guarantees |
| | D) | none of the above |
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| 13 | |
A person's choice of a financial portfolio reflects their _________ and ____________. |
| | A) | wealth, interest rates |
| | B) | income, consumption patterns |
| | C) | trade-off between risk and return, market opportunities |
| | D) | expectations, political stability |
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| 14 | |
When risks on different asset returns are perfectly correlated, the risk on the whole portfolio can be reduced by diversification. |
| | A) | True |
| | B) | False |
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| 15 | |
Individual share prices reflect: |
| | A) | anticipated dividends. |
| | B) | anticipated capital gain. |
| | C) | their riskiness. |
| | D) | all of the above. |
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| 16 | |
If a market produces prices that always reflect the most up to date information, it can be described as _______________. |
| | A) | rapidly adjusting |
| | B) | competitive |
| | C) | free to enter |
| | D) | efficient |
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| 17 | |
Trading assets on the basis of how other people are expected to behave in the future is known as: |
| | A) | risk hedging. |
| | B) | fiscal prudence. |
| | C) | risk-loving. |
| | D) | speculation. |
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| 18 | |
A spot market deals in contracts made today for delivery at a future date. |
| | A) | True |
| | B) | False |
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| 19 | |
If you were to sign a contract today to buy a car in one year at an agreed price, this would be an example of: |
| | A) | a spot contract. |
| | B) | a hedging contract. |
| | C) | a forward contract. |
| | D) | a contract for differences. |
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| 20 | |
If you acquire a portfolio that feel is too risky, you might wish to shift some of the risk onto somebody else by: |
| | A) | speculating. |
| | B) | diversifying. |
| | C) | buying more. |
| | D) | hedging. |
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