Nature and Importance of Financial System 

1. What happens when there are no well-developed financial systems in one’s

economy?
I. It became more costly to fund capital and may lower the return on
savings or investments.
II. Limited information or lack of financial transparency

a. I only
b. II only
c. I and II
d. None of the above
Answer: C.

2. Financial systems play a vital role in the economic growth of a country since it
carries out essential economic functions. It is composed of a complex, well-
integrated set of sub-systems of financial institutions, markets, instruments,
and services.

a. First statement is true while second statement is false.

b. Both statements are true.
c. First statement is false while second statement is true.
d. Both statements are false.
Answer: B.

Elements of Financial System 

1. The following are examples of financial intermediaries, except:

a. SunLife
b. Landbank
c. Banco de Oro
d. None of the above
Answer: D.

2. Which statement is true?

 a. Financial assets/instruments represent a claim to the payment of a sum of
money sometime in the future and /or periodic payment in the form of
interest or dividend.
b. Lenders and borrowers are also known as fund demanders and fund
providers, respectively.
c. A place where suppliers and buyers of financial instrument meet is called
marketplace.
d. The government should not intervene in the financial system.
Answer: A.

Nature and Importance of Financial Market

1. The following are the three major economic functions of the financial market,
except:

a. Liquidity
b. Price Discovery
c. Regulatory environment
d. Reduction in transaction costs
Answer: C.

2. Liquidity refers to the:

a. Riskiness of an asset.
b. Conversion of asset into cash
c. Investing security equity
d. Reducing transaction costs
Answer: B.

Money Market vs. Capital Market 

1. Which of the following best describes the capital market?

a. Offers safer assets.
b. Allows long-term trading of debt and equity-backed securities.
c. The returns are low but steady.
d. Short-term borrowing can be issued.
Answer: B.

2. The following statements are true, except:

a. Capital market is regulated by government.
 b. Money market is wholesale market of short-term debt instruments.
c. Capital market operates without the help of intermediaries.
d. Money market is very important for fund demanders.
Answer: C.

Primary Market vs. Secondary Market 

1. In primary market, the company sells the share to the investors at a _______.
a. Fixed price determined by the company
b. Discounted price
c. Higher price
d. Price determined by demand and supply
Answer: A.

2. Parties involved in secondary market.

a. Investors buy and sell among themselves.
b. Company and investors
c. Household and government
d. None of the above.
Answer: A.