Lesson 4.2.4.1

4.2.4.1 The structure of financial markets and financial assets Quiz: AQA Economics, Unit 2

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

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Lesson 4.2.4.1, The structure of financial markets and financial assets: 20 multiple choice questions for the AQA Economics (7136), Unit 2: The national and international economy, written with Revision Ninja.

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The 20 questions

  1. Which of the following best describes the functions of money?

    • Medium of exchange, store of value and unit of account
    • Cause of inflation, store of debt and means of production
    • Source of income, form of wealth and tax base
    • Measure of inflation, method of credit and tax rate

  2. What is narrow money?

    • Money held in long-term savings accounts and pension funds, which can only be withdrawn after a fixed number of years
    • Money that is readily available for spending, such as notes, coins and sight deposits
    • Money used only for buying government bonds
    • All money held in foreign currencies by UK residents

  3. What is broad money?

    • Only the value of government bonds in circulation
    • Only money held in the central bank as reserves, which banks use to settle payments with each other and the government
    • Narrow money plus savings and time deposits held in banks and building societies
    • Only the value of exports and imports in a year

  4. What is the difference between debt and equity?

    • Debt is ownership of a company, while equity is a loan that must be repaid with interest and secured against the firm's assets
    • Debt is held only by households, while equity is held only by governments
    • Debt is borrowed money that must be repaid with interest, while equity is ownership shares in a company
    • Debt and equity are both forms of ownership of a firm with no repayment

  5. What is the money market?

    • The market for goods sold in shops and online
    • The market for short-term lending and borrowing, typically of up to one year
    • The market where currencies are exchanged for other currencies, and where interest rates on long-term bonds are set
    • The market for long-term shares and property

  6. Which of the following is a way in which firms raise finance?

    • Raising the exchange rate and increasing exports
    • Issuing shares, issuing corporate bonds and borrowing from a bank
    • Selling government bonds and buying foreign currency, which raises the value of the firm's shares and its profits each year
    • Reducing wages and increasing prices for consumers

  7. What is meant by the coupon on a government bond?

    • The rate of exchange used to buy the bond
    • The date on which the bond is repaid in full
    • The fixed annual interest payment made to the bondholder, based on the face value
    • The price at which the bond is sold in the market, which is always set at face value by the issuing government

  8. A bond with a face value of 100 pounds and a 5 per cent coupon is trading at 80 pounds. What is the yield on the bond?

    • 5.00 per cent
    • 12.5 per cent
    • 20.0 per cent
    • 6.25 per cent

  9. A bond with a face value of 100 pounds and a 5 per cent coupon rises in price to 125 pounds. What is its yield?

    • 5 per cent
    • 4 per cent
    • 6 per cent
    • 25 per cent

  10. Why is there an inverse relationship between market interest rates and bond prices?

    • When market interest rates rise, bond prices also rise, because demand for bonds increases
    • When market interest rates rise, existing bonds with fixed coupons become less attractive, so their prices fall
    • Bond prices and interest rates always move in the same direction
    • Interest rates have no effect on the price of bonds in the secondary market, because bond prices are fixed by the issuing government

  11. A firm wants finance that does not have to be repaid. Which option is most suitable?

    • Issuing corporate bonds, because bonds never need repayment and so the firm pays no interest on any of the money raised
    • Borrowing short-term from the money market each month
    • Issuing new shares, because equity does not require repayment of the principal
    • Taking out a bank loan, because interest is tax deductible

  12. A UK firm exchanges pounds for dollars to pay for imports from the USA. Which market does this transaction take place in?

    • The money market
    • The market for government bonds
    • The foreign exchange market
    • The capital market for shares

  13. Which of the following would be included in broad money but not in narrow money?

    • Balances in current accounts that can be used for payments on demand, and so are counted in the narrowest measure of money
    • Notes and coins held by households for everyday use
    • Large savings deposits held in banks that cannot be withdrawn on demand
    • Cash held in shops and businesses for day-to-day trading

  14. A government bond with a face value of 100 pounds pays 3 pounds each year. What is its coupon rate?

    • 10 per cent
    • 3 per cent
    • 0.3 per cent
    • 30 per cent

  15. Why might a firm prefer long-term bonds to short-term bank borrowing for a major investment project?

    • Long-term bonds never require interest payments, so they cost nothing
    • Bank loans are never available to firms for investment projects
    • Short-term borrowing always has lower interest rates than long-term bonds, so firms should always prefer short-term loans for investment
    • Long-term bonds can fix the repayment schedule for many years, matching the life of the investment

  16. Why is the relationship between a bond's price and its yield important for investors?

    • It shows how the return on a fixed coupon changes with market prices, so investors can compare returns
    • It shows the amount of tax payable on the bond
    • It shows the exchange rate between the bond and the pound
    • It shows the number of years until the bond matures, which is the only factor that affects the return an investor earns from it

  17. A bond with a 5 pound annual coupon falls in price to 90 pounds. What is the approximate yield?

    • 10.00 per cent
    • 4.50 per cent
    • 5.56 per cent
    • 5.00 per cent

  18. Why might debt finance be riskier than equity finance for a firm during a recession?

    • Debt finance cannot be used by firms that are making losses
    • Equity holders always receive fixed payments whatever the profits
    • Debt finance pays dividends that rise in a recession, increasing costs for the firm, which must also repay the full principal
    • Interest and principal must be paid whatever the firm's profits, which can lead to financial distress

  19. Which statement best evaluates the role of financial markets in the economy?

    • They only benefit wealthy individuals, and they have no effect on firms
    • They have no real effect on the economy, because all money is held in cash
    • They always stabilise prices and prevent any recession, because markets adjust to every shock within a single trading day
    • They channel savings into investment and provide liquidity, but they can also be volatile and prone to speculation

  20. Which of the following is a capital market rather than a money market instrument?

    • An overnight loan between banks
    • A 30-day Treasury bill
    • A three-month commercial bill
    • A 20-year government bond

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