20. Continuing federal programs that stabilize economic activity are called
a. transfer payments
b. automatic stabilizers
c. social insurance programs
d. none of the above
Each member of the Fed Board of Governors is appointed for a term of:
a. 8 years
b. 12 years
c. 14 years
d. none of the above
The prudent use of derivatives to hedge, or reduce risk, is similar to the concept of
________________.
a. gambling
b. juggling
c. hiding
d. insurance
e. none of the above.
_________________________ was created to help economic growth in developing
countries.
a. The World Bank
b. The International Monetary Fund
c. The Export-Import Bank
d. The Agency for International Development.
Exchange-traded options are liquid because they are standardized in terms of:
a. announcement dates
b. future prices
c. timing of the underlying asset
d. location of the underlying asset
e. none of the above.
A bond that allows investors to force the issuer to redeem the bond prior to maturity is
called a:
a. convertible bond
b. callable bond
c. debenture bond
d. putable bond
All other things being equal, an increase in the amount of debt for a firm would:
a. increase the degree of operating leverage
b. decrease the degree of operating leverage
c. have no impact on degree of operating leverage
d. not enough information given
__________ directors of the Federal Reserve are appointed by the Board of Governors
of the Federal Reserve System and may not be stockholders, directors, or employees of
existing banks.
a. Class A
b. Class B
c. Class C
d. Class D
An organization that provides loans directly to consumers and businesses or aid
individuals in obtaining financing for durable goods is called a (n)
a. commercial bank
b. investment bank
c. savings and loan
d. finance company
Most firms that issue dividends try to maintain a consistent _________________.
a. dividend per share
b. dividend payout ratio
c. both policies are frequently employed
d. neither policy is frequently employed
The chairman of the Federal Reserve System:
a. is appointed by the Secretary of the Treasury
b. serves a life term
c. is the president of the New York Federal Reserve Bank
d. none of the above
Traveler’s letters of credit are:
a. issued by a bank and addressed to a list of banks in other countries
b. especially popular with tourists
c. convertible into cash at most large banks
d. of special value to exporters
The square root of the standard deviation is called the:
a. variance
b. coefficient of variation
c. beta
d. none of the above
The default risk premiums on _______ corporate bonds are generally better indicators
of investor pessimism or optimism about economic expectations than are those on
______ bonds.
a. Aaa, Baa
b. Baa, Aaa
c. Baa, Caa
d. Caa, Baa
The purpose of Regulation Z is to:
a. make consumers aware of the costs of alternative forms of credit
b. prohibit garnishment
c. encourage depository institutions to help meet the credit needs of their communities
for housing and other purposes
d. regulate the overseas activities of member banks of the Federal Reserve System
Portfolio risk is comprised of:
a. systematic and market risk
b. unsystematic and microeconomic risk
c. systematic and unsystematic risk
d. systematic and macroeconomic risk
Which of the following statements is false?
a. The price-to-book ratio measures the market’s value of the firm relative to balance
sheet equity.
b. The equity multiplier ratio is calculated as owners’ equity divided by total assets.
c. The degree of operating leverage measures the sensitivity of operating income to
changes in the level of output.
d. All the above statements are correct.
Rational investors would consider an investment in a risky business venture only if they
feel the expected return is high enough to justify the
a. greater risk.
b. higher cost.
c. longer useful life.
d. more complex designs.
e. none of the above.
A firm’s business risk is affected by:
a. business cycle
b. the firm’s operating leverage
c. competitive pressures
d. all the above
The default risk premium at a certain point in time may be expressed by comparing the
interest rates on:
a. a Treasury bill and a Treasury bond
b. a Treasury bill and a long-term corporate bond
c. a Treasury bill and the commercial paper rate
d. a risky security and a comparable maturity U.S. Treasury security
A convertible bond can be converted, at the issuing firm’s option, into a specific number
of shares of the issuer’s common stock.
Securitization is the process of insuring mortgage loans against default.
The marginal tax rate is the rate paid on the last dollar of income.
One of the reasons open market operations are conducted virtually every business day is
to implement changes in the money supply called for by the Federal Open Market
Committee.
Transactions motives for holding cash include holding funds to meet unexpected
demands.
The most important holders of Treasury bills are corporations and individuals.