The seven-member board of the Federal Reserve that sets monetary policy is called
a. the Federal Reserve Open Market Committee
b. the Federal Reserve Board of Governors
c. the Federal Reserve Advisory Committee
d. none of the above
Trades between large institutional investors that take place without the benefits of
brokers or dealers occur in the:
a. primary market
b. secondary market
c. third market
d. fourth market
An order for immediate purchase or sale at the best possible price is called a:
a. market order
b. limit order
c. stop loss order
d. margin order
One factor that decreases the volume of bank reserves is a decrease in:
a. bank holdings of loans and securities
b. time and savings deposits
c. life insurance company reserves
d. Federal Reserve float
All of the following are correct except:
a. Unlike debt and preferred stock, cash flows from common equity are not fixed or
known beforehand and their risk is harder to evaluate.
b. Firms have two sources of common equity, retained earnings and new stock issues,
and thus two costs of common equity.
c. From the shareholders’ perspective, the opportunity cost of retained earnings is the
return the shareholders could earn by investing the funds in assets whose risk is similar
to that of the firm.
d. If the firm cannot invest its retained earnings to achieve a sufficient risk-adjusted
return, shareholders would be better off receiving 100 percent of its net income as
dividends.
e. All of the above statements are correct.
The present value of an annuity of $5,000 to be received at the end of each of the 6
years at a discount rate of 4% would be:
a. $26,210
b. $33,165
c. $3,950
d. none of the above
The Board of Governors of the Federal Reserve establishes monetary policy by:
a. setting reserve requirements, altering the prime rate, and through federal open market
operations.
b. setting loan to value ratios, altering the discount rate, and through federal open
market operations.
c. setting reserve requirements, altering the discount rate, and through international
currency transactions.
d. setting bank profitability ratios, altering the discount rate, and through federal open
market operations.
e. none of the above
A receipt that represents foreign shares owned and traded by U.S. investors is called a
(n):
a. global depository receipt
b. American depository receipt
c. representative depository receipt
d. none of the above
Sound capital budgeting decisions require a variety of information including internal
financial data, external economic and political data, and non-financial data.
If a firm has no debt and pays no taxes, then the firm’s operating profit margin will be
___________ the firm’s net profit margin.
a. greater than
b. less than
c. the same as
d. we can’t tell
The maximum buying price or the minimum selling price specified by the investor is
called a:
a. stop-loss order
b. market order
c. short sale
d. limit order
If a Microsoft January 20 put option with a strike price of $20 were about to expire and
the market price of the underlying Microsoft stock was $15.00, the price of the put
option would have to be __________ to eliminate arbitrage opportunities.
a. $5.00
b. $10.00
c. $15.00
d. $25.00
e. none of the above.
Which of the following factors usually influence a person’s choice of savings medium?
a. liquidity
b. degree of safety
c. return
d. all of the above
Which of the following is not an advantage of owning debt securities?
a. high claim on cash flows of a firm
b. highest return of corporate securities
c. high claim on assets of in liquidation
d. none of the above
The commercial letter of credit is of special usefulness in international transactions
when the:
a. importer’s credit rating is either weak or not well known
b. exporter’s credit rating is weak, but the importer’s credit reputation is strong
c. bank financing the importer’s transaction has very little confidence in the customer’s
ability to meet payments
d. exporter’s bank has little confidence in its customer’s ability to meet its financial
obligations
Quotations of foreign exchange rates in the many cities of the world are identical or
nearly so because of:
a. central bank control
b. price fixing
c. clearinghouse activities
d. arbitrage activities
Paper money fully backed by a precious metal and issued by the government is called:
a. fiat money
b. representative full-bodied money
c. full-bodied money
d. credit money
The risk cause by variations in interest expense unrelated to sales or operating income
arising from changes in the level of interest rates in the economy is called:
a. financial risk
b. business risk
c. tax risk
d. purchasing power risk
e. none of the above
Typically, a close estimate of market value added (MVA) is the market value of equity
less the book value of equity.
Before the Federal Reserve System was created, a large part of the reserves of
commercial banks was:
a. in the form of state and federal government bonds
b. deposited with the United States Treasury
c. held as deposits with large city banks
d. held as cash in their vaults
32. Underpricing represents the difference between the aftermarket price and the initial
offering price.
Most of the annual funds raised from security issues come from corporate bond sales.
The par value of a preferred stock is meaningful in that it is often used to determine the
fixed annual dividend.
Any predictable trend in the same direction as the price change would be evidence of an
efficient market.
The Monetary Control Act prohibited the Federal Reserve from controlling thrift
institutions.
A global depository receipt is traded on the American Stock Exchange.
Service industries tend to have larger proportions of fixed assets to current assets.
In general, short-term interest rates are more stable than long-term interest rates.