1) Nations that export more than they import will have a trade deficit.
2) The variance or standard deviation measures the risk per unit of return.
3) Cannibalization occurs when a project robs cash flow from the firms existing line of
business.
4) A pre-emptive right refers to the right of existing shareholders to sue management in
order to head off potential actions by management that would adversely affect the price
of the stock.
5) The return provided by a $100 annuity deposited for 10 years that results in a
future value of $1,593.74 is 10%.
6) Cost-push inflation occurs when prices are raised to cover rising production costs,
such as wages.
7) A firms choice of financing strategy depends on a number of factors including its
operating characteristics, cost, flexibility, and the ease of obtaining future financing.
8) The primary factors that influence the total amount of savings in an economy in any
given period include the trade surplus or deficit and exchange rates.
9) Preferred stock is an equity security that has a senior claim to the firms earnings and
assets over bonds.
10) Credit risk is another term for default risk.
11) Interest rates in the United States are only influenced by domestic factors.
12) Automatic stabilizers include trade deficits, budget deficits, and floating exchange
rates.
13) The corporate planning tool that develops project plans that fit well with the firms
plans is often referred to by the following acronym:
a.MOSG
b.SMOG
c.OMGS
d.GOMS
e.none of the above statements are correct
14) Economists use a ___________________ framework to explain how the prices and
quantities of goods and services are determined in a free-market economic system.
a.opportunity
b.marginal cost
c.supply-and-demand
d.anti-monopoly
e.none of the above
15) What type of investment occurs when claims to wealth in the form of real assets are
created or acquired?
a.financial investment
b.real investment
c.contractual investment
d.voluntary investment
16) Which of the following statements is most correct?
a.An inefficient portfolio maximizes return for a given level of risk, or minimizes risk
for a given level of return
b.A single asset is called a portfolio
c.The goal of an efficient portfolio is to maximize risk for a given level of return
d. Combining positively correlated assets having the same expected return results in a
portfolio with the same level of expected return and a lower level of risk
e. none of the above
17) The objective of managing current assets and liabilities is to
a.achieve as low a level of current assets as possible
b.achieve as low a level of current liabilities as possible
c.achieve a balance between profitability and risk that detracts from the firm’s value
d.achieve as high a level of current liabilities as possible
e.none of the above
18) If U.S. interest rates are expected to be 6 percent next year, European interest rates
are expected to be 4 percent next year, and the spot rate between the euro and dollar is
$1.30, then according to interest rate parity, we would expect the dollar to _________
against the euro from $1.30 to __________:
a.appreciate, $1.275
b.appreciate, $1.325
c.depreciate, $1.275
d.depreciate, $1.325
19) The basic price that equates the demand for and supply of loanable funds in the
financial markets is the __________:
a.interest rate
b.yield curve
c.term structure
d.cash price
e.none of the above
20) Which of the following is not true of Treasury bonds?
a.long-lived
b.noncallable
c.stated interest rate
d.all the above are false
21) A purchasing agent for a domestic art gallery touring foreign countries for possible
acquisitions might find it convenient to have:
a.travelers checks
b.a commercial letter of credit
c.regular checkbook drafts
d.a travelers letter of credit
22) Assume the probability of a pessimistic, most likely and optimistic state of nature is
.25, .45 and .30, and the returns associated with those states of nature are 10%, 12%,
and 16% for asset X. Based on this information, the expected return and standard
deviation of return are:
a.12.0% and 4.0%
b.12.7% and 2.3%
c.12.7% and 4.0%
d. 12.0% and 2.3%
e. none of the above
23) Which of the following statements is false?
a.An order bill of lading carries title to the goods being shipped
b.There are no foreign offices of U.S. banks in foreign countries
c.In dealing with a foreign bank, an exporter generally works through a local subsidiary
of that bank
d.All of the above statements are false
24) In recent years, the principal market for bankers acceptances has been:
a.domestic banks
b.domestic and foreign business corporations
c.foreign banks
d.none of the above
25) The equity multiplier is calculated as:
a.total assets divided by owners equity
b.net income divided by owners equity
c.net income divided by total assets
d.net sales divided by total assets
26) Examples of internal financial data required for project analysis include all of the
following except:
a.investment costs
b.estimates of revenues, costs, and cash flows
c.financing costs
d.transportation costs
e.all of the above are included
27) If balances in foreign accounts are substantially reduced due to an excess of
demand relative to supply:
a.loans are usually sought from central banks and other institutions to replenish
balances
b.price quotations are adjusted to affect a reduction in demand and an increase in supply
c.currency may be shipped abroad for deposit in such accounts
d.Export-Import Bank loans are sought to bolster balances
28) In general, the less net working capital a company has
a.the greater the risk
b.the lower the risk
c.the less likely creditors will lend to the firm
d.none of the above
29) On the income statement, operating profit is defined as:
a.operating profits minus operating expenses
b.gross profit minus operating expenses
c.sales revenue minus cost of goods sold
d.sales revenue minus operating expenses
e.none of the above
30) A firm with an inventory period of 30 days, an accounts receivable period of 30
days, and an accounts payable period of 90 days has a cash conversion cycle of _____
days.
a.150
b.-60
c.30
d.-30
31) Which of the following is a savings deficit unit?
a.businesses
b.government
c.individuals
d.both a and b
32) Systematic risk is rewarded with a premium in the market because:
a.it is associated with market movements which cannot be eliminated through
diversification
b.it is a microeconomic risk
c.that risk is unique to a firm or an industry
d.none of the above
33) All of the following accounts are considered to be fixed assets on the balance sheet
except:
a.buildings
b.equipment
c.plant
d.machinery
e.all of the above are fixed assets
34) Large multinational corporations enjoy special opportunities for risk reduction or
speculative gains from currency activities:
a.because of their influence on currency developments in the various countries
b.since they can move balances from one country to another as monetary conditions
seem to warrant
c.because of their generally stronger credit ratings
d.because they always deal in currencies denominated in U.S. dollars
35) Which of the following statements is false?
a.The prices quoted to the individual buyer of foreign exchange are always in favor of
the seller
b.Subsidiary banking corporations established by foreign banks in this country are not
subject to any special restrictions because of foreign ownership
c.Economic risk reflects the uncertainty associated with national government action that
might affect asset values
d.All the above statements are false
36) Currently, the backing for Federal Reserves notes is primarily in the form of:
a.gold certificates
b.gold bullion
c.eligible paper (business notes and drafts)
d.all of the above
e. none of the above
37) 2/10 net 30 EOM translates as
a.2 percent cash discount may be taken if paid in 10 days of shipment; if not paid within
10 days, the net amount is due in 20 days
b.2 percent cash discount may be taken if paid in 10 days of shipment; if not paid
within 10 days, the net amount is due 30 days after the middle of the month
c.2 percent cash discount may be taken if paid in 10 days of shipment; if not paid within
10 days, the net amount is due 20 days after the end of the month
d.2 percent cash discount may be taken if paid in 10 days of shipment; if not paid
within 10 days, the net amount is due in 20 days
e.none of the above
38) The ___________________ Exchange (ICE) serves the global markets for
agricultural, credit, currency, emissions, energy and equity index markets.
a.Intercontinental
b.Indianapolis
c.Istanbul
d.International
e. none of the above
39) Continuing federal programs that stabilize economic activity are called
a.transfer payments
b.leveling programs
c.social insurance programs
d.socialist spending
e. none of the above
40) All other things being equal, a decrease in the selling price of a product for a firm
would:
a.increase the break-even point
b.decrease the break-even point
c.have no impact on the break-even point
d.not enough information given
41) You are trying to determine the fair price to pay for a share of Philip Morris. If you
buy this stock, you plan to hold it for a year. At the end of the year, you expect to
receive a dividend of $5.50 and to sell the stock for $154. The discount rate for Philip
Morris stock is 16%. What should be the price of this stock?
a.$99.80
b.$137.50
c.$144.22
d.$151.66
42) What would be recorded in the common stock account on the balance sheet if
20,000 shares are issued at a par value of $2 and the market value is $5?
a.$20,000
b.$40,000
c.$30,000
d.$60,000
43) The currency quotation method that indicates the amount of a home countrys
currency needed to purchase one unit of a foreign currency is called the
a.direct quotation method
b.indirect quotation method
c.floating exchange rate method
d.none of the above