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
The _______________________ was designed to reduce or eliminate interest rate
limitations and increase access to various sources of funds available to banks and thrifts
and expand the Federal Reserve’s control over thrifts and non-member banks.
a. Glass Steagall Act
b. Gramm-Leach-Bliley Act
c. Garn-Saint Germain Act
d. Depository Institutions Deregulation and Monetary Control Act
_______________ accept the savings of individuals and lend pooled savings to
individuals primarily in the form of mortgage loans and operate almost entirely in New
England , New York, and New Jersey, with most of their assets continuing to be
invested in mortgage loans.
a. Commercial banks
b. Thrift institutions
c. Credit unions
d. Finance companies
e. none of the above
Three theories commonly used to explain the term structure of interest rates include all
of the following EXCEPT
a. the default risk theory
b. the expectations theory
c. the market segmentation theory
d. the liquidity preference theory
The value of a share of stock, currently selling for $100, after it has a 2 for 1 split is:
a. $50
b.$150
c. $200
d. $250
e. none of the above
If a firm has current earnings per share of $2 and a degree of operating leverage of 4, a
10% increase in sales would result in earnings per share of:
a. $2.80
b. $8
c. $2.20
d. cannot tell from this information
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. the level of cash holdings
e. none of the above
The prime rate offered by commercial banks is their _____________ rate to their
______________ quality business customers.
a. highest, highest
b. lowest, lowest
c. lowest, highest
d. highest, lowest
The ________ method of developing a pro forma income statement forecasts sales and
values for the cost of goods sold, operating expenses, and interest expense that are
expressed as a ratio of projected sales.
a. percent of sales
b. accrual
c. judgmental
d. cash
The likelihood that borrowers are ill and would not be able to make interest and
principal payments is an example of:
a. interest rate risk
b. credit risk
c. liquidity risk
d. capital adequacy risk
46. If a firm’s sale price per unit decreases, the firm’s operating breakeven point will
a. decrease
b. increase
c. remain unchanged
d. change in an undetermined direction
The value of a share of stock currently selling for $100 after it has a 5 for 1 split is:
a. $20
b.$40
c. $500
d. $1000
e. none of the above
Investment companies (mutual funds), investment banking firms, and brokerage firms
are the primary types of ____________.
a. banks
b. securities firms
c. pension funds
d. finance companies
e. none of the above
Which one of the following is not a basic component of the DuPont method of ratio
analysis?
a. profit margin
b. total asset turnover
c. equity multiplier
d. liquidity margin
A major factor in the severity of the 2007-09 financial crisis was the massive amounts
of debt taken on by:
a. individuals
b. business
c. government
d. all of the above
e. none of the above
The Depository Institutions Deregulation and Monetary Control Act of 1980 did not:
a. eliminate all Regulation Q requirements
b. allow all depository institutions to borrow from the Fed on the same basis
c. increase federal deposit insurance
d. amend the Home Owner’s Loan Act of 1993
On the income statement, operating profit is defined as:
a. operating profits minus selling, general, and administrative expense
b. gross profit minus selling, general, and administrative expense and depreciation
c. sales revenue minus cost of goods sold
d. sales revenue minus operating expenses
e. none of the above
An example of asset securitization is:
a. a bond backed by credit card receivables
b. a debenture
c. a subordinated debenture
d. all the above
The cost of capital for retained earnings:
a. cannot be determined
b. may be determined by more than method
c. is greater than the cost of capital for common stock
d. none of the above
The exchange rate is the rate at which a given unit of foreign currency is quoted in
terms of:
a. commodity prices
b. the domestic currency
c. the foreign currency
d. gold
Although unemployment represents a loss of potential output, most economists agree
that the real costs of unemployment to an economy are minimal.
The prospectus is a contract outlining the duties, responsibilities and fees between the
issuing firm and its underwriter.
The money multiplier indicates the maximum increase in deposits (and money supply)
that can result from a given increase in excess reserves.
The future value of a $100 deposit in 10 years at 10% is $38.55.
A trust receipt is a claim against a customer’s inventory when the individual items are
indistinguishable.
The risk-free rate of interest is equal to the real rate of interest plus a premium for
inflation.
Primary capital consists of owners’ capital, preferred stock, debt convertible into
common stock, and loan loss reserves.
The claims of collateralized bondholders are junior to the claims of debenture holders.
A commercial finance company typically purchases the accounts receivable outright
and assumes all credit risks.
The return provided by $100 deposited for 10 years that results in a future value of
$614.46 is 19.91%.