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Savings are the accumulation of cash and other financial assets and are generally
classified into which of the following two categories?
a. voluntary and contractual savings
b. primary and secondary savings
c. personal and governmental savings
d. voluntary and corporate savings
A firm with a total asset turnover lower than the industry standard and a current ratio
which meets the industry standard may have
a. excessive current assets.
b. excessive inventory.
c. excessive accounts receivable.
d. excessive debt.
e. none of the above
The time between ordering materials and collecting cash from receivables is known as
the:
a. operating cycle
b. cash conversion cycle
c. accounts receivable period
d. none of the above
Bond ratings are paid for by:
a. the issuing firm
b. the trustee
c. the investment banker
d. none of the above
A decrease in contractual managers' salaries will result in:
a. an increase in the degree of combined leverage
b. a decrease in the degree of combined leverage
c. no change in the degree of combined leverage
d. none of the above
____________________________ authorizes the Federal Reserve Board to identify
unfair or deceptive acts or practices on the part of banks and to issue regulations to
prohibit them.
a. Truth in Lending Act
b. Equal Credit Opportunity Act
c. Federal Trade Commission Improvement Act
d. Fair Credit Billing Act
The security market line can be used to determine the expected return on a security if
we know the:
a. risk-free rate
b. systematic risk of that security
c. market risk premium
d. all of the above
The dynamic actions of the Federal Reserve System:
a. contribute to the smooth everyday functioning of the economy
b. are designed to meet the credit needs of individuals and institutions
c. support depositories and other institutions
d. stimulate or repress the level of prices or economic activity
The degree of combined leverage shows us to what degree a percentage change in sales
will cause a percentage change in:
a. earnings before interest and taxes
b. pre-tax earnings
c. earnings per share
d. gross profit
_______________ are cooperative nonprofit organizations that exist primarily to
provide member depositors with consumer credit, including the financing of
automobiles and the purchase of homes, and derive their funds almost entirely from the
savings of their members.
a. Commercial banks
b. Thrift institutions
c. Savings banks
d. Credit unions
e. none of the above
In the field of foreign trade, the most common form of credit instrument is the:
a. bankers' acceptance
b. trust receipt
c. sight draft
d. none of the above
If individuals believe their income will decrease in the near future, they may
_____________ their spending.
a. Eliminate
b. Curtail
c. Increase
d. Double
e. Not change
Which of the following statements is false?
a. The difference between total reserves and the monetary base is currency held by the
nonbank public.
b. The ability to alter the money supply and credit is based on the fact that our banking
system does not utilize a fractional reserve system.
c. The ability to predict M1 velocity, in addition to money supply changes, is important
in achieving successful monetary policy making.
d. A derivative deposit arising out of a loan from Bank A is transferred by check to
Bank B, where reserve requirement are again imposed.
Assume that a banking system must keep reserves of 20% against deposits. The bank
receives a primary deposit of $20,000. What would be the maximum amount of loan
that could be made by the system?
a. $16,000
b. $40,000
c. $80,000
d. $100,000
If a firm has a receivables turnover of 12, on average, which of the following would be
the firm's average collection period?
a. 12 months
b. 1 month
c. 8.33 months
d. not enough information given
Which of the following cycles is not a component of the firm's operating cycle?
a. inventory cycle
b. accounts receivable cycle
c. accounts payable cycle
d. fixed asset cycle
Smith Company has a degree of operating leverage of 5, while an industry competitor,
Johnson Company, has a degree of operating leverage of 2. Supplied with this
knowledge, pick the response below that is most typical of Johnson Company.
a. high fixed costs
b. conservative
c. large commitment to plant facilities
d. low sales.
Which of the following statements is most correct?
a. The liquidity preference theory holds that interest rates are determined by the supply
of and demand for loanable funds.
b. The loanable funds theory and the liquidity preference theory are incompatible with
each other because one is right and the other is wrong.
c. . Marketable U.S. securities are mainly sold through dealers and have interest
payments that are federally taxable.
d. The market segmentation theory holds that securities of different maturities are
perfect substitutes for each other.
2/10 net 30 translates as
a. 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 30 days.
b. 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 30 days after the middle of the month.
c. 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 30 days after the end of the month.
d. a 2 percent cash discount may be taken if paid in 10 days of shipment; if not paid
within 15 days, the net amount is due in 20 days.
e. none of the above
Speculative motives for holding cash include holding funds to meet unexpected
demands.
Firm value is calculated by adding expected cash flow to the firm's cost of capital under
each capital structure.
The interest paid on bonds issued by corporations in the United States is tax deductible
to the issuing corporation.
The variance of a portfolio can be calculated by finding the variances of the individual
components of the portfolio and finding the weighted average of those variances.
The secondary securities markets are involved in creating and issuing new securities,
mortgages, and other claims to wealth.
The U.S. banking system as it exists today is relatively unchanged since just before the
Civil War.
An asset's beta can be estimated by regressing its returns against the returns for the
market portfolio.
Independent projects are not in direct competition with one another.
Purchasing power parity (PPP) states that the currency of a country with relatively
higher inflation will depreciate relative to the currency of a country with a relatively
lower inflation rate.
