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1) Cost-push inflation during economic expansions when demand for goods and
services is greater than supply.
2) When accounts receivable are pledged: money is advanced to the borrower as a loan
against accounts receivable; accounts receivable balances remain on the balance sheet;
the customer payment is made to the firm, which then submits the payment to the bank;
and interest is charged on the loan.
3) Net exports are exports of goods and services plus imports of goods and services.
4) If the Fed changes discount policies it may affect the supply of loanable funds.
5) Under a best-effort agreement, investment bankers try to sell the securities of the
issuing corporation, but they assume no risk for a possible failure of the flotation.
6) Commissions on stock trades are set by the stock exchanges.
7) Callable preferred stock gives the corporation the right to retire the preferred stock at
its option.
8) Federal regulation of investment banking is administered primarily under the
provisions of the Investment Banking Monitoring and Control Act of 1999.
9) Implicit agency costs do not have a direct expense associated with them, but they
harm shareholders anyway.
10) The coefficient of variation measures the risk per unit of return.
11) Which of the following statements is most correct?
a.The probability of an event occurring is the percentage of a given outcome
b.A skewed probability distribution shows all possible outcomes and associated
probabilities for a given event
c.The standard evaluation measures the dispersion around the expected value
d. The constant of variation is a measure of relative dispersion used in comparing the
risk of assets with differing expected returns
e. none of the above
12) The _______________ ratio is computed as earnings before interest and taxes
divided by interest expense:
a.net profit margin
b.fixed charge coverage
c.total asset turnover
d.interest coverage
13) ________ evidence of the existence of a problem or outstanding management
performance is provided by ratio analysis.
a.Conclusive
b.Inconclusive
c.Complete
d.Definitive
e.all of the above
14) If a check is written for the full amount of a derivative deposit created by a bank
loan and then is sent to a bank in another city for deposit:
a.the lending bank would lose all of its excess reserves
b.the lending bank would still have reserves to lend
c.the full amount would be added to the receiving banks excess reserves
d.both a and c
15) In the United States, most money is created by:
a.depository institutions
b.the United States Treasury
c.the Federal Reserve System
d.None of the above
16) Which of the following may accumulate savings?
a.individuals
b.corporations
c.governmental units
d.all the above may have savings
17) Which of the following statements is most correct?
a.Income from the obligations of the federal government is exempt from all state and
local taxes but is subject to federal and state inheritance, estate, or gift taxes
b.Income from the obligations of state governments is exempt from all state and local
taxes but is subject to federal and state inheritance, estate, or gift taxes
c.Income from the obligations of the federal government is exempt from all federal
taxes but is subject to state and local income taxes, state inheritance, estate, or gift taxes
d.Income from the obligations of the federal government is exempt from all federal,
state and local taxes but is subject to inheritance, estate, or gift taxes
e. none of the above
18) Which of the following statements is most correct?
a.Personal consumption expenditures of $10.1 billion in 2009 accounted for about 41
percent of GDP; this percentage relationship has been very stable throughout the decade
of the 2000s
b.Personal consumption expenditures of $1.1 trillion in 2009 accounted for about 11
percent of GDP; this percentage relationship has been very stable throughout the decade
of the 2000s
c.Personal consumption expenditures of $10.1 trillion in 2009 accounted for about 11
percent of GDP; this percentage relationship has been very unstable throughout the
decade of the 2000s
d.Personal consumption expenditures of $1.1 trillion in 2009 accounted for about 71
percent of GDP; this percentage relationship has been very unstable throughout the
decade of the 2000s
e.none of the above
19) A loan that is repaid in equal payments over a specified time period is called a (n)
a.discount loan
b.balloon loan
c.amortized loan
d.none of the above
20) Balances in foreign accounts are maintained for purposes of dealing in foreign
exchange by:
a.central banks
b.correspondents of domestic banks
c.correspondents or foreign branches of domestic banks
d.most multinational corporations
21) In the case of mutually exclusive projects:
a.the financial manager is responsible for choosing the average of these alternatives
since only one can be chosen; selecting one project requires the selection of the other
b.they are to be evaluated based on their expected effect on shareholder wealth; all such
projects that enhance shareholder wealth should be included in the firms capital budget
c.the financial manager is responsible for choosing the best of these alternatives since
only one can be chosen; selecting one project precludes the other from being
undertaken
d.they are to be evaluated based on their past effect on shareholder wealth; all such
projects that enhance shareholder wealth should be included in the firms capital budget
e.none of the above statements are correct
22) Which of the following statements is most correct?
a.The benefits of international specialization of effort are so great that a nation should
pursue such a policy irrespective of the policies of other nations
b.Arbitrage in the international exchange market has the unfortunate effect of creating
instability in exchange rates
c.The trust receipt is used by a bank in releasing shipping documents to a customer
when the bank wishes to retain title to the merchandise
d.The bankers acceptance and the commercial letter of credit involve three principal
parties: the importer, the importers bank, and the exporter
23) The projections on a cash budget will reflect all of the following except:
a.the firms marketing effort
b.the firms credit policies
c.how the firm manages its receivables
d.All of the statements above are correct
24) A negative cash conversion cycle indicates that the
a.operating cycle exceeds the average payment period
b.average payment period exceeds the operating cycle
c.firm is shortening its average payment period and lengthening its average collection
period
d.lengthening its average collection period and lengthening its inventory period
e. none of above are correct
25) The loanable funds theory used to explain the level of interest rates holds that
interest rates are a function of the supply of:
a.loanable funds and the demand for money
b.loanable funds and the demand for loanable funds
c.money and the demand for loanable funds
d.money and the demand for money
26) Financial assets include all except which of the following:
a.common stocks
b.time deposits
c.business loans
d.consumer loans
e.all of the above are financial assets
27) How an individual or organization treats others legally, fairly and honestly is called:
a.legal behavior
b.moral behavior
c.ethical behavior
d.none of the above
28) Methods used to speed up collections include all of the following except:
a.a lockbox system
b.remote disbursement locations
c.pre-authorized checks
d.All of the statements above are correct
29) All else the same, a trade deficit:
a.increases GDP
b.decreases GDP
c.have no impact on GDP
d.none of the above
30) To protect against loss as a result of adverse currency fluctuations, an export firm
may:
a.demand cash settlement
b.purchase a futures contract as a hedge
c.require the customer to make payment in the exporters currency
d.require a government guarantee against currency loss of value
31) $1,000 invested today at 6% interest would be worth ________ one year from now
a.$1,600
b.$1,060
c.$1,160
d.$1,006
e.none of the above
32) The financial environment:
a.encompasses the financial markets and global interactions that contribute to an
efficiently operating economy
b.encompasses the financial institutions and financial markets that contribute to an
efficiently operating economy
c.encompasses the financial system, financial institutions, financial markets, business
firms, individuals, and global interactions that contribute to an efficiently operating
economy
d.none of the above
33) Purchasers and sellers of futures are generally required to deposit an initial margin
in the range of ___________ with the exchanges clearinghouse to reduce credit risk.
a.15 to 20 percent
b.15 to 20 dollars
c.10 to 15 percent
d.10 to 15 dollars
e. none of the above.
34) For positive interest rates, the present value interest factor is
a.between 2.0 and 0.0
b.always negative
c.always less than 1.0
d.a discount rate
35) An effective financial system needs:
a.an efficient monetary system
b.to be able to create capital by channeling savings into investment
c.markets in which to buy and sell claims to wealth
d.all of the above
36) Cash flows from operating activities might include:
a.net income
b.increase in notes payable
c.dividend payment
d.all the above
e.none of the above
37) The effect on revenues and expenses from variations in the value of the U.S. dollar
in terms of other currencies is called:
a.interest rate risk
b.exchange rate risk
c.purchasing power risk
d. financial risk
e. none of the above
38) The average tax rate on a corporation with $75,000 in income and a tax liability of
$15,000 is:
a.15%
b.20%
c.25%
d.39%
39) In general, the more 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
40) When current savings of an economic unit exceed its direct investment in real
assets, this is referred to as:
a.savings surplus
b.savings deficit
c.savings neutral
d.savings inflation
41) Which of the following would not be considered in the fixed charge coverage ratio?
a.sinking fund payments
b.dividend payments
c.lease payments
d.all the above are considered in the fixed charge coverage ratio
42) Under the leadership of ______________, during the 2007-2009 financial crisis, the
Treasury was actively involved in trying to help financial institutions on the brink of
collapse find help through mergers with financially stronger institutions.
a.George Bush
b.Alan Greenspan
c.Ben Bernanke
d.Henry Paulson
e.none of the above are involved
43) Internal rate of return (IRR) and net present value (NPV) methods:
a.generally arrive at the same accept/reject decisions
b.are less sophisticated than the payback period
c.cannot make use of the same cash flows
d.can be substituted for by the payback period
44) Marketable securities are held primarily to meet:
a.transactions motives
b.precautionary motives
c.speculative motives
d.leverage motives
45) Reasons to invest in marketable securities would not include:
a.transactions motives
b.precautionary motives
c.speculative motives
d.all the above are reasons to invest in marketable securities
e.none of the above
46) Two years ago, a company spent $450,000 on a consulting study that focused on the
technology of the firms operations. Now it appears that technology is noncompliant
with existing regulations. New technology must replace the old project. The $450,000
would represent:
a.an opportunity cost
b.an operating expenditure
c.a sunk cost
d.none of the above
47) The willingness of a credit applicant to pay her or his bills is measured by:
a.capacity
b.capital
c.conditions
d.character
e.collateral
48) Which of the following terms best describes an annuity due?
a.a perpetuity
b.unequal payments
c.payment at beginning of year
d.payment at the end of the year
49) Putable bonds are sometimes referred to as:
a.retractable bonds
b.callable bonds
c.convertible bonds
d.none of the above
50) Which of the following accounts is usually part of the owners equity for a
corporation?
a.common stock
b.paid-in-capital
c.retained earnings
d.all of the above
