Brokerage firms do not perform which of the following functions?
a. handle shares of ownership
b. create money
c. market existing securities
d. they perform all the above functions
Assume that Ningbo Steel borrows $1,000,000 for one year under a line of credit with a
stated interest rate of 7.5 percent and a 15 percent compensating balance and that the
firm keeps no money on deposit in its checking account. Based on this information, the
effective annual interest rate on the loan is
a. 8.8%.
b. 15.0%.
c. 22.5%.
d. 8.2%.
e. none of the above
Total reserves in the banking system consist of:
a. vault cash held at commercial banks and other depository institutions
b. reserve deposits held at Federal Reserve banks
c. currency in circulation
d. both a and
A firm with a DOL of 2, and no preferred stock, and no long-term debt will have a DCL
of:
a. 0
b. 2
c. 1
d. cannot tell from this information
Paper money backed by a precious metal is called:
a. full-bodied money
b. a bimetallic standard
c. representative full-bodied money
d. none of the above
17. Open market operations differ from discounting operations in that they are:
a. initiated by member depository institutions
b. designed to be of significance only to large city banks
c. initiated by the President
d. initiated by Congress
e. none of the above
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
Commercial banks obtain the bulk of their loanable funds from:
a. depositors
b. the issue of certificates of deposit
c. sale of bank stock
d. sale of subordinated debenture bonds
The “perfect financial storm” that developed in 2008, which put the U.S. economy was
on the verge of collapse was characterized by all of the following EXCEPT:
a. The housing price “bubble” burst in 2006 and began a sharp decline.
b. Stock market prices peaked in 2007 and began a sharp decline.
c. Many of the mortgage-related debt securities originated and sold to others, or held,
by banks became difficult to value during the perfect financial storm and quickly
became known as “troubled” or “tonic” assets.
d. Individuals and businesses were defaulting on loans and home mortgages in
increasing numbers due to the weakening economy and falling home prices.
e. All of the above were factors
Which of the following is a savings deficit unit?
a. businesses
b. government
c. individuals
d. both a and b
A firm is evaluating a proposal which has an initial investment of $50,000 and has cash
flows of $15,000 per year for five years. The payback of the project is:
a. 1.5 years
b. 2 years
c. 3.3 years
d. 4 years
e. none of the above
_______________ provide loans directly to consumers and businesses or aid
individuals in obtaining financing of durable goods and homes, whereas
______________ originate mortgage loans on homes and other real property by
bringing together borrowers and institutional investors.
a. thrift institutions, savings and loans
b. thrift institutions, mortgage banking firms
c. finance companies, savings and loans
d. finance companies, mortgage banking firms
e. none of the above
In general, a firm that secures a bank line of credit pays interest on:
a. the full line of credit.
b. only half of the amount actually borrowed.
c. on the unused portion of the line of credit.
d. on the amount borrowed as well as on the unused portion of the line of credit.
e. none of the above
Ningbo Steel was extended credit terms of 3/15 net 30.. If the firm were able to stretch
its accounts payable to 60 days without damaging its credit rating, the cost of giving up
the cash discount would only be
a. 18.81%
b. 18.25%
c. 21.90%
d. 25.09%
e. none of the above
Which of the following is not considered to be a basic theory used to explain the term
structure of interest rates?
a. expectations theory
b. loanable funds theory
c. liquidity premium theory
d. market segmentation theory
e. all of the above are theories used to explain the term structure of interest rates.
The most important form of short-term business financing is:
a. a revolving credit agreement
b. accounts-receivable financing
c. inventory loans
d. trade credit
A limited liability company (LLC):
a. must register with the SEC to sell securities to the public
b. is an ongoing entity, even if one of the owners leaves
c. has a limited number of shareholders
d. all the above
e. none of the above
Holding demand constant, an increase in the supply of loanable funds will result in a (n)
___________ in interest rates.
a. increase
b. decrease
c. increase or decrease
d. none of the above
The degree of operating leverage measures the sensitivity of operating income to
changes in the level of output.
Theoretically, the transactions demand for cash could be reduced to zero.
Yankee bonds are U.S. dollar-denominated bonds that are issued in the United States by
a foreign issuer.
The U.S. Treasury has primary responsibility for management of the federal debt.
When accounts receivable are factored: the borrower sells the receivable; accounts
receivable balances are removed from the balance sheet; the customer payment is made
to the factor; and interest is charged on the funds advanced.
Pension funds receive contributions from employees and/or their employers and invest
the proceeds on behalf of the employees.
Investment banking firms sell or market new securities issued by businesses to
individual and institutional investors.
Lowering a firm’s credit standards or customer credit quality will cause the average
collection period to lengthen.