1) A travelers letter of credit is issued by a bank in one country and addressed to a list of
foreign banks which are usually correspondents of the issuing bank and have agreed to
purchase sight drafts presented to them by persons with appropriate letters of credit.
2) Poison pills are provisions in a corporate charter that make a corporate take-over
more unattractive.
3) The most desirable form of business organization from a liquidity standpoint is a
corporation.
4) A savings deficit occurs when investment in real assets exceeds current income.
5) A bond will sell at a premium if its required return or discount rate is greater than its
coupon rate.
6) Congress generally gives little consideration to interest rates in its spending
programs.
7) Although the Treasury has vast power to affect the supply of money and credit, the
Treasury largely limits its actions to taxing, borrowing, paying bills, and refunding
maturing obligations.
8) Inflation-protected Treasury notes have a principal value that changes in accordance
with the consumer price index (CPI).
9) All securities must be listed before they may be traded on the American Stock
Exchange and regional exchanges.
10) Market value added can be written as: the market value of stock minus the market
value of debt plus the book value of stock minus the book value of debt.
11) Under partnership law, each partner has unlimited liability for all the debts of the
firm.
12) A firm with an inventory period of 100 days and an accounts payable period of 50
days will have an operating cycle of 150 days.
13) Aggregate demand refers to total spending in the economy.
14) The contribution margin represents contribution of each unit sold that first goes
toward paying fixed costs.
15) Voluntary savings are savings accumulated on a regular schedule for a specified
length of time by prior agreement.
16) Interest rate parity states that a country with a relatively higher expected inflation
rate will have its currency depreciate relative to a country with a relatively lower
inflation rate.
17) The firm that enters into a futures contract with respect to foreign exchange does so:
a.to offset possible loss in its collection process by a gain in the delivery process of the
futures contract
b.in anticipation of an increase in the value of the currency of the country for which the
contract is established
c.to decrease the cost of their sales transactions
d.to eliminate a loss in the collection process of their accounts receivable in that country
e.none of the above
18) The stage in the capital budgeting process in which projects that are accepted must
be executed in a timely fashion is called the _____________ stage.
a.follow-up
b.selection
c.identification
d.implementation
e.none of the above are included
19) The after-tax cost of debt for a firm in the 35% tax bracket with a before-tax cost of
debt of 6% is:
a.6%
b.2.1%
c.3.9%
d.cannot tell from this information
20) Which of the following would not be considered an asset?
a.cash
b.accounts receivable
c.equipment
d.accounts payable
21) If $1,000 were invested now at a 12% interest rate compounded annually, what
would be the value of the investment in two years?
a.$1,254
b.$1,210
c.$1,188
d.$1,160
22) Preferred stock can have the following characteristic_______________?
a.cumulative
b.non-cumulative
c.convertible
d.all of the above
23) If a limit order is not quite close to the current market price is turned over to the
specialist, it is placed into:
a.central limit order book
b.market order book
c.short sale book
d.none of the above
24) An area of finance that involves the study of government institutions and their
involvement in rescuing private firms is called:
a.financial management
b.investments
c.financial institutions
d.financial markets
e.none of the above
25) Which of the following is a use of cash?
a.an increase in an asset account
b.a decrease in an asset account
c.an increase in a liability account
d.an increase in an equity account
e.none of the above
26) BP has an average age of inventory of 60 days, an average collection period of 45
days, and an average payment period of 30 days. Based on this information, BPs cash
conversion cycle is ________ days.
a.25
b.35
c.45
d.55
e.none of the above
27) Finance is:
a.the study of how individuals, institutions, governments, and businesses acquire,
spend, and manage money and other financial assets
b.the study of how businesses acquire, spend, and manage money and other financial
assets
c.the study of how governments, and businesses acquire, spend, and manage money and
other financial assets
d.none of the above
28) 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 assets
b.accrual
c.judgmental
d.cash
e.none of the above
29) If personal consumption expenditures are $1 billion, government purchases are $2
billion, gross private domestic investments are $4 billion and net exports are $5 billion,
then GDP is:
a.$12 billion
b.$8 billion
c.$7 billion
d.cannot be determined
30) During the 2007 – 2009 financial crisis, ___________ and __________, who were
major participants in the secondary mortgage markets, were on the verge of financial
insolvency and possible collapse in mid-2008.
a.Fannie Mae and Freddie Mac
b.the Federal Treasury and the Federal Reserve
c.Morgan Stanley and Smith Barney
d.Washington Mutual and Lehman Brothers
e.none of the above
31) The Small Business Administration cannot assist in the financing of small
enterprises by:
a.making direct loans to businesses
b.participating jointly with private banks in extending loans to businesses
c.engaging in accounts receivable financing
d.agreeing to guarantee a bank loan
32) Which of the following statements is most correct?
a.Corporate after-tax profits rose from $473.8 billion in 2006 to $616.2 billion in 2008.
This rise coincided with the 2007-09 financial crisis
b.Corporate after-tax profits declined from $616.2 billion in 2006 to $473.8 billion in
2008. This decline coincided with the 2007-09 financial crisis
c.Corporate after-tax profits declined from $616.2 million in 2006 to $473.8 million in
2008. This decline coincided with the 2007-09 financial crisis
d.Corporate after-tax profits rose from $473.8 million in 2006 to $616.2 million in
2008. This rise coincided with the 2007-09 financial crisis
e.none of the above
33) To determine risks of nondomestic bonds, a multinational corporation must consider
all but which one of the following risks?
a.political and economic risks
b.seizure or expropriation of assets
c.stabilized currencies
d.foreign exchange controls and tax regulations
34) As part of the measurement of financial leverage, the total debt ratio is calculated
as:
a.total liabilities divided by total assets
b.total liabilities times total assets
c.current liabilities divided by total assets
d.total assets minus current liabilities divided by total liabilities divided by total
liabilities
35) A market whereby large institutional investors arrange purchases and sales of
securities among themselves without the benefit of a broker or dealer is referred to as
the:
a.primary market
b.secondary market
c.third market
d.fourth market
36) During the latter part of the decade ending in 2010:
a.housing prices peaked in 2006
b.stock prices peaked in 2007
c.debt-heavy individuals and business firms default rates skyrocketed
d.the U.S. dollar declining rapidly against an index of major currencies
e.all of the above
37) Which of the following is a savings surplus unit?
a.businesses
b.government
c.individuals
d.none of the above
38) An examination of a firms opportunities, strengths, threats and weaknesses is often
referred to by the following acronym:
a.WOTS
b.OSTW
c.SWOT
d.TWOS
e.none of the above statements are correct
39) Asset A has a coefficient of variation of 1.2 and asset B has a coefficient of
variation of 1.0. Based on this information, an individual would choose asset ____ if he
or she wishes to maximize return for a given level of risk.
a.A
b.B
c.either A or B
d. none of the above
40) The present value of $1,000 received at the end of year 1, $1,200 received at the
end of year 2, and $1,300 received at the end of year 3, assuming an opportunity cost of
7 percent, is
a.$2,500
b.$3,043
c.$6,516
d.$2,856
41) 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
42) Which of the following is not a variable cost?
a.CEO Salary
b.rent
c.mortgage payments
d.property taxes
e.none of the above are variable costs
43) Key factors that influence currency exchange rates include all of the following
EXCEPT:
a.supply and demand relationships
b.inflation rates
c.interest rates
d.all of the above influence exchange rates
44) In September, 2008 ____________ was acquired by Bank of America and
_____________ declared bankruptcy when no viable financial alternatives surfaced.
a.Bank of America, Washington Mutual
b.Merrill Lynch, Lehman Brothers
c.Citicorp, Smith Barney
d.Morgan Stanley, Chase
e.none of the above