The factor, unlike the commercial finance company:
a. engages in accounts receivable financing
b. purchases the accounts receivable outright
c. assumes limited credit risks
d. is not responsible for the collection of accounts
Foreign exchange markets may be described as:
a. specific locations in major industrial cities
b. major financial centers connected by good communications systems
c. money markets outside of the United States
d. facilities of central banks for foreign exchange
Shareholder wealth is measured as:
a. assets plus liabilities
b. assets minus liabilities
c. common stock price times number of shares outstanding
d. none of the above
Ratios used to compare different firms at the same point in time belong to a category of
analysis called:
a. time series analysis
b. cross-sectional analysis
c. industry comparative analysis
d. just-in-time analysis
Bank reserves are increased when the Treasury:
a. sells government bonds to individuals
b. decreases its holding of cash
c. increases its account at a Federal Reserve bank
d. increases its holding of cash
An increase in inflation should:
a. increase the demand for loanable funds
b. decrease the interest rate on loans
c. increase the interest rate on loans
d. none of the above
Which of the following is the best expression of the net preset value (NPV) acceptance
criterion?
a. positive cash flows total greater than negative flows
b. number of positive cash flows exceeds negative
c. payback within one third the life of the project
d. NPV is greater than or equal to zero
Major types of financial institutions include all of the following EXCEPT:
a. commercial banks
b. pension funds
c. insurance companies
d. all of the above are major financial institutions
The capital-budgeting process starts with which one of the following stages:
a. development
b. identification
c. implementation
d. selection
Corporate stockholders:
a. cannot have limited liability
b. cannot easily transfer ownership
c. cannot be subject to taxes on dividends
d. can limit their liability to the amount of their investment
The ________ of a firm is the amount of time that elapses from the point when the firm
makes an outlay to purchase raw materials to the point when cash is collected from bad
debt.
a. cash conversion cycle
b. operating cycle
c. average age of inventory
d. average collection period
e. none of the above
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 firm’s 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 firm’s capital budget.
e. none of the above statements are correct
The U.S. federal government body that receives corporations’ annual reports is the:
a. IRS
b. FRS
c. SEC
d. FBI
e. none of the above
The ___________________ Exchange (ICE) serves the global markets for agricultural,
credit, currency, emissions, energy and equity index markets.
a. Intercontinental
b. Indianapolis
c. Istanbul
d. International
e. none of the above.
Under conditions of interest rate parity (IRP), a country with a relatively _______
higher nominal interest rate will have its currency _______ relative to a country with a
relatively _______ nominal interest rate.
a. higher, depreciate, lower
b. lower, depreciate, higher
c. higher, appreciate, lower
d. lower, appreciate, higher.
All of the following statements are correct except:
a. The pecking order hypothesis is a theory that states managers prefer to use new debt
to finance the firm, then retained earnings, and (as a final resort) new equity.
b. The market timing hypothesis states that firms try to time the equity market by
issuing stock when their stock prices are high and repurchasing shares when stock
values are low.
c. The static tradeoff hypothesis states that firms will balance the advantages of debt (its
lower cost and tax-deductibility of interest) with its disadvantages (greater possibility of
bankruptcy and the value of explicit and implicit bankruptcy costs).
d. Agency costs reduce the optimal level of debt financing for a firm below the level
that would be appropriate if agency costs were zero.
e. All of the above statements are correct.
For a given accounting period, which of the following is likely to represent primarily
variable costs?
a. cost of goods sold
b. general and administrative expenses
c. depreciation expense
d. interest expense
Currently, the international monetary system can best be described as a managed
floating eXchange rate system.
Firms using maturity matching will have current ratios equal to 1.0.
Member banks of the Federal Reserve System may not borrow from the Fed.
All businesses can earn interest at the prime rate on funds in their checking accounts.
The Bretton Woods Agreement was an agreement between major central banks to adopt
capital adequacy requirements for internationally involved banks.
If net working capital is negative, current assets are partially financed by the firm’s
long-term debt.
Branch banks are those banking offices that are controlled by a single parent bank.
Finance has its origins in:
a. economics and statistics
b. accounting and sociology
c. accounting and economics
d. psychology and mathematics
The net working capital of a firm would be cash and other assets that are expected to be
converted into cash within a year.