66. The risk cause by variations in income before taxes over time because fixed interest
expenses do not change when operating income rises or falls is called:
a. interest rate risk
b. business risk
c. tax risk
d. purchasing power risk
e. none of the above
An increase in the supply for loanable funds accompanied by a decrease in demand will
cause interest rates to:
a. increase
b. decrease
c. stay the same
d. not enough information to tell
Finance theory favors the use of ____________ value weights in the calculation of the
weighted average cost of capital.
a. book
b. future
c. market
d. none of the above
History generally supports the contention that under the guidance of Paul Volcker, a (n)
____________ Fed policy brought down the double-digit inflation of the 1970s and the
early 1980s, and the Federal Open Market Committee consistently responded to his
leadership.
a. loosening of
b. restrictive
c. expansionary
d. two of the above
e. none of the above
The currency quotation method that indicates the amount of a home country’s currency
needed to purchase one unit of a foreign currency is called the
a. direct quotation method
b. indirect quotation method
c. floating exchange rate method
d. none of the above
The public’s holdings of U.S. savings bonds are included in which of the following
money supply definitions?
a. M1
b. M2
c. M3
d. M4 or L
13. The federal government pays for the services it provides primarily through:
a. service fees
b. creating money
c. borrowing
d. selling assets owned by the government
e. none of the above
Which of the following statements is correct?
a. The typical capital budgeting project involves a small upfront cash outlay, followed
by a series of smaller cash inflows and outflows, but the project’s cash flows, including
the total upfront cost of the project, are not known with certainty before the project
starts.
b. The typical capital budgeting project involves a large upfront cash outlay, followed
by a series of larger cash inflows and outflows, but the project’s cash flows, including
the total upfront cost of the project, are not known with certainty before the project
starts.
c. The typical capital budgeting project involves a large upfront cash outlay, followed
by a series of smaller cash inflows and outflows, but the project’s cash flows, including
the total upfront cost of the project, are not known with certainty before the project
starts.
d. The typical capital budgeting project involves a large upfront cash outlay, followed
by a series of smaller cash inflows and outflows, and the project’s cash flows, including
the total upfront cost of the project, are known with certainty before the project starts.
e. none of the above statements are correct
The 2002 Sarbanes-Oxley Act was designed to:
a. limit the compensation that could be paid to CEOs.
b. increase the number of independent directors on corporate Boards.
c. provide uniform international accounting standards
d. two of the above
e. none of the above
Foreign exchange hedging by a multinational corporation is:
a. a normal responsibility of foreign exchange specialists
b. not ordinarily considered to be prudent business
c. usually described in speculative terms
d. permitted only for defensive purposes
‘Continentals’ were backed by:
a. gold
b. silver
c. possible future taX revenues
d. none of the above
The National Banking Act of 1864 provided for:
a. federally chartered banks
b. the establishment of a system of central banks
c. deregulation and monetary control
d. the establishment of deposit insurance
Because depository institutions earn no interest on reserves:
a. profit maximizing behavior motivates them to lend out excess reserves to the fullest
extent consistent with their liquidity requirements; and when interest rates are high, this
motivation is especially strong.
b. profit maximizing behavior motivates them to lend out excess reserves to the fullest
extent consistent with their liquidity requirements; and when interest rates are low, this
motivation is especially strong.
c. profit maximizing behavior motivates them to retain excess reserves to the fullest
extent consistent with their liquidity requirements; and when interest rates are low, this
motivation is especially strong.
d. profit maximizing behavior motivates them to retain excess reserves to the fullest
extent consistent with their liquidity requirements; and when interest rates are high, this
motivation is especially strong.
e. none of the above
Major types of financial institutions in the U.S. include commercial banks, mutual
funds, insurance companies, and pension funds.
A high price-to-book value ratio would tend to indicate that investors are more
optimistic about the market value of firm’s asset, and its managers’ abilities.
Today, reserve requirements imposed by the Federal Reserve apply only to member
banks.
The market portfolio is a portfolio that contains all risky assets.
Business will increase current long-term borrowing if they forecast a decrease in
interest rates.
A strong-form efficient market is one in which prices reflect all public knowledge,
including past and current information.
The liquidity premium is compensation for those financial debt instruments that cannot
be easily converted to cash at prices close to their estimated fair market values.
In an efficient market, both expected and unexpected news should cause stock prices to
move up or down.
Activities that decrease the cash conversion cycle will increase the firm’s need to obtain
financing.