Which of the following statements is false?
a. The multiplying capacity of primary deposits is hindered by cash leakages from the
banking system.
b. The monetary base is defined as bank reserves plus currency held by the nonbank
public.
c. In contrast to the other transactions that affect reserves in the banking system, open
market operations are entirely at the initiative of the Federal Reserve.
d. All the above statements are correct.
The risk cause by variations in interest expense unrelated to sales or operating income
arising from changes in the level of interest rates in the economy is called:
a. interest rate risk
b. business risk
c. tax risk
d. financial risk
e. none of the above
Find the net profit margin if earnings before interest and taxes is $20,000, net income is
$10,000, sales are $50,000, and total assets are $100,000.
a. 40%
b. 20%
c. 10%
d. none of the above
Suppose Ningbo Steel had sales revenue of $11,000 sales revenue, cost of goods sold of
$5,000, operating expenses of $3000, interest expense of $1,000, a tax rate of 20%, and
2,000 shares of common stock outstanding. Based on this information, earnings per
share was:
a. $1.20
b. $1.00
c. $0.80
d. $0.08
e. none of the above
If prices in a particular market fully reflect all public and private knowledge, the market
is efficient in the:
a. weak form
b. semi-strong form
c. strong form
d. both a and
The hypotheses that states that firm’s try to time the market by issuing stocks when
stock prices are high and repurchasing shares when prices are low is called:
a. the market theory hypothesis
b. the market timing hypothesis
c. the market value hypothesis
d. the market pricing hypothesis
_______________ are non-commercial bank depository institutions that include
savings banks and credit unions, which accumulate individual savings and lend
primarily to other individuals.
a. Thrift institutions
b. Securities firms
c. Pension funds
d. Finance firms
e. none of the above
The lead investment banker:
a. is elected by members of the syndicate
b. is appointed by the SEC
c. originates and handles a flotation
d. none of the above
Credit card usage:
a. may eXpand money supply
b. may contract the money supply
c. neither eXpands nor contracts money supply
d. none of the above
Which of the following statements is false?
a. Diversification cannot eliminate risk that is inherent in the macroeconomy or market
risk.
b. The expected rate of return on a portfolio does not depend on the correlation between
the return on each stock.
c. Although gold is a risky investment by itself, including gold in a stock portfolio may
reduce total risk of the portfolio.
d. All of the above statements are correct.
Which of the following would not be included on the balance sheet?
a. dividends paid
b. retained earnings
c. capital paid in excess of par
d. common stock
Holding all other factors constant, if a firm increases its current liabilities relative to
total assets, an immediate effect will be that
a. its financing costs will rise.
b. net working capital will rise.
c. its current ratio will rise.
d. it reduces return and increases risk.
e. none of above are correct
__________________ accept and invest individual savings and also facilitate the sale
and transfer of securities between investors.
a. Securities firms
b. Pension funds
c. Asset management companies
d. none of the above
Brokerage firms that not only assist in trades but also have research staffs that analyze
firms and make recommendations about which stocks to buy or sell are called:
a. discount brokerage firms
b. full service brokerage firms
c. investment banking firms
d. stock advisory brokers
A survey of financial managers found they spend nearly what percent of their time
dealing with financial planning, budgeting, and working capital issues?
a. 10 percent
b. 30 percent
c. 50 percent
d. 70 percent
Under the authority of the Federal Reserve Act of 1913:
a. member banks were required to purchase capital stock in the Federal Reserve Banks
of their district
b. member banks may not borrow from the Fed
c. a formal open-market committee arrangement was established
d. national banks were permitted to become members of the Fed if they could show
evidence of satisfactory financial condition
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 Federal Reserve
d. initiated by the U.S. Treasury
Which one of the following is not a cost to the issuing firm of going public with an
initial stock offering?
a. direct costs (legal fees, accounting fees, etc.)
b. underwriter’s spread
c. overpricing
d. underpricing
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
M3 money supply includes M2 plus large time deposits and institutional MMMFs,
repurchase agreements, and Eurodollar deposits.
The operating cycle measures the time it takes between ordering materials and
collecting cash from receivables.
Beta measures the variability of an asset’s returns relative to the market portfolio.
The Glass-Steagall Act was repealed with the passage of the Gramm-Leach-Bliley Act
of 1999.
Budgets are written financial plans utilized in sales forecasts.
Because commercial paper rates are typically below U.S. Treasury bill rates, they are a
valuable short-term financing source for high quality business firms.
A trust receipt is an instrument through which a bank retains title to goods until they are
paid for.
The secondary markets provide pricing information and liquidity to investors.
The inventory conversion period is calculated by inventory divided by costs of goods
sold.
An important function of the Securities and Exchange Commission is to pass judgment
on the investment merit of a security.