Which of the following statements is false?
a. The process of channeling savings into investment through the use of a financial
institution or intermediary results in the creation of one type of financial asset and one
type of financial liability.
b. During the early years of the history of the United States, foreigners purchased
significant volumes of federal government securities.
c. The single most important use of funds raised in the credit markets is by the
household sector.
d. All of the above statements are false.
As defined in accordance with efficient markets notions, a strong-form efficient market
would be a market in which asset prices reflect all:
a. past information
b. current information
c. public information
d. public and private information
If the U.S. inflation rate is expected to be 3 percent next year, the European inflation
rate is expected to be 4% next year, and the spot rate between the euro and dollar is
$1.30, then according to purchasing power parity, we would expect the dollar to
_________ against the euro from $1.30 to __________:
a. appreciate, $1.2875
b. appreciate, $1.3126
c. depreciate, $1.2875
d. depreciate, $1.3126
Legal tender proclaimed to be money by law is called:
a. representative money
b. fiat money
c. representative full-bodied money
d. none of the above
All of the following statements are correct except:
a. Capital budgeting is the process of identifying, evaluating, and implementing a firm’s
investment opportunities.
b. Capital budgeting seeks to identify projects that will enhance a firm’s competitive
advantage and by so doing increase shareholders’ wealth.
c. By its nature, capital budgeting involves long-term projects, although capital
budgeting techniques also can be applied to working capital decisions
d. Capital budgeting projects usually require small initial investments and may involve
acquiring or constructing plant and equipment.
e. all of the above statements are correct
If a firm chooses to take a cash discount, it should
a. pay as soon as possible.
b. pay on the last day of the credit period.
c. take the discount no matter when the firm actually pays.
d. pay on the last day of the discount period.
e. none of the above
Maximum diversification benefit can be achieved if one were to form a portfolio of two
stocks whose returns had a correlation coefficient of:
a. -1.0
b. +1.0
c. 0.0
d. none of the above
If a bond with a par value of $500 and a call premium of 6% is called in before its
maturity date, the firm would pay the following to the bondholders:
a. $500
b. $530
c. $0
d. none of the above
If a company can stretch its accounts payable without damaging its credit rating, it is
effectively ___________ the cost of foregoing the cash discount.
a. increasing
b. reducing
c. not affecting
d. not able to determine.
e. none of the above
In the United States, most money is created by:
a. depository institutions
b. the United States Treasury
c. capital markets
d. None of the above
Sources of loanable funds do not include:
a. current savings
b. the expansion of deposits by depository institutions
c. federal deficits
d. all the above are sources of loanable funds
The Fed shares its depository examining functions with:
a. the Federal Savings and Loan Insurance Corporation
b. the FDIC, Comptroller of the Currency, and state agencies
c. only the Comptroller of the Currency
d. National Credit Union administration and the FDIC
A rise in prices that is fully offset by increases in quality is called:
a. deflation
b. inflation
c. stagflation
d. none of the above
Federal obligations usually issued for maturities in excess of ten years are called:
a. Treasury bonds
b. Treasury notes
c. Treasury bills
d. Agency issues
e. none of the above
The ________ is the discount rate that equates the present value of the cash inflows
with the initial investment.
a. payback period
b. average rate of return
c. cost of capital
d. internal rate of return
The process of ______________ which is the process of pooling and packaging
mortgage loans into debt securities resulted in the creation of ______________.
a. securitization, pooled asset loans
b. portfolio composition, mortgage backed securities
c. issuing mortgage backed securities, securitization
d. specialization, mortgage backed securities
e. none of the above
The stage in the capital budgeting process that requires estimating relevant cash inflows
and outflows and discussing the pros and cons of each project is called the
_____________ stage.
a. follow-up.
b. selection.
c. identification.
d. development.
e. none of the above are included
Which of the following would not be a characteristic of commercial paper?
a. issued by well-known business firms
b. debt is secured
c. short-term debt
d. all are characteristics of commercial paper
Demand deposits are issued by commercial banks and savings banks, and do not earn
interest.
The default risk premium is the compensation that investors demand for holding
securities that cannot easily be converted to cash without major price discounts.
The loanable funds theory states that interest rates are a function of the supply of and
demand for loanable funds.
The total asset turnover is computed as total assets divided by net sales.
A credit rating indicates the expected likelihood that a borrower will miss interest or
principal payments and possibly default on the debt obligation in the form of a loan,
mortgage, or bond.
The Fed discount rateis the interest rate that a bank must pay to borrow from its
regional Federal Reserve Bank.
By exercising its influence on the monetary system of the United States, the Fed
performs a unique and important function: promoting economic stability.
Capital consumption adjustments are estimates of depreciation of plant and equipment
assets for business purposes.
An expected decline in a country’s currency may lead to an attempt to accelerate
collection of accounts receivable from that country for transfer to another country with
a more stable currency.
Our monetary standard today is the paper dollar, issued by the Federal Reserve, and can
be eXchanged for gold or silver.