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The _________________ is primarily responsible for the amount of money that is
created, although most of the money is actually created by depository institutions.
a. Securities Exchange Commission
b. Federal Treasury
c. Federal Reserve System
d. Financial Asset Oversight Board
The willingness of a credit applicant to pay her or his bills is measured by:
a. capacity
b. capital
c. conditions
d. character
e. collateral
Top finance officers in a corporation may include:
a. treasurer
b. chief financial officer
c. controller
d. all the above
e. none of the above
A potential investment pays $10 per year indefinitely. The appropriate discount rate for
the potential investor is 10%. The present value of this cash flow is calculated by:
a. multiplying $10 by the appropriate present value factor
b. dividing $10 by 10
c. multiplying $10 by the present value factor of an annuity
d. dividing $10 by .10
_____________ is a short-term unsecured promissory note issued by a high
credit-quality corporation with maturities of one to three months in length with an
active secondary money.
a. A negotiable certificate of deposit (NCD)
b. A repurchase agreement
c. Commercial paper
d. Government bond
e. none of the above
A hospital received a contribution to its endowment fund of $2 million. The hospital
can never touch the principal, but it can use the earnings. At an assumed interest rate of
9.5 percent, how much can the hospital earn to help its operations each year?
a. $95,000
b. $19,000.
c. $190,000.
d. $18,000.
Commercial finance companies:
a. make riskier unsecured business loans but charge higher interest rates
b. specialize in loans secured by inventories and real estate
c. concentrate their lending activity to firms pledging the notes receivable of their
customers
d. are primarily interested in loans secured by a business customer's accounts receivable
and inventories
The ________ is the lowest rate of interest charged on business loans to the best
business borrowers by the nation's leading banks.
a. prime rate
b. commercial paper rate
c. federal funds rate
d. treasury bill rate
e. none of the above
The traveler's letter of credit is usually used by:
a. purchasing agents making purchases in foreign countries
b. individuals traveling abroad
c. importers' banks
d. correspondent banks, in order to reduce shipment of gold between countries
___________________ is when an investor borrows money and invests t he borrowed
funds along with his or her own funds in securities.
a. A short sale
b. A stop-loss order
c. A limit order
d. Buying on margin
In 1976, the average price of a domestic car was $5,100. Twenty years later, in 1996,
the average price was $16,600. What was the annual growth rate in the car price over
the 20-year period?
a. 5%
b. 6%
c. 7%
d. 8%
A sight draft is one that is not accompanied by any special documents and is generally
used when the exporter has confidence in the importer's ability to meet the draft when
presented.
The internal rate of return is the return that caused the net present value to be zero.
If excess reserves are near zero, then a reduction of a bank€s reserves will cause the
system to loosen credit.
If a financial asset has a historical variance of 16, then its standard deviation must be 4.
The Fed closely monitors the Treasury account and takes any changes into
consideration in conducting daily open market operations in order to minimize the
effect on bank reserves.
In employing DuPont analysis, the user would break the return on total assets into the
profit margin, total asset turnover, and an equity multiplier.
Bond covenants are the best way for bondholders to protect themselves against dubious
management actions.
An adjustable-rate mortgage (ARM) has an interest rate that is usually adjusted
annually to reflect changes in Treasury bill rates (or other benchmark); ARMs typically
have variable interest rates for one to five years with a provision to switch to a
fixed-rate over the remaining life of the ARM.
Capital budgeting decisions can only involve mutually exclusive projects.
The term structure of interest rates indicates the relation between interest rates and the
maturity of comparable quality debt instruments.
