Archives: Quiz

The Federal Reserve Act of 1913 created a system of central banks in the United States. Required reserves are the minimum amount of total reserves that a depository institution must hold. Answer: T Financial assets are claims against the income […]

A contract for the purchase or sale of a currency where delivery will take place at a future date is called a forward exchange rate. Compound interest is interest earned on interest in addition to interest earned on the principal. […]

Interest rate risk results from possible price fluctuations in fixed-rate debt instruments associated with changes in market interest rates. The present value of a $100 annuity deposited for 10 years at 10% is $1,593.74. Answer: F Holding supply constant, a […]

The government body primarily responsible for monetary policy is Congress. A line of credit is also often referred to as a revolving credit agreement. Answer: F Research suggests that a portfolio of 20 or 30 different stocks can eliminate most […]

M1 money supply consists of currency, travelers’ checks, demand deposits, and other checkable deposits. A firm’s cost of capital is the discount rate used in the evaluation of capital budgeting projects using payback and IRR. Answer: F The prime rate […]

Partnership income is taxed at the partnership income tax rate. The dividends paid on stock issued by corporations in the United States are tax deductible to the issuing corporation. Answer: F Interest rate parity states that a country with a […]

The typical capital budgeting project involves a large up-front cash outlay, followed by a series of smaller net cash outflows. Cross-sectional analysis is used to evaluate a firm’s performance over time. Answer: F The weighted average cost of capital represents […]

A market system that allows for quick execution of customers’ trades is said to be informationally efficient. Financial system functions include accumulating savings and lending funds. Answer: T A discounted loan is one in which the borrower receives a discount […]

The issuer has no price risk in a firm commitment offering once the offer price is set. The lax oversight by government regulatory agencies and private debt rating agencies helped contribute to the severity of the 2007-2009 financial crisis. Answer: […]

Deposit money is backed by the creditworthiness of the depository institution that issued the deposit. An inverted yield curve is upward sloping. Answer: F An annuity is a series of equal payments that occur over a number of time periods. […]

A firm’s cash receipts may include all of the following except a. dividends received from other firms b. collections of accounts receivable c. cash sales d. interest income e. all of the above Part of the reason that the Banking […]

The seven-member board of the Federal Reserve that sets monetary policy is called a. the Federal Reserve Open Market Committee b. the Federal Reserve Board of Governors c. the Federal Reserve Advisory Committee d. none of the above Trades between […]

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: […]

The percentage of deposits that must be held as reserves is called a. the bank reserve percentage b. the required reserve ratio c. the excess reserve ratio d. the fractional reserve percentage For bank loans, the effective interest rate is […]

If a Microsoft January 20 put option with a strike price of $20 were about to expire and the market price of the underlying Microsoft stock was $15.00, the price of the put option would have to be __________ to […]

Which factor does not impact international trade balances? a. The exchange value of the U.S. dollar relative to other currencies b. How often the government sells treasury bills c. Relative inflation rates d. Economic growth e. The prices of goods […]

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. […]

If a check is written for the full amount of a derivative deposit created by a bank loan and then is sent to a bank in another city for deposit: a. the lending bank would lose all of its excess […]

When retained earnings are used up and new common stock is issued, we know that the cost of: a. equity has increased b. equity has dropped c. equity is unaffected d. both common and preferred stock are affected Which of […]

A firm’s stock is expected to pay a $3 annual dividend next year, the current stock price is $60, and the expected growth rate in dividends is 8%. Using the Gordon approach, what is the expected return? a. 5% b. […]

____________ is anything generally accepted as a means of paying for goods and services and for paying off debts. It must be easily divisible, so that eXchanges can take place in small or large quantities; relatively ineXpensive to store and […]

A firm is evaluating a proposal which has an initial investment of $50,000 and has cash flows of $15,000 per year for five years. If the firm’s required return or cost of capital is 15%, should it accept the project […]

Banking system reserves plus currency held by the nonbank public is referred to as the: a. money supply b. monetary base c. monetary multiplier d. monetary requirement The price/earnings ratio (P/E) is calculated as: a. stock price divided by earnings […]

Holding all other factors constant, if a firm increases its current assets relative to total assets, a. it increases return and reduces risk. b. it increases return and increases risk. c. it reduces return and reduces risk. d. it reduces […]

Joe plans to fund his individual retirement account (IRA) with the maximum contribution of $2,500 at the end of each year for the next 30 years. If Joe can earn 10 percent on his contributions, how much will he have […]

If a firm’s variable cost per unit increases, the firm’s operating breakeven point will a. decrease b. increase c. remain unchanged d. change in an undetermined direction Bonds that have coupons that are literally clipped and presented, like a check, […]

The basic price that equates the demand for and supply of loanable funds in the financial markets is the __________: a. interest rate b. yield curve c. term structure d. cash price e. none of the above The _______________________ was […]

A firm with a total asset turnover lower than the industry standard and a current ratio which meets the industry standard may have a. excessive fixed assets. b. excessive inventory. c. excessive accounts receivable. d. excessive debt. e. none of […]

During the early years of the life stage of a typical corporation, the: a. volume of physical assets increases slowly b. firm is unable to establish a strong position with respect to its financial assets c. corporation is a heavy […]

If total assets are $100,000, fixed assets are $30,000, current liabilities are $20,000, then net working capital is: a. $100,000 b. $70,000 c. $50,000 d. $0 Treasury bills are: a. issued on a premium basis and pay a fixed annual […]

To equal M1 money supply, the monetary base: a. is multiplied by the money multiplier b. is added to by the money multiplier c. is subtracted from the money multiplier d. none of the above One way a firm can […]

The portfolio that contains all risky assets is known as the: a. market portfolio b. efficient portfolio c. efficient frontier d. value-weighted portfolio In reality, an option’s value will equal its intrinsic value only at expiration. At all other times, […]

An area of finance that refers to the physical locations or electronic forums that facilitate the flow of funds among investors, businesses, and governments is called: a. financial management b. investments c. financial institutions d. financial markets e. none of […]

Which of the following statements is most correct? a. A weaker dollar results in more imports of foreign merchandise since it requires fewer dollars for purchase. b. A stronger dollar results in fewer imports of foreign merchandise since it requires […]

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. […]

Which one of the following is a private firm that operates as a credit-reporting agency? a. National Credit Interchange Bureau b. Foreign Credit Interchange Bureau c. Dun & Bradstreet d. Merrill-Lynch In effect, the commercial letter of credit enables the […]

Credit unions are: a. for profit organizations b. made up of individuals who possess common bonds of association c. institutions that derive funds from investment activities d. all the above Direct payments to individuals from the Federal government do not […]

An annuity with an infinite life is called a (n) a. perpetuity. b. infinity. c. effective annual rate. d. continuous annuity. A famous athlete is awarded a $9 million contract that stipulates equal payments to be made monthly over a […]

All of the following statements are correct except: a. A firm’s business risk is measured by its variability in EBIT over time and is affected by several factors, including the business cycle, competitive pressures, and the firm’s operating leverage or […]

Functions of the monetary system include all of the following except a. creating money b. transferring money c. accumulating savings d. Lending and investing savings e. all of the above are included as functions of a monetary system _____________ is […]

If the APR is 12% and interest is compounded monthly, then the EAR is: a. 12.00% b. 1.00% c. 12.68%% d. none of the above A speculative (junk) bond issue as rated under Standard & Poor’s would be rated ______ […]

As a rule, independent projects are accepted if the internal rate of return is greater than or equal to: a. 1.0 b. zero c. marginal cost of capital d. expected rate of return The capital budgeting process consists of all […]

The future value of an annuity of $1,000 each quarter for 10 years, deposited at 12 percent compounded quarterly is a. $17,549 b. $75,401 c. $93,049 d. $11,200 A (n) ________ in current assets ________ net working capital, thereby ________ […]

Which of the following is not considered to be one of the three major forms of business ownership in the United States? a. proprietorship b. partnership c. public limited company d. corporation Which of the following would not be part […]

The internal and sustainable growth rate relationships suggest that there are three measurable influences on growth. These include all of the following except: a. asset policy b. dividend policy c. profitability d. the firm’s capital structure The benefits of diversification […]

Which of the following institutions is not part of the modern banking system? a. credit unions b. savings and loan associations c. mutual funds d. mutual savings banks 60. Which of the following statements is most correct? a. A weaker […]

All of the following statements are correct except: a. The NPV and IRR methods will always agree on whether a project enhances or harms shareholder wealth. b. If a project has a positive NPV, its IRR will always be greater […]

The method of calculating interest on a loan that is set by law is called the: a. negotiated legal rate (NLR) b. effective annual rate (EAR) c. annual percentage rate (APR) d. none of the above Suppose a firm just […]

Existing securities are traded: a. in the primary markets b. in the secondary markets c. only on organized exchanges d. only over-the-counter The yield curve or the term structure of interest rates is typically downward sloping when: a. short-term Treasury […]

The monetary base: a. equals the money supply b. consists of checkable and noncheckable deposits c. consists of bank reserves, plus currency d. equals the money multiplier, plus bank reserves The _______________ ratio is computed as earnings before interest and […]