Archives: Quiz

1) Bearer securities are transferred simply by delivery of the certificate. 2) The exhaustion-of-rights doctrine states that once a good made or sold under license is in circulation, the licensor has no further right to control its distribution. Answer: True […]

1) The common law requires a note to contain the words promissory note. 2) A patent pool is an agreement to exchange licenses. Answer: False 3) The insurance policy represents the cost element of a contract. Answer: False 4) A […]

1) A charterparty is a contract for the hire of an entire ship for a particular voyage or a set period of time. 2) In civil law countries, a vessel is regarded as a juridical person separate and apart from […]

1) If an offer is oral, the acceptance must be made immediately, unless the circumstances indicate otherwise. 2) The IMFs unit of account is the SDR. Answer: True 3) A representative office does not directly conduct business for the parent […]

1) The GATS provides a provision for a departure from the principle of national treatment to ensure that direct taxes may be effectively collected on services. 2) A blocking statute makes it easier for a successful plaintiff to enforce a […]

1) The United Nations Framework Convention on Climate Change (UNFCCC) was adopted at the Stockholm Declaration. 2) A companys service office in a host nation would be considered a branch of the company. Answer: True 3) The IMF was created […]

1) The Kennedy Round produced an agreement on anti-dumping. 2) A holding company is a branch that in turn owns other branches. Answer: False 3) The Tokyo Round led to the establishment of the World Trade Organization. Answer: False 4) […]

1) The NAFTA provides MFN provisions for trade in services sectors. 2) Forum non conveniens originated from Scottish Common Law. Answer: True 3) A bill of exchange that is payable at a definite future time is known as a sight […]

1) In the marine insurance industry, a free from particular average policy provides more protection than a with average policy. 2) The WTOs dispute settlement process is governed by an agreement known as the General Agreement on Tariffs and Trade. […]

1) A business that grants licenses to a foreign national or foreign business entity is not a multinational enterprise. 2) Multilateral Trade Agreements of the WTO Agreement are binding on all members of the WTO. Answer: True 3) The OPIC […]

1) The World Intellectual Property Organization is responsible for administering the Paris and Berne Conventions. 2) Parties with secondary liability to an instrument can only be sought after the instrument has been dishonored. Answer: True 3) Any reference to some […]

1) The Overseas Private Investment Corporation (OPIC) only operates as an insuring agency for companies investing in less developed countries. 2) Article 82 of the European Community Treaty does not have an exception clause. Answer: True[/cpmembership] 3) The president of […]

1) If an individual’s cost of capital were 6%, the person would prefer to receive $110 at the end of one year rather than $100 right now. 2) The faster a firm’s growth in sales, the more likely it is […]

1) Maintaining a safety stock will always guard against an “EOQ point” from occurring. 2) The potential of a tax loss carryforward has no effect when considering the acquisition of a company. Answer: FALSE 3) Sensitivity analysis helps the financial […]

1) The percent-of-sales forecast is likely to be most accurate when used with cyclical companies. 2) Private placement eliminates the expensive and lengthy registration process with the Securities and Exchange Commission. Answer: TRUE 3) An increase in inflation will cause […]

1) The most common partnership arrangement carries limited liability to the partners. 2) In evaluating capital investment projects, current outlays must be judged against the current value of future benefits. Answer: TRUE 3) Generally, once a convertible bond trades at […]

1) The expected value is a weighted average of the outcomes multiplied by their probabilities of occurrence. 2) The issuing company desires to have as little underpricing of new securities as possible. Answer: TRUE Underpriced securities will sell rapidly, but […]

1) Using semi-annual compounding rather than annual compounding will increase the future value of an annuity. 2) A firm’s cost of preferred stock is equal to the preferred dividend divided by market price plus the dividend growth rate (Kp = […]

1) Walmart requires manufacturers to ship goods with RFID tags so it can better track inventory and reduce the need for supply chain management. 2) The more short-term financing there is relative to long-term financing, the riskier the financial structure. […]

1) If we assume that inventory is used up at a constant rate and safety stock is zero, the average inventory will be half the re-order size. 2) Projects that are totally uncorrelated provide more overall risk reduction than negatively […]

1) Possibly the most overlooked part of the capital budgeting process is the search for new opportunities through innovation and creative thinking. 2) The Gramm-Leach-Bliley Act repealed the Bretton Woods Agreement. Answer: FALSE The Gramm-Leach-Bliley Act repealed the Glass-Steagall Act, […]

1) A stock out occurs when a firm runs out of inventory and is unable to sell or deliver the product requested. 2) The movement of non-brokerage firms into the brokerage area has forced traditional securities firms to expand their […]

1) The difference between the rights-on and ex-rights price is equal to the subscription price divided by N, where N is the number of rights needed to purchase a new share of stock. 2) The cash savings from reduced dividend […]

1) The payback method considers all cash inflows. 2) Sales minus cost of goods sold is equal to gross profit. Answer: TRUE 3) Increased use of long-term financing is generally a more conservative approach to current asset financing. Answer: TRUE […]

1) The future rates of currency tend to increase for dates further in the future because of the increasing uncertainty over time. 2) A rapid payback may be important to firms having rapid technological development. Answer: TRUE 3) Cash break-even […]

1) Corporations are partially exempt from taxes on dividends received from other corporations. 2) The formula PV = FV(1 + n)i will determine the present value of $1. Answer: FALSE 3) Historically, the real rate of return has been about […]

1) Debt utilization ratios are used to evaluate the firm’s debt position with regard to its asset base and earning power. 2) The statement of cash flows helps measure how the changes in a balance sheet were financed between two […]

1) Only a small amount of security issues are sold on a “best-efforts” basis. 2) A $125,000 credit sale could be a part of a firm’s cash flow from operations if paid off within the firm’s fiscal year. Answer: TRUE […]

1) For most modern corporations, the more cash they have, the better off they are. 2) “Poison pills” are strategies that reduce the value of a firm if it is taken over by a corporate raider. Answer: TRUE 3) Operating […]

1) Shelf registration is most frequently used with new issues of common stock. 2) Antitrust policy can preclude the acquisition of a competitor. Answer: TRUE 3) Commercial paper represents secured short-term borrowing by large companies. Answer: FALSE 4) It is […]

1) One of several reasons that companies might choose to issue bonds is to shift their capital structure from more equity ownership to more borrowing. 2) The contribution margin is equal to sales price per unit minus total costs per […]

1) Ideally, permanent current assets should be financed exclusively with short-term borrowings. 2) According to the expectations hypothesis, the expected value is the sum of the probabilities of all expected events. Answer: FALSE 3) The income statement is the major […]

1) High-risk corporate bonds are as risky as junk bonds. 2) An exporter is able to satisfy foreign demand for a product while avoiding long-term investment, although this method is considered riskier than all other alternatives. Answer: FALSE 3) The […]

1) Investment banks are hesitant to issue bonds when they perceive the interest rate to be low. 2) To find the exact internal rate of return for projects with uneven cash flows, we can interpolate between two present value annuity […]

1) Among several other roles, as a middleman, the investment banker is responsible for designing and packaging a security offering and selling it to the public. 2) The premium for a warrant would increase if its underlying common stock has […]

1) Life cycle growth analysis can be helpful in determining a firm’s ability to pay dividends. 2) The term “underwriter” is synonymous with risk-taker or risk-bearer. Answer: TRUE 3) Higher interest rates (discount rates) reduce the present value of amounts […]

1) A motive for selling stockholders may be the bias against smaller companies. 2) The percent-of-sales provides the most accurate and detailed method of forecasting necessary funds. Answer: FALSE 3) Many attribute the banking crisis of 2008-2009 to problems in […]

1) Inventories are usually the most liquid, but lowest-yielding, current asset of a firm. 2) An increase in an asset represents a source of funds. Answer: FALSE 3) The value of a share of stock is the present value of […]

1) Investors in high marginal tax brackets usually prefer companies that reinvest most of their earnings, thus creating more growth in earnings and stock prices and deferring taxes into the future. 2) Book value per share and market value per […]

1) Because ratios are historic, they have minimal value to an investor. 2) During the 1930s, financial practice revolved around such topics as the preservation of capital, maintenance of liquidity, the reorganization of financially troubled corporations, and bankruptcy. Answer: TRUE […]

1) Firms with highly volatile and perishable inventory should assume relatively low levels of risk. 2) As inflation in France increases and stays the same in the U.S., the exchange rate of the euro to the dollar will increase. Answer: […]

1) Smaller investment banking houses may handle distributions for relatively unknown corporations on a “best-efforts” basis. 2) Generally, dividends should be changed when a corporation reaches a new level of permanent income. Answer: TRUE 3) In the capital asset pricing […]

1) Stock dividends and stock splits have the same impact on retained earnings. 2) Factoring accounts receivable, unlike pledging accounts receivable, typically passes the risk of loss on the receivable to the buyer. Answer: TRUE 3) The advantage of a […]

1) When a company first goes public, a registration statement must be filed with the New York Stock Exchange. 2) Selection of portfolio combinations from the efficient frontier will depend upon our willingness to assume risk. Answer: TRUE 3) Bonds […]

1) To add financial strength and stability, the countries of Greece and Portugal are now considering joining the “Eurozone.” 2) Absolute values taken from financial statements are more useful than relative values. Answer: FALSE[/cpmembership] 3) Per the capital asset pricing […]

1) Because of political risk, it is generally disadvantageous for U.S. firms to list their stocks on the world stock exchanges. 2) The movement of the exchange rate between two currencies can increase the total cost of a loan by […]

1) The Federal National Mortgage Association buys mortgage loans from local lenders, bundles them together, and resells them as securities. 2) Forced conversion refers to the corporation calling a convertible bond when the market price of the stock is above […]

1) A decrease in bonds payable results in a cash outflow on the statement of cash flows. 2) Maximizing the earnings of the firm is the goal of financial management. Answer: FALSE 3) Agency theory assumes that corporate managers act […]

1) Leontief’s Wigs can borrow from its bank at 16% to take a cash discount. The terms of the cash discount are 2/10, net 60 . Leontief’s should borrow from the bank to take the discount. 2) The major suppliers […]

1) Firms with cyclical sales should employ a high degree of leverage. 2) Translation exposure occurs because of changes in foreign exchange rates. Answer: TRUE 3) In determining the optimum capital structure, it is assumed that the firm will raise […]