FinanceChapter1

1) At its most basic level, the function of financial intermediaries is to ________.A) track and report interest ratesB) move money from lenders to borrowers and back againC) report all financial transactions to the federal governmentD) effect a transfer of wealth in society B
2) Which of the following is NOT an example of a financial transaction?A) Your parents use their credit card to pay this term’s college tuition.B) You use the ATM to withdraw British pounds so you can fly to London.C) Your roommate lends you $20 and you repay it in one week.D) All of the above are financial transactions. D
3) The movement of money from lender to borrower and back again is known as ________.A) the circle of lifeB) corporate financeC) the cycle of moneyD) money laundering C
4) The common objective of borrowing and lending is to ________.A) make all parties better offB) gain a profit at the other’s expenseC) make a firm or individual appear more liquid than is really the caseD) thwart regulatory authority A
5) Which of the following is NOT a function of a financial intermediary in the lending/borrowing process?A) To help establish terms of the lending/borrowing agreementB) To match the borrower and the lenderC) To bear the risk that the borrower will not repayD) All of the above are functions of the financial intermediary. D
6) You place $500 into your checking account at First Bank and earn 1% APR on your deposit. Your professor borrows money at a rate of 8% from the same bank for a tuition loan for her son. Which of the following statements is true?A) The bank is criminally liable to you for paying an interest rate lower than the expected rate of inflation.B) You and your professor have an obvious conflict of interest because you have accounts at the same financial institution.C) You benefit from earning interest on your deposit, safety for your funds, and having a recognizable means for paying for your financial obligations without having to hold cash.D) Your professor is the only party to be made worse off by this example because she is the only party paying net interest. C
1) Which of the following best identifies the four main areas of finance?A) Exchange rate management, investments, financial institutions and markets, internationalB) Corporate, investments, capital structure, internationalC) Corporate, investments, financial institutions and markets, internationalD) Corporate, capital budgeting, financial institutions and markets, regulation C
2) Of the following, which is NOT one of the four main areas of finance?A) International FinanceB) Corporate FinanceC) InvestmentsD) All are considered main areas of finance. D
3) The set of financial activities that support the OPERATIONS of a business is best described by which main area of finance?A) Corporate financeB) InvestmentsC) Financial institutions and marketsD) International finance A
4) ________ is the area of finance concerned with activities like borrowing funds to finance projects such as plant expansions or new product launches.A) Working capital managementB) International financeC) InvestmentsD) Corporate finance D
5) ________ is the area of finance concerned with activities like repayment of borrowed funds through dividends or interest payments.A) InvestmentsB) Corporate financeC) Capital budgetingD) International finance B
6) ________ is the area of finance concerned with the activities of buying and selling financial assets such as stocks and bonds.A) InvestmentsB) Corporate financeC) International financeD) Financial markets and institutions A
7) Which of the following is NOT typically thought of as an investment activity?A) Accurately pricing financial assetsB) The process of buying and selling financial assetsC) Repaying borrowed fundsD) Negotiating the rules and regulations of financial transactions C
8) The organized financial intermediaries and the forums that promote the cycle of money is a good definition of which of the following main areas of finance?A) Corporate financeB) InvestmentsC) Financial institutions and marketsD) International finance C
9) Financial institutions and marketsA) are the organized financial intermediaries and the forums that promote the cycle of money.B) compose the set of financial activities that support the operations of a business.C) are the activities centered on the purchase and sale of financial assets.D) are concerned only with the addition of a multinational element to all finance activities. A
10) Of the following, which is NOT an example of a financial intermediary?A) Commercial bankB) Insurance companyC) Investment bankD) All of the above are financial intermediaries. D
11) Of the following, which is NOT an activity engaged in by a financial intermediary?A) Matching borrowers and lendersB) Bearing riskC) Managing retirement portfolios for large classes of employeesD) All of the above are activities of financial intermediaries. D
12) “Concern with the multinational elements of financial activities” best describes which of the four main areas of finance?A) InvestmentsB) International financeC) Corporate financeD) Financial institutions and markets B
13) Which of the following is a reason why an expertise in international finance is important?A) Because the process of assessing risk among many countries is more difficult than assessing risk for a single countryB) Because financial regulatory rules and requirements differ from country to countryC) Because changes in economic conditions impact the relative values of currency among countriesD) All of the above are reasons for gaining expertise in international finance. D
14) Which of the following is NOT an activity of a financial institution or market?A) Bringing together buyers and sellers of financial assetsB) Providing a market for the transaction of financial assetsC) Providing information to buyers and/or sellers of financial assetsD) All are activities of financial institutions. D
1) ________ are the forums where buyers and sellers of financial assets and commodities meet.A) Housing marketsB) Federal Reserve banksC) Financial marketsD) Automotive shows C
2) Financial markets can be classified by which of the following?A) Type of asset tradedB) Maturity of the financial assetC) Owner of the financial assetD) All of the above can be classified as financial markets. D
3) Stocks are bought and sold in ________ markets.A) equityB) debtC) derivativesD) foreign exchange A
4) Bonds are bought and sold in ________ markets.A) equityB) debtC) derivativesD) foreign exchange B
5) Options are bought and sold in ________ markets.A) equityB) debtC) derivativesD) foreign exchange C
6) Currencies are bought and sold in ________ markets.A) equityB) debtC) derivativesD) foreign exchange D
7) Which of the following is NOT an example of an equity market transaction?A) Mary sells her shares of Apple stock.B) Mark contacts his broker and requests a purchase of IBM bonds.C) Sahid buys shares of a small company stock traded on the NASDAQ.D) All of the above are equity market transactions. B
8) Financial assets that will mature within a year are bought and sold in the ________ market.A) debtB) capitalC) stockD) money D
9) The sale of “new” securities,where the financial asset is being traded for the very first time, is said to take place in the ________ market.A) primaryB) moneyC) secondaryD) capital A
10) The sale of “used” securities,where the financial asset is being traded from one individual to another and the proceeds do not go to the original issuer of the security, is said to take place in the ________ market.A) primaryB) moneyC) secondaryD) capital C
11) Sale of new common stock in the primary market is regulated by the ________, and sales of used common on the secondary market is regulated by the ________.A) SEC; FDICB) SEC; SECC) FDIC; Federal ReserveD) Federal Reserve; SEC B
12) Which of the following is true of a dealer market?A) The dealer buys and sells assets out of his own inventory.B) The dealer acts as a broker, lining up the owners of assets with the purchasers of assets.C) The dealer acts as an auctioneer of securities and takes a percentage of the sale as compensation.D) None of the above are true of a dealer market. A
13) Which of the following is NOT a characteristic of a dealer market?A) Dealers make a profit on the spread between what they pay for financial assets and what they sell them for.B) Securities are auctioned off to the highest bidder.C) Dealers buy and sell from their own portfolio.D) All of the above are characteristics of the dealer market. B
1) ________ is the typical title of the corporate executive charged with determining the best repayment structure for borrowed funds to ensure timely repayment and sufficient cash for daily operations.A) Chief Executive Officer (CEO)B) Chief Financial Officer (CFO)C) ChairmanD) Chief Operating Officer (COO) B
2) ________ is NOT a main category of financial management.A) Capital budgetingB) Capital structureC) Accounts receivable managementD) Working capital management C
3) The process of planning, evaluating, selecting, and managing the long-term operating projects of the company is termed ________.A) capital budgetingB) capital structureC) accounts receivable managementD) working capital management A
4) ________ addresses the question of what business we should be in over the long run.A) Capital budgetingB) Capital structureC) Working capital managementD) Accounts receivable management A
5) The means by which a company is financed refers to the firm’s ________.A) capital budgetingB) capital structureC) accounts receivable managementD) working capital management B
6) ________ addresses the question of where we raise money to finance our business activities.A) Capital budgetingB) Capital structureC) Working capital managementD) Accounts receivable management B
7) Managing the firm’s short-term financing activities is known as ________.A) capital budgetingB) capital structureC) accounts receivable managementD) working capital management D
8) Which of the following is NOT a capital structure question?A) A delivery company chooses to buy more trucks.B) A manufacturing firm chooses to take the discount for paying accounts payable early.C) A retail firm chooses to use a new supplier.D) None of the above are capital structure questions. D
9) Capital budgeting is best defined by which of the following questions?A) How will we fund our product and service choices?B) What business are we in?C) How will we manage our day-to-day financial needs?D) What is our firm’s best choice for corporate governance? B
10) Capital structure is best defined by which of the following questions?A) How will we fund our product and service choices?B) What business are we in?C) How will we manage our day-to-day financial needs?D) What is our firm’s best choice for corporate governance? A
11) Which of the following is NOT an activity of working capital management?A) Establishing the firm’s receivable policiesB) Establishing the firm’s payment policiesC) Choosing the appropriate level of inventoryD) All of the above are working capital management activities. D
12) Which of the following is NOT a capital budgeting question?A) The choice of which long-term assets to purchase to meet the firm’s business goalsB) The choice of what type of business a firm wants to operateC) The proper mix of stocks and bonds to issue for financing assetsD) None of the above are capital budgeting questions. C
13) ________ addresses the question of how to handle our day-to-day business needs.A) Capital budgetingB) Capital structureC) Working capital managementD) Accounts receivable management C
1) When there are conflicts among managerial goals in U.S. markets, the most important priority is to ________.A) increase the current market value of equityB) keep all of the company’s customers happyC) foster good relationships with the communityD) maintain a safe and happy work place A
2) Maximizing the market value of firm equity and which of the following are mutually exclusive?A) Maximizing market value and a safe and happy work place are mutually exclusive.B) Maximizing market value and good relationships with the local community are mutually exclusive.C) Maximizing market value and customer satisfaction are mutually exclusive.D) None of the above are mutually exclusive with maximizing the value of market equity. D
3) A firm’s stock price most closely reflects which of the following?A) Current interest ratesB) Expected future cash flows of the firmC) The amount of debt held by the firmD) None of the above B
4) Which of the following can lead to increased expected cash flow over time to the firm?A) Open and collaborative relations with the communityB) Qualified and motivated employeesC) Greater customer satisfactionD) All of the above D
1) Of the following activities which is MOST likely to be an interaction between the financial manager and the information systems manager?A) Developing a system to bill customers, pay suppliers, and track inventoryB) Costing of productsC) Setting credit policiesD) Determining the appropriate pricing of products A
2) Of the following activities, which is NOT likely to be an interaction between the financial manager and the marketing manager?A) Costing of productsB) Setting credit policiesC) Determining that there are a sufficient number of trained workers to develop the productD) Setting advertising budgets C
3) Of the following activities, which is MOST likely to be an interaction between the financial manager and the manufacturing manager?A) Setting of credit policiesB) Developing a system to bill customers, pay suppliers, and track inventoryC) Budgeting the timing and amount of cash needed for the production scheduleD) Determining that there are a sufficient number of trained workers to develop the product C
4) Of the following which group would be considered INTERNAL PLAYERS of the firm?A) The finance managerB) The shop foremanC) The human resources managerD) All of the above D
6) Of the following which group would be considered EXTERNAL PLAYERS of the firm?A) The loan officer at the firm’s commercial bankB) The shop foremanC) The human resources managerD) All of the above A
1) A ________ is a business that is owned entirely by an individual.A) sole proprietorshipB) partnershipC) sub-chapter s corporationD) corporation A
2) Which of the following is NOT an ADVANTAGE of a sole proprietorship?A) The owner receiving all the after-tax profitB) Limited liabilityC) Quick decision makingD) All are advantages of a sole proprietorship. B
3) Which of the following is an ADVANTAGE of a sole proprietorship?A) The owner’s unlimited liabilityB) The lack of continuity upon death of the ownerC) The ease of start upD) The ability to raise capital C
4) A ________ has limited liability, is a legal entity, and has the greatest potential to raise capital.A) sole proprietorshipB) general partnershipC) limited partnershipD) corporation D
5) A ________ is a business that is jointly owned by two or more individuals.A) partnershipB) sole proprietorshipC) sub-chapter s corporationD) corporation A
6) Which of the following is NOT a DISADVANTAGE of a partnership?A) Unlimited liability to at least some of the ownersB) The limited life of the businessC) The potential difficulty in transferring ownershipD) All are disadvantages of a partnership. D
7) Which of the following is NOT an ADVANTAGE of a partnership?A) A potential increase in available capital over a sole proprietorshipB) The commingling with the general partner’s personal assetsC) The potential for more talent and skills in the businessD) All are advantages of a partnership. B
8) Which of the following is NOT true of a sole proprietorship?A) Sole proprietorships are the least regulated form of business.B) Sole proprietorships are the easiest form of business to establish.C) Sole proprietorships are the most popular form of business organization (more sole proprietorships than other forms of business).D) All of the above are true. D
9) ________ is a major disadvantage of the corporate form of business.A) Double taxationB) Unlimited liabilityC) Lack of ability to raise capitalD) Transfer of ownership A
10) The form of business organization in the United States that has the greatest amount of capital is ________.A) the sole proprietorshipB) the partnershipC) the sub-chapter corporationD) the publicly traded corporation D
11) Double taxation refers to which of the following scenarios?A) Both bondholders AND shareholders of a corporation must pay taxes on proceeds received.B) The corporation pays taxes on its earnings, and creditors pay taxes on interest received.C) The corporation pays taxes on its earnings, and shareholders pay taxes on dividends received.D) All of the above C
12) In practice,A) the structure of the corporation separates owners from managers.B) the corporate board selects the main corporate officers.C) the corporate board is elected by the shareholders.D) All of the above are true. D
1) ________ is the name given to the processes surrounding recognition of the principal-agent problem and ways to align agents with the interests of the principals.A) Principal theoryB) Interested party theoryC) Agency theoryD) Compensation process theory C
2) In agency theory, the owners of the business are referred to as ________, and the managers are referred to as ________.A) bondholders, principalsB) stockholders, bondholdersC) agents, principalsD) principals, agents D
3) Which of the following is NOT an example of an agency cost?A) Paying an accounting firm to audit your financial statementsB) Paying an insurance company to assure that building codes have been met for new constructionC) Paying a landscaping firm to maintain your firm’s groundsD) All of the above are agency costs. C
4) The problem of motivating one party to act in the best interest of another party is known as the ________.A) leadership directiveB) management priorityC) principal-agent problemD) sigma six structure C
5) Which of the following compensation packages is likely to work best for executive managers?A) Piece-mealB) Stock optionsC) Quarterly bonusesD) Commission B
6) According to the annual Fortune Magazine list of top paid executives in America, what percentage of annual compensation for the very highest paid managers comes in the form of performance bonuses or stock options?A) Less than 10%B) Between 10% and 40%C) Between 50% and 60%D) Nearly 70% D
1) ________ is the area of business that deals with how a company conducts its business and implements controls to ensure proper procedures and ethical behavior.A) LeadershipB) Agency RelationshipC) Corporate GovernanceD) None of the above C
2) Of the following, which is the most recent example of legislation passed by the federal government to deal with a major economic or highly visible corporate event?A) The Federal Deposit Insurance Corporation Improvement ActB) The Securities and Exchange ActC) The Sarbanes-Oxley ActD) The Securities Act C
3) Which of the following is NOT a feature of the Sarbanes-Oxley Act?A) The company and auditors must annually assess the effectiveness of financial controls.B) The company must maintain effective internal financial controls.C) The CEO and CFO must attest to the fairness of the financial reports.D) All of the above are features of the Sarbanes-Oxley Act. D
4) Which of the following is NOT a generally accepted way to remove ineffective management of a publicly traded firm?A) The Board of Directors can vote to remove management.B) The shareholders can vote out directors who won’t discipline managers.C) Outside management teams can “take over” the company.D) All of the above are recognized methods for the removal of ineffective management. D
5) The ________ removed the removed the last segments of Federal law that separated investment banking activities from commercial banking activities.A) Gramm-Leach-Bliley ActB) Sarbanes-Oxley ActC) Federal Deposit Insurance Corporation Improvement ActD) Glass-Steagall Act A

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