Finance Flashcards

National Finance

The first item to be paid out of foreclosure funds is the Costs of Sale – advertising, attorney fees, trustee fees, etc.
If the amount realized at a Sheriff’s sale upon a delinquent mortgage is more than the indebtedness, the excess belongs to the mortgagor.
Before foreclosure who has the right to reclaim the property forfeited due to a mortgage default the borrower, under the right of Equitable Redemption.
In a Deed of Trust, the party who holds, “Naked Legal Title” (one without possessory rights), and can claim the property without going through the courts is the trustee.
A mortgage clause used in refinancing the first mortgage which allows the second mortgage to take the first place is called subordination.
A buyer assumes the mortgage. How is the seller relieved of the liability? Novation
Which mortgage clause allows a lender to regain their investment if the borrower does not pay his payment? Acceleration
In which way are a mortgage document and promissory note similar? Both are contracts
A mortgage or deed of trust may be recorded.
On a $150,000 loan, the lender charges a 1 point service charge. How much does the borrower have to pay? $1,500
If a borrower purchases a property for $200,000, and borrows $160,000 he/she is said to have a LTV ratio of? 80%
The loan amount is $80,000, and the monthly principal and interest payment will be $499.00 a month for 30 years. How much interest will be paid over the term of the loan? $499 x 12 = $5,998, $5,998 x 30 = $179,640, $179,640 -$80,000 = $99,640
The cost of points is not deducted from the loan. Points are treated as a separate debit or charge on a settlement statement, charged to the party who has agreed to pay them.
Based on the theory, (a rule of thumb) how many discount points are required to increase the percentage yield on a mortgage from 11% to 12%? 8 points
A lender charges discount points on a loan to improve the lender’s yield.
To determine the monthly principal portion of a monthly loan payment you must deduct the monthly interest from the monthly payment.
Determine the monthly interest on a loan with a balance of $168,300, a monthly payment of $1,356.80, and an interest rate of 7.75%? $168,300 x 7,75% = $13,043.25, $13,043.25 ÷ 12 = $1,086.94
Remember for purposes of determining the new loan balance, you will not have to know how to determine the payment amount.
When determining a mortgage loan balance, the monthly loan payment interest is deducted from the payment.
A mortgage has a balance of $70,000 at 11.5% interest for a period of 25 years. The monthly P & I payment is $711.53, what is the interest charge for the second monthly payment? $70,000 x 11.5% = $8,050, $8,050 ÷ 12 = $670.83, $711.53 – $670.83 = $40.70, $70,000 – $40.70 = $69,959.30, $69,959.30 x 11.5% = $8,045.32, $8,045.32 ÷ 12 = $670.44
In Step 3 what do you subtract from the monthly payment amount to solve for the monthly principal? Current monthly interest
What is the balance on an amortized loan of $340,000 after the first payment if the interest rate is 6% with a monthly P&I payment of $2,028? $340,000 x 6% = $20,400, $20,400 ÷ 12 = $1,700, $2,028 – $1,700 = $328, $340,000 – $328 = $339,672
When a real estate loan uses both real and personal property as collateral for the loan it is called a (an) package mortgage.
A loan on real estate, that includes fixtures, and appliances used extensively in the sale of condominiums is a (an) package mortgage.
A mortgage where the interest rate fluctuates and is usually tied to an index; payment amount increases are capped for each period and for the term of the loan is called an Adjustable-rate Loan (sometimes called an ARM).
A type of mortgage which allows the lender to increase the outstanding balance of a loan up to the original amount of the loan in order to advance additional funds is called an open-end mortgage.
A situation where an owner sells his or her improved property and at the same time, signs a long-term lease with the buyer is called a (an) sale-leaseback.
A Budget Mortgage is a loan, which has a payment composed of the following? Principal, interest, taxes and insurance
A borrower applied for a VA guaranteed first time mortgage for $50,000; however, the property appraised for $46,000. If the buyer still wanted to buy the property which could happen? The VA could allow the borrower to make up the difference in cash
An FHA mortgage loan is obtained through which of the following? Qualified lending institutions
In 1975 a veteran paid off his VA loan and sold his house. Would he be entitled to another VA loan? Yes, because he paid off the first loan and sold the mortgaged property.
Rural Economic and Community Development (RECD) loans are either made directly by RECD or made by a private lender with RECD guaranteeing a certain percentage.
A veteran desired a loan to buy a 200 acre residence. There are no VA lenders in the area. Which could happen? The VA could loan the money themselves.
The primary purpose of private mortgage insurance (PMI) is to protect the lender.
What can the VA require a veteran do when obtaining a loan? Make the veteran automatically assume liability for the loan
The basic difference between an FHA and a VA loan is The FHA insures loans, the VA guarantees them.
Rural Economic and Community Development (RECD) loans are either made directly by RECD or made by a private lender with RECD guaranteeing a certain percentage.
When you obtain an FHA loan, what generally happens? An FHA appraiser must appraise the property
Private mortgage insurance is associated with conventional loans.
If a Veteran wanted to buy a $60,000 house in a city with a population of 100,000 people, which of the following loans could he NOT apply for? RECD loan
A veteran had a VA loan using his full entitlement. He allows another veteran to assume the loan without VA approval. Could he immediately get another VA loan? No, because he is still liable for the loan.
In 1975 a veteran paid off his VA loan and sold his house. Would he be entitled to another VA loan? Yes, because he paid off the first loan and sold the mortgaged property.
Conventional mortgage loans are not guaranteed or insured by any government agency.
Conventional mortgages usually require A larger down payment.
An FHA mortgage loan is obtained through which of the following? Qualified lending institutions
For a veteran to obtain a VA loan, the VA must issue a certificate of eligibility.
On a government backed loan, which of the following would be permitted concerning pre-payment penalties? Prepayment penalties are not allowed, under any circumstances, on VA or FHA loans.
Under which of the following would one MOST likely see an estoppel certificate? A lender sells a loan and the new mortgagee wants to know the existing balance
A qualified buyer is one who has demonstrated the financial capacity and credit worthiness required to afford the asking price. In qualifying a buyer the lender looks at these factors? Income, net worth and credit history
A Buyer has demonstrated the financial capacity and creditworthiness required to afford the asking price by providing the lender with all of the following, except an appraisal equal to or higher than the contract price.
Transfer taxes are generally paid by the seller
Assets include all of the following, except revolving and installment loan accounts.
When underwriting a mortgage loan a lender considers all of the following, except credit worthiness of the seller.
Settlement is another name for closing and brings the real estate transaction to completion.
A lender will look at which items when deciding to qualify a property? All of these items.
A qualified buyer is one who has demonstrated the financial capacity and credit worthiness required to afford the asking price. In qualifying a buyer the lender looks at these factors? Income, net worth and credit history
Many states charge what is called a transfer tax when the property is conveyed by one of the following means deed
When underwriting a mortgage loan a lender considers all of the following, except credit worthiness of the seller.
A Buyer has demonstrated the financial capacity and creditworthiness required to afford the asking price by providing the lender with all of the following, except an appraisal equal to or higher than the contract price.
All of the following were originally established to buy and sell mortgages in order to stimulate mortgage lending, except Maggie Mae (MGIC).
The two biggest money lenders of residential real estate mortgages are savings and loans and banks.
An increase in the availability of money would lead to which effects? Interest rates would go down
Which of the following is considered a part of the secondary mortgage market? Federal Home Loan Mortgage Corporation (FHLMC)
The primary distinction/s between the primary and secondary mortgage market is? The secondary market is fundamentally a holding or warehousing process.
The Federal National Mortgage Association (FNMA) sells seasoned mortgages and deeds of trust to individual investors and financial institutions. A seasoned mortgage is one that has been in existence for some time and has a good record of repayment by the mortgagor.
In terms of stating mortgage rate interest, the standardized rate required by the Truth in Lending Act to facilitate comparison loan shopping is called the annual percentage rate.
Which of the following advertised financing terms would NOT trigger a full disclosure under Regulation Z $265,000 sale price
A primary purpose of the Truth in Lending Act is to make loan cost information readily available to consumer borrowers.
Truth In Lending applies to all of the following, except commercial property.
Purchasing an investment property , like an apartment complex may be more rewarding if the investor has the required management skills.
The two major sections of the Truth In Lending law, includes advertising and Annual Percentage Rate (A.P.R.).
The Truth in Lending laws apply to the financing of single family residences.
Which agency administers RESPA? Consumer Financial Protection Bureau (CFPB)
Under the Real Estate Settlement Procedures Act (RESPA), lenders are prohibited from taking kickbacks or unearned fees.
A house sold for $42,000. The buyer made a 20% down payment. Monthly interest on the loan was $252. What was the interest rate on the loan? 9%
Who is NOT an originator of primary loans? FHA
Usury MOST nearly means ______________ illegal interest.
Who is the largest purchaser in the secondary market? Fannie Mae
A mortgage broker _____________ arranges loans between borrowers and investors.
An owner advertised “beautiful acreage only $5,000 down, owner will personally finance down payment.” Would this be in violation of the Truth in Lending Act? No, owners are not covered by Reg. Z.
A VA loan may be granted for the purchase of a one-family to four-family if _________________ the veteran agrees to live there.
A buyer wants to take out an FHA loan. The broker should refer the buyer directly to ______________ any approved lending institution such as a bank or savings and loan association.
The lender is not insured or guaranteed against a loss, by reason of the borrower’s default in repayment, under which type of loan? Conventional
If a single parent is applying for a real estate loan, when would the fact have to be revealed that part of the parent’s income is from child support? If the parent was relying on the income for repayment of the loan
Which of the following is considered a conventional loan? Commercial bank ARM loan
An impound or reserve account MOST benefits whom? The lender
If advertised alone, which would be in violation of TRUTH IN LENDING? “No down payment required”
On a $50,000 loan the borrower is required to pay 2 points. How much does the borrower have to pay the lender? $51,000.00
A home improvement company was negotiating with a home owner to add two rooms onto a home. The company agreed to take a second mortgage as long as the homeowner also included the rest of the property in the loan. The company and the homeowner agreed to a price and the company provided the necessary disclosure form on Monday and the homeowner signed the agreement at noon the following day. Assuming that the week had five business days, until what time could the homeowner rescind the loan? Friday, midnight
In most states, by paying the debt after a foreclosure sale, the mortgagor has the right to regain the property. What is this right called? Statutory right of redemption
All of the following are true of conventional loans except what? The requirements to qualify are uniformly fixed by state law.
The Pickets are purchasing a home for $78,000 and the lender is giving them a 90% loan at 10% interest, plus a 2% loan origination fee. How much is the loan origination fee? $1,404
In a repayment of a mortgage loan, which type of interest is used? Simple
RESPA would prohibit which of the following acts? Paying of kickbacks
In an installment land contract, what type of title did the seller retain? Legal
The finance charges recorded on the Truth in Lending statements would include all of the following EXCEPT: Recording fees and title insurance premiums
An increase in the availability of money would lead to which effect? Interest rates would go down.
Which of the following would usually occur in a sale-and-leaseback transaction? The property is sold on the condition that the new owner lease it back to the seller at the time title passes.
Under an FHA graduated payment mortgage, which of the following fluctuates over the term of the loan? Monthly payments
When the lender under a deed of trust required title insurance, who would be the most likely person to pay for it? The trustor
A borrower bought a $74,000 house with no down payment. The loan was probably ______________ a VA loan.
Which of the following describes a mortgage that requires principal and interest payments at regular intervals and calls for the liquidation of the debt by periodic installments until the debt is satisfied? Amortized loan
An owner was selling his own home. Can he advertise the down payment? Yes, because it was his own home
A buyer assumes the mortgage. How is the owner relieved of the liability? Novation
A standardized yardstick expressing the true annual cost of borrowing is expressed as a/an APR
Discrimination is prohibited in lending practices under _____________ ECOA.
The maximum permissible “loan to value ratios” are _____________ based on sale price or appraised value, whichever is lower.
Why would a mortgagee (beneficiary) have an appraisal on the property? To assure the property value is sufficient to cover the loan
Which of the following is true of a second mortgage? It is usually issued at a higher rate of interest.
The seller under a land contract is called _____________ the vendor.
A buyer wanted to use a promissory note for consideration on the purchase of a property. Can he do this? Yes, this is acceptable as long as the seller agrees.
In which of the following markets may a lender sell a loan that a mortgage banker has previously originated? Secondary market
A mortgage company makes a number of loans to be assembled into one package and sold to permanent investors. This process is an example of interim financing to the mortgage company and is called: Warehousing
The clause in a trust deed or mortgage which permits the mortgagee to declare the entire unpaid sum due upon a default by a mortgagor is called a(n) ______________ acceleration clause.
The Smiths’ purchased a residence for $75,000. They made a down payment of $15,000 and agreed to assume the seller’s existing mortgage, which had a current balance of $23,000. The Smiths’ financed the remaining $37,000 of the purchase price by executing a second mortgage whereby the seller became a mortgagee. This type of loan is called a Purchase money mortgage
When the amortized payment of a mortgage remains constant over the period of the loan but leaves an outstanding balance to be paid at the end, this payment is called: A balloon payment
Under Regulation Z, consummation is defined as the time when a consumer becomes contractually obligated on a credit transaction.
On an 8% straight term loan of $6,071 the borrower paid total interest of $1,700. How long did he have the loan? 42 months
The Loan Estimate must be delivered to an applicant within three business days of loan application.
The discount points charged by a lender on a federal VA or FHA loan are a percentage of the ________________ loan amount.
Which transaction requires a securities’ license? Selling shares in Fannie Mae
The primary purpose of Truth in Lending is to _____________ disclose the true costs of obtaining credit.
______ is the cost per thousand that is required to create the principal and interest payment necessary to pay off a loan. A factor
Effective October 1, 2015, the real estate industry has new requirements as specified in the TILA/RESPA Integrated Disclosure (TRID) Rule.
Finance Flashcards

money and finance

Financial Markets and Institutions Involve the movement of huge quantities of money, affect the profits of businesses, and affect the types of goods and services produced in an economy.
The price of one country’s currency in terms of another’s is called The foreign exchange rate
Compared to interest rates in long-term U.S govt bonds, interest rates on three-month t bills fluctuate …. and are …. on average. more; lower
From 1980 to early 1985 the dollar … in value, thereby benefiting American …. appreciated, consumers
A Bond a debt security that promises to make payments periodically for a specified period of time
A stock is a security that is a claim on the earnings and assets of a corporation.
A weaker dollar benefits… and hurts… American Businesses; American Consumers
Banks, savings and loan associations, mutual savings banks, and credit unions have been adept at innovating in response to changes in the regulatory environment.
The bond markets are important because they are the markets where interest rates are determined
The price paid for the rental of borrowed funds (usually expresses as a percentage of the rental of $100 per year) is commonly referred to as the interest rate
A security is a claim on the issuer’s future income.
Interest rates are important to financial institutions since an interest rate increase …. the cost of acquiring fund and …. the income from assets. increases; increases;
Financial market activities affect – personal wealth.- spending decisions by individuals and business firms.- the economy’s location in the business cycle.
Monetary policy affects interest rates, inflation, and business cycles
A rising stock market index due to higher share prices Both increases people’s wealth and as a result may increase their willingness to spend and increases the amount of funds that business firms can raise by selling newly issued stock of these.
Banks, Insurance Companies, and Finance Companies are all examples of financial insts.
The largest financial intermediaries are Banks
Typically, increasing interest rates discourages corporate investments.
Monetary policy is chiefly concerned with the level of interest rates and the nation’s money supply
Economists group commercial​ banks, savings and loan​ associations, credit​ unions, mutual​ funds, mutual savings​ banks, insurance​ companies, pension​ funds, and finance companies together under the heading financial intermediaries. What function do financial intermediaries​ perform? do only act as middlemen, borrowing fund from those who have saved and lending these funds to others and help promote a more efficient and dynamic economy of these.
In recent years stock markets have crashed.
Money is defined as anything that is generally accepted in payment for goods and services or in the repayment of debt
Banks are important to the study of money and the economy because they do only provide a channel for linking this who want to save with those who want to invest and have been a source of financial innovation that is expanding the alternatives available to this donating to invest their money of these.
From the peak of the high-tech bubble in 2000, the stock market ________ by over ________ by late 2002. collapsed; 30%
A stronger dollar benefits ______ and hurts ______ American consumers; American businesses
The organization responsible for the conduct of monetary policy in the US is the Federal Reserve System
Black Monday was the stock market’s worst one-day drop
Markets in which funds are transferred from those who have excess funds available to those who have a shortage of available funds are called Financial Markets
A declining stock market index due to lower share prices Both reduces people’s wealth and as a result may reduce their willingness to spend and decrease the amount of funds that business firms can raise by selling newly issued stock of these.
Banks are financial intermediaries that accept deposits and make loans
The largest one-day drop in the history of the American stock markets occurred inA) 1929.B) 1987.C) 2000.D) 2001. 1987
Stock prices since the 1980s have been extremely volatile
The central bank of the US is The FED
The stock market is important because it is the most widely followed financial market in the United States.
Changes in stock prices -Affect people’s wealth and their willingness to spend-Affect firms’ decisions to sell stock to finance investment spending -Are characterized by considerable fluctuations
Bonds that are sold in a foreign country and are denominated in that country’s currency are known as Foreign bonds
Adverse selection is a problem associated with equity and debt contracts arising from The lender’s relative lack of information about the borrower’s potential returns and risks of his investment activities.
Which of the following can be described as involving direct finance? A pension fund manager buys commercial paper in the secondary market.
The country whose banks are the most restricted in the range of assets they may hold is A) Japan. B) Canada.C) Germany.D) the United States. The US
An investor who puts all her funds into one asset… her portfolio’s … decreases; diversificiation
A corporation acquires new funds only when its securities are sold in the primary market by an investment banks.
Financial Intermediaries exist because there are substantial information and transaction costs in the economy, improve the lot of the small saver, are involved in the process of indirect finance.
Intermediaries who link buyers and sellers by buying and selling securities at states prices are called dealers
Which of the following can be described as involving indirect finance? Only a corporation takes out loans from a bank and people who buy shares in a mutual fund of these.
Which of the following are not investment intermediaries? life insurance company, and a pension fund.
Which of following are securities. certificate of deposit, share of texaco common stock.
Which of the following statements about the characteristics of debt and equity are true. they both can be long-term financial instruments, they both involve a claim on the issuer’s income, they both enable a corp. to raise funds.
The purpose of diversification reduce the volatility of a portfolio’s return.
Financial intermediaries can substantially reduce transaction costs per dollar of transactions because their large size allows them to take advantage of economies of scale.
Which of the following are investment intermediaries? Finance companies, and mutual funds.
Long-term debt and equity instruments are traded in the capital market
When the least desirable credit risks are the ones most likely to seek loans, lenders are subject to the adverse selection problem
Are important financial institution that assists in the initial sale of securities in the primary market is the investment bank
Which of the following is a contractual savings institution? A life insurance company
The main sources of financing for businesses, in order of importance, are financial intermediaries, issuing bonds, issuing stocks.
Financial markets improve economic welfare because they do they allow funds to move from those without productive investment opportunities to those who have such opportunities and they allow consumers to time their purchases better of these.
The money markets is the market in which … are traded short-term debt instruments
Which of the following statements about financial markets and securities are true? Most common stocks are traded over-the-counter, although the largest corporations have their shares traded at organized stock exchanges such as the New York Stock Exchange.A corporation acquires new funds only when its securities are sold in the primary market.Money market securities are usually more widely traded than longer-term securities and so tend to be more liquid.
A … is when one party in a financial contract has incentives to act in its own interest rather than in the interests of the other party. Conflict of interest.
The government regulates financial markets for two main reasons. to ensure that financial intermediaries do not earn more than the normal rate of return and to improve control of monetary policy
When the potential borrowers who are the most likely to default are the ones most actively seeking a loan… is said to exist. adverse selection
A country whose financial markets function poorly is likely to experience economic hardship and financial crisis.
In financial markets, lenders typically have inferior information about potential returns and risks associated with any investment project. This difference in information is called asymmetric information
The largest depository institution (value of assets) at the end of 2009 was commercial banks.
When the borrower engages in activities that make it less likely that the loan will be repaid, ________ is said to exist. moral hazard
Foreign currencies that are deposited in banks outside the home country are known as eurocurrencies
The presence of ________ in financial markets leads to adverse selection and moral hazard problems that interfere with the efficient functioning of financial markets. asymmetric information
Which of the following are secondary markets. The New York stock exchangethe us govt bond marketthe over the counter stock market
which of the following statements about financial markets and securities are true. The maturity of a debt instrument is the time (term) that has elapsed since it was issued.
Which of the following markets is sometimes organized as an over-the-counter market? The stock marketThe bond marketThe forex marketthe federal funds market
The riskiness of an asset’s return that results from interest rate changes is called interest-rate risk
Suppose you are holding a 5 percent coupon bond maturing in one year with a yield to maturity of 15 percent. If the interest rate on one-year bonds rises from 15 percent to 20 percent over the course of the year, what is the yearly return on the bond you are holding? 15 percent
The YTM of a one-year, simple loan of $400 that requires an interest payment of $50 is 12.5 percent
With an interest rate of 10 percent, the present value of a security that pays $1100 next year and 1460 four year from now is approximately 2000
The fisher equation states both the nominal interest rate equals the real interest rate plus the expected rate of inflation and the real interest rate equals the nominal interest rate less the expected rate of inflation of these are true.
Which of the following are true for a coupon bond? When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate.
A bond’s future payments are called its cash flows
A $10,000, 8 percent coupon bond that sells for $10,000 has a yield to maturity of 8 percent
The nominal interest rate minus the expected rate of inflation defines the real interest a better measure of the incentives to borrow and lend than the nominal interest a more accurate indicator of the tightness of credit market conditions than the nominal interest rate.
(I) Prices of longer-maturity bonds respond more dramatically to changes in interest rates. (II) Prices and returns for long-term bonds are less volatile than those for short-term bonds. (I) is true, (II) false. Answer
A discount bond is also called a zero-coupon bond
If a $10,000 face value discount bond maturing in one year is selling for $9,000, then its yield to maturity is approximately 11 percent
A coupon bond pays the owner of the bond a fixed interest payment every period, plus the face value of the bond at the maturity date.
If a $10,000 face value discount bond maturing in one year is selling for $5,000, then its yield to maturity is 100 percent
If you expect the inflation rate to be 15 percent next year and a one-year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is -8 percent
With an interest rate of 5 percent, the present value of $100 received one year from now is approximately $95
I) Prices of longer-maturity bonds respond less dramatically to changes in interest rates. (II) Prices and returns for long-term bonds are less volatile than those for shorter-term bonds. Both are false
Which of the following $1,000 face value securities has the highest yield to maturity?A 5 percent coupon bond selling for $1,000A 10 percent coupon bond selling for $1,000A 15 percent coupon bond selling for $1,000 A 15 percent coupon bond selling for $900 15 900
The interest rate that is adjusted for actual changes in the price level is called the
Finance Flashcards

Macro Chapter 14

Government budget​ deficit: An excess of government spending over government revenues during a given period of time.
It may be argued that the effects of a higher public debt are the same as the effects of a higher deficit because a higher deficit creates a higher public debt.
Public​ debt: The total value of all outstanding federal government securities.
Which of the following statements is true when considering budget deficits and the national​ debt? The national debt is a stock variable and a federal budget deficit is a flow variable.
The federal government has its best opportunity to lower its national debt when it has a budget surplus.
If the federal government has a budget deficit it can finance its spending by selling Treasury bonds.
Which of the following statements is true regarding the national debt and federal government​ deficits? There is a positive relationship between the national debt and a federal government budget deficit.
Since the​ 1940s, more often than​ not, the U.S. federal government has run a budget deficit.
Since​ 2001, more often than​ not, the U.S. federal government has run a budget deficit.
Which of the following is a reason for this resurgence in federal government budget​ deficits? Tax revenue not keeping pace with growth in spending
Since 1970 the U.S.​ government’s budget deficit as a percentage of real GDP has averaged approximately​ 3%.[On average the deficit has been approximately​ 3%. Remember that is the annual budget deficit NOT the national debt]
If a government spends more than it receives during a​ year, then during this year it experiences a​ ________, and if it spends less than it​ receives, it experiences a​ ________. budget​ deficit; budget surplus
The total value of all outstanding federal government securities is the public debt.
Since​ 2001, the average annual government budget deficit has exceeded 10 percent of GDP. False
The federal budget deficit is a​ flow, whereas accumulated budget deficits represent a stock, called the public debt.
If federal budget deficits ​increase, then a part of that deficit will be financed by foreign dollar​ holders, who will buy fewer U.S.​ exports, thus increasing the U.S. trade deficit.
A trade deficit implies that the dollar value of imports exceeds the dollar value of exports.
Generally a larger US trade deficit is accompanied by a a larger US federal government budget deficit
Suppose the dollar value of imports to the U.S. exceed the dollar value of exports from the US. This implies that foreigners are holding an excess supply of dollars.
If foreigners have an excess supply of dollars after trading goods and services they will likely buy more U.S. Treasury bonds.
If the U.S. federal government operates with a budget deficit it must borrow. In order to entice people to lend money to finance this​ deficit, the U.S. government must pay a higher rate of interest on the bonds it sells.
A natural consequence of the government continually spending more than what it takes in through tax​ receipts, ceteris​ paribus, is that the government takes up a larger percentage of the economic activity.
There is an ______ relationship between the interest rate and the price of a bond. inverse
As the interest rate or yield on U.S. bonds​ increases, foreigners buy more U.S. bonds and fewer U.S. goods and services.
From the end of WWII through 1983 the U.S. government had consistently experienced a trade surplus
Smaller trade deficits tend to accompany larger government budget deficits. false
Other things​ equal, interest rates will​ ________ whenever there is​ ________ in deficits financed by an increase in borrowing. rise; an increase
In the presence of a​ short-run recessionary​ gap, government deficit spending can influence both real GDP and employment. true
In the long​ run, higher government budget deficits resulting from increased government spending​ and/or tax cuts will do all of the following except increase equilibrium real GDP.
Higher government deficits arise from increased government spending or tax​ cuts, which raise aggregate demand
Entitlements in the U.S. are non-discretionary expenditures that have been legislated by Congress.
The U.S. federal government has contemplated ways to reduce its national debt. Which of the following suggestions would best enable the government to achieve this​ goal? Reduce government​ spending, raise​ taxes, or both.
From an arithmetic point of​ view, a federal budget deficit can be wiped out by simply increasing the amount of taxes collected. true
Data supports the idea that tax increases can completely eliminate actual deficits. false
Entitlements are the most important component of the federal budget. true
Entitlements are growing faster than any other part of the federal government budget. true
The United States is not the only country that has experienced a significant increase in its public debt in recent years.
To assess the changes in a​ nation’s degree of public​ indebtedness, most economists examine ratios of net public debt to GDP
Between the late 1990s and early years of this​ century, most nations observed declines in the ratio of the net public debt to GDP.
Finance Flashcards

Finance & Accounting Final

A Subchapter S corporation C. has all the organizational benefits of a corporation and its income is only taxed once.
Money markets would include which of the following securities? B. Treasury bills and commercial paper.
5. A corporate restructuring can result in Changes in capital structure, selling of low profit margin divisions, reductions to the work force… D. all of these.
10. Increasing interest expense will have what effect on EBIT? No effect
11. The residual income of the firm belongs to common stockholders.
12. Candy Company had sales of $320,000 and cost of goods sold of $112,000. What is the gross profit margin (ratio of gross profit to sales)? Gross Profit = Sales- Cost of Goods Sold… then GP/Sales= GP Margin 65%
14. Ratio analysis can be useful for historical trend analysis, comparison to industry, or measuring effects of financing… D. All of these are true.
17. A quick ratio that is much smaller than the current ratio reflects B. a large portion of current assets is in inventory.
21. In using a systems approach to financial planning, it is necessary develop a proforma income statement, proforma balance sheet, and cash budget…D. all of these.
24. A firm utilizing LIFO inventory accounting would, in calculating gross profits, assume that C. sales were from current production until current production was depleted, and then use sales from beginning inventory.
30. A highly automated plant would generally have B. more fixed than variable costs.
31. Financial leverage deals with: B. the relationship of debt and equity in the capital structure.
35. A financial executive devotes the most time to D. Working capital management.
36. The term “permanent current assets” implies C. some minimum level of current assets that are not self-liquidating.
37. An inverted yield curve would suggest that B. interest rates are expected to fall.
40. In managing cash and marketable securities, what should be the manager’s primary concern? D. Liquidity and safety
41. “Float” takes place because C. a lag exists between writing a check and clearing it through the banking system.
42. Which of the following is NOT a valid quantitative measure for accounts receivable collection policies? D. Ratio of bad debts to credit sales
46. Trade credit may be used to finance a major part of the firm’s working capital when A. the firm extends less liberal credit terms than the supplier.
48. In determining the cost of bank financing, which is the important factor? C. Effective rate
49. Hedging refers to B. a transaction that reduces risk exposure.
51. You are to receive $12,000 at the end of 5 years. The available yield on investments is 6%. Which table would you use to determine the value of that sum today? C. Present value of $1
52. Babe Ruth Jr. has agreed to play for the Cleveland Indians for $3 million per year for the next 10 years. What table would you use to calculate the value of this contract in today’s dollars? A. Present value of an annuity
55. Which of the following financial assets is likely to have the highest required rate of return based on risk? D. Common stock.
56. The relationship between a bond’s price and the yield to maturity B. is an inverse relationship.
58. The cost of equity capital in the form of new common stock will be higher than the cost of retained earnings because of B. the existence of flotation costs.
60. the Internal Rate of Return and Net Present Value Methods: C. usually give the same investment decision answer.
61. As the cost of capital increases A. fewer projects are accepted.
62. Capital rationing assumes: . A limited amount of capital is available.
63. If a firm is experiencing no capital rationing, it should accept all investment proposals that… B. that return an amount equal to or greater than the cost of capital
Finance Flashcards

Foundations in Personal Finance Chapter 8

Diversification The practice of dividing the money a person invests between several different types of investments in order to lower risk
Investing The process of setting money aside to increase wealth over time for long-term financial goals such as retirement
Investment Account or arrangement in which a person puts his/her money for long-term growth; invested money should not be used for a suggested minimum of five years
Liquidity Quality of an asset that permits it to be converted quickly into cash without loss of value; availability of money
Portfolio A list of your investments
Risk Degree of uncertainty of return on an asset; in business, the likelihood of loss or reduced profit
Risk-Return Ratio Relationship of substantial reward compared to the amount of risk taken
Share Piece of ownership in a company, mutual fund or other investment
Stocks Securities that represent part ownership or equity in a corporation
Tax-favored Dollars Money that is invested, either tax deferred or tax free, within a retirement plan
U.S. Securities and Exchange Commission (SEC) The government agency responsible for regulating the stock market. It was created in 1934 to increase public trust after the 1929 stock market crash and the years of the Great Depression.
Federal Deposit Insurance Corporation (FDIC) The U.S. federal agency that insures deposits in commercial banks. It was created to restore public trust in banks after the 1929 stock market crash. It replaced the former Federal Savings and Loan Insurance Corporation in 1989.
Federal Reserve The central (federal) banking system of the United States.
Internal Revenue Service (IRS) A U.S. federal agency responsible for collecting taxes and for the interpretation and enforcement of the Internal Revenue Code (laws).
Certificate of Deposit (CD) Typically at a bank, it is a savings account with a slightly higher interest rate because of a longer savings commitment
Money Market A low-risk bank savings account with check-writing privileges
Bond A debt instrument by which the company owes you money; a form of IOU
Mutual fund An investment vehicle made up of a pool of money collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.
War Bonds (a.k.a. Defense Bonds) The purpose was to finance military operations during war time. The bonds yielded a mere 2.9% return after a 10-year maturity.
Dividend Distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders; generally distributed in the form of cash or stock.
25% Growth Stock Mutual Fund (Mid-Cap) Fund that buys stock in medium-sized companies that have experienced some growth and are still expanding
25% Growth and Income Stock Mutual Fund (Large-Cap) Fund compromised of large, well-established companies
25% Aggressive Growth Stock Mutual Fund (Small- Cap) Fund that seeks to provide maximum long-term capital growth from stocks of primarily smaller companies; the most volatile fund
25% International Stock Mutual Fund Fund that contains international or overseas companies
Roth IRA Named for Senator William Roth of Delaware, who authored this section of the Taxpayer Relief Act of 1997
annuity A savings account sold by an insurance company, designed to provide payments to the holder at specified intervals, usually after retirement
Education Savings Plan (529 Plan) A savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. It is named after Section 529 of the Internal Revenue Code, which created these types of savings plans in 1996.
Gold Has a 50-year track record of 4.1% returns
Commodities Agricultural or mining products
Day Trading The buying and selling of stock purchases each day through the practice of speculation
Viaticals When someone with a terminal disease sells his life insurance policy for less than face value
security A financial asset(such as stock or bond) that can be bought or sold; a tradable financial asset
Simplifies Employee Pension Plan (SEP) A self- employed person may deduct up to 15% of their net profit on the business by investing in a SEP
401(k) A retirement saving plan offered by a corporation to its employees.
403(b) Found in nonprofit organizations such as churches, hospitals, and schools
457 Deferred compensation, which means you are deferring or putting off compensation. Usually this is available for government employees.
T/F: A single stock would be a good place to keep your emergency fund. False
T/F: Diversification lowers risk with investing. True
Long-term investments properly diversified include the following mutual funds: growth, growth and income, international, aggressive growth
Which is a good investment option? Mutual funds
Which statement is true about liquidity? The more liquid an investment, the less return
Finance Flashcards

AP US History: Plato Edition: The Great Depression

How did speculative investing weaken the stability of the stock market? The flurry of investing artificially raised the price of stocks.
How did the Reconstruction Finance Corporation (RFC) help jump-start the economy? The RFC gave loans to a variety of businesses.
Why were industrial and agricultural surpluses a problem for the US economy? The average American had limited funds to purchase these items.
Smith favored buying farm surpluses, while Hoover believed in funding organizations that would help farmers with the surpluses. Smith favored buying farm surpluses, while Hoover believed in funding organizations that would help farmers with the surpluses.
Which statement describes the United States’ response to the invasion of Manchuria? Given the demands of the Depression, there was little money or will to support military action or a trade embargo.
What do the terms Hooverville and Hoover blanket say about Americans’ attitude toward the president? Americans were angry with Hoover for not doing enough to help them out of hard times.
Which phrase characterizes the perspective most investors had of the stock market in the first half of 1929? strongly enthusiastic
Which statement best describes the US government’s role with the banking industry at the beginning of the Depression? The government had little involvement with monitoring the health of banks.
Which statement best describes the US welfare system in 1930? There were limited resources for people if they found themselves in hard times.
In the 1930s, what caused Canada to respond by raising its tax on goods imported from the United States? the Hawley-Smoot Tariff
Finance Flashcards

Personal Finance Ch. 7

Which of the following will not help you establish a good credit history? Making as many purchases as possible with cash
Which of the following is the least common manner in which an identity theft victim discovers the crime? Routine examination of a credit report
Which of the following is the best rule to follow in shredding information? If you have any question, shred it
The cost of using credit may result in ________ spending and ________ debt. excessive; increased
Which of the following federal agencies should always be notified in the event of identity theft? Federal Trade Commission
Which of the following items should not be removed from your wallet? Driver’s License
When making purchases on line, you can take all of the following steps to recognize and avoid identity theft except use your cell phone to place credit card orders.
Which of the following can be used by a creditor in deciding whether or not to grant credit? credit history
Which of the following is not a disadvantage of using credit? Makes it easier to save
Using e-mail messages from a legitimate source to obtain account information for the purpose of identity theft is referred to as phishing
The item that receives the most weight in the FICO credit scoring system is Credit payment history
Which of the following is not true regarding revolving open-end credit? If the balance is not paid off over a period of months, a penalty is incurred
Which of the following will not be included on your credit report? FICO Score
The Identity Theft and Assumption Deterrence Act has designated which federal agency as the central clearinghouse for all identity theft complaints? FTC
Which of the following would not be contacted in all cases of identity theft? Postal Inspection Service
Finance Flashcards

personal finance chapter 4

estate tax a tax imposed on the value of a person’s property at the time of his or her death
excise tax a tax imposed on specific goods and services such as gasoline cigarettes alcohol tires and air travel
inheritance tax a tax levied on the value of property bequeathed by a deceased person
taxable income the net amount of income, after allowable deductions, on which income tax is computed
earned income money received for personal effort, such as wages, salary, commission, fees, tips or bonuses
investment income money received in the form of dividends, interest, or rent from investments. Aka portfolio income
passive income income resulting from business activities in which you do not actively participate
exclusion an amount not included in gross income
tax-exempt income income that is not subject to tax
tax-deferred income income that will be taxed at a later date
adjusted gross income (AGI) gross income reduced by certain adjustments, such as contributions to an individual retirement account (IRA) and alimony payments
tax shelter an investment that provides immediate tax benefits and a reasonable expectation of a future financial return
tax deduction an amount subtracted from adjusted gross income to arrive at taxable income
standard deduction a set amount on which no taxes are paid
itemized deductions expenses that can be deducted from adjusted gross income, such as medical expenses, real estate property taxes, home mortgage interest, charitable contributions, casualty losses, and certain work-related expenses
exemption a deduction from adjusted gross income for yourself, your spouse, and qualified dependents
marginal tax rate the rate used to calculate tax on the last (and next) dollar of taxable income
average tax rate total tax due divided by taxable income
tax credit an amount subtracted directly from the amount of taxes owed
tax audit a detailed examination of your tax return by the Internal Revenue Service
tax avoidance the use of legitimate methods to reduce one’s taxes
tax evasion the use of illegal actions to reduce one’s taxes
capital gains profits from the sale of a capital asset such as stocks, bonds or real estate
Finance Flashcards

Chapt 13 Finance

. _______________________costs are those costs that do not vary with the company’s level of production. Fixed
Costs that change as the company’s production levels change are called __________________ costs. Variable
A sales _____________________ chart shows graphically how fixed costs, variable costs, and sales revenue interact. Sales breakeven
A measure of the magnitude of the effect of fixed costs on operating income is ___________________. Degree of operating leverage
Whenever fixed costs are greater than __________, the degree of operating leverage is greater than 1. Zero
Firms that have low fixed costs and high variable costs are generally ____________risk than firms that have high fixed costs and low variable costs, but they will also have ________________ profit potential. Higher; higher
_____________________________ is the additional volatility of net income caused by the presence of fixed costs associated with having debt in the capital structure. Financial leverage
Firms that have higher proportions of debt in their capital structure will have ____________________ financial leverage. Greater
The total effect of operating and financial leverage is called ___________________ leverage. Combined
A _____________________________ is when one firm buys out another using a large amount of borrowed money. Leveraged buyout
Higher leverage is helpful when sales _____________________ . . Increase
. ________________________________ is the mixture of sources of funds that a firm uses (debt, preferred, and common). Capital structure
One of the primary advantages of using debt financing is ____________________ ___________________. The tax deductibility of interest
The weighted average cost of capital generally ___________________ as more capital is added. Rises
Modigliani and Miller suggested that if debt costs did not increase with additional borrowing, the tax deductibility benefit would imply that firms should finance with __________ percent debt. 100
Financial managers use capital structure theory to help determine the mix of debt and equity that ____________________________ the weighted average cost of capital. Minimizes
Bonds pay a lower rate of return to investors because investors have lower __________________________. Risk
What are the risks and benefits of having fixed costs in your operations? Fixed costs in your operations will cause EBIT to rise by a larger percentage than sales when unit sales are increasing. However, if unit sales decline, the firm’s EBIT will decrease by a greater percentage than does sales
Under what circumstances will high combined leverage be most beneficial to a company? High combined leverage will be most beneficial when a firm is experiencing increasing sales and has a low cost of debt.
As a firm moves to a capital structure with higher debt: financial risk of the firm increases
Firms with relatively low fixed operating costs and high variable operating costs can best be described as: having a low degree of operating leverage
Given fixed costs of $100,000, variable costs of $7.00 per unit, and a sales price per unit of $10.00, calculate the break-even point in units. 33,333
Operating leverage has the effect of triggering: a larger percentage change in EBIT when a given percentage change in sales occurs
All else equal, new equity financing will: decrease financial risk
Fixed operating costs affect: operating leverage
Whenever fixed costs are greater than zero, DOL is: greater than 1
Factors affecting capital structure include: the cost of debt, preferred stock, and common equity, market conditions ,investor perceptions
Which of the following statements is true? The interest payment tax shield lowers the cost of debt.
If Firm X has a greater variability in operating earnings than Firm Y, which firm has the lower business risk? it would depend on the volatility of sales for the two firms
Finance Flashcards

Chapter 16 personal finance

Grace period The free period, also called ____, allows you to avoid a finance charge if you pay in full before the due date.
creditor One who lends money or the use of goods and services for the payment at a later date is called….
Credit Paying at a future date for the present use of goodds and services or money is called _.
Line of credit A(n) _ is a pre-established amount that can be borrowed on demand.
Collateral A loan on which the goods purchased with the loan serve as _ is a type of secured loan.
Open ended _ is credit where by you can ad purchases up to a set credit limit.
Close ended A loan for a specific amount that must be repaid in full, including finance charges, by a stated due date, is called _.
Cash advance A(n) _ is money borrowed against the credit card limit.
Sales finance A manufacturer-related company, called a(n) _, makes loans through authorized representatives.
loan sharks _ are unlicensed lenders who charge illegal rates.
Differed billing A service to customers called _ allows you to charge now and not be billed for several months.
Finance charge The interest you pay for the use of credit is called a _.
Service charge Almost everyone uses _ credit, whic is having work performed and paying for it later.
Retail stores Businesses called _ stores offer goods and services directly to consumers and include department stores, drugstores, and clothing stores.
Finance companies Small loan companies, also called _, charge higher interest rates and take more risk.
Usury In some states, maximum interest rates are set by _ laws.
Pawn broker A(n) _ is a legal business where loans are made based on the value of merchandise used as collateral.
Collateral Something of value that can be sold to pay a debt is often referred to as _.