Finance Final – Multiple Choice Questions from Ch. 10, 14, 21**

CHAPTER 14: CAPITAL MARKETS CHAPTER 14: CAPITAL MARKETS
Securities Investor Protection Corporation Federally sponsored credit agencies include all but which of the following?- Federal Home Loan Banks- Federal National Mortgage Association- Securities Investor Protection Corporation- Student Loan Marketing Association
The after-tax cost of debt is less than the cost of preferred stock Corporations prefer bonds over preferred stock for financing their operations because:- bond interest rates change with the economy, while stock dividends remain constant.- None of these options are true.- preferred stocks require a dividend.- the after-tax cost of debt is less than the cost of preferred stock.
Foreign investors hold large positions in U.S. government securities With respect to the United States and its relationship with the rest of the world, it can be said that:- the U.S. has actively helped foreign countries finance their government deficits.- foreign investors hold large positions in U.S. government securities.- all of these options are true.- the U.S. has invested more dollars in the rest of the world than foreign countries have invested in the U.S.
households The major supplier of fund for investment in the whole economy is:- households.- financial institutions.- government.- businesses.
All of these options are true Global capital markets are influenced by:- Interest rates- Relative economic growth- Investor confidence- All of these options are true
Treasury bonds Which of the following is not a money market instrument?- Treasury bills- Commercial paper- Treasury bonds- Negotiable certificates of deposit
try to lock in long-term financing at low cost In general, when interest rates are expected to rise, financial managers:- try to lock in long-term financing at low cost.- balance the company’s debt structure with more short-term debt and less long-term debt.- rely more on internal sources of funds rather than external sources.- accept more risk.
a common currency, but countries that use it are allowed to have their own monetary policy The euro is:- all of these options are true.- established in all of the European countries.- the most important international currency.- a common currency, but countries that use it are allowed to have their own monetary policy.
New York The most important capital markets in the world (in terms of dollar value) are located in:- New York.- London.- Toronto.- Tokyo.
Less stringent regulation of securities markets Foreign investors have preferred to invest in the United States EXCEPT for which of the following reasons?- The political stability of the U.S. government- Less stringent regulation of securities markets- All of these options are reasons that foreign investors prefer to invest in the United States- The U.S. dollar is the world’s international currency
An impact on the ability to raise capital When global capital markets collectively react to international events, like Russia’s default on its sovereign debt, it is common to find:- all of these options are true.- that Wall Street firms are so diversified that they are not affected by this event.- that there is no impact on the trade of foreign goods.- an impact on the ability to raise capital.
Increase market liquidity Which of the following are benefits of financial intermediaries?- Increase market liquidity and provide a direct market for investors- Act as agents of the government- Increase market liquidity- Provide a direct market for investors
All of these options are correct Financial intermediaries serve which of the following purposes?- All of these options are correct- They allow for indirect investment in the capital markets by households- They aid in the flow of funds through economy- They help provide allocation of funds to the best investments
Provide liquidity and competition between investments The purpose of secondary trading is to:- provide lower commissions than on the organized exchanges.- provide jobs for brokers and dealers.- provide a market to issue securities not handled in primary trading.- provide liquidity and competition between investments.
Households Which of the following was NOT a major supplier of funds to credit markets in 2008?- Mutual funds and ETFs- Households- Government sponsored agencies- All of the options were major suppliers of funds
CHAPTER 21: INTERNATIONAL FINANCIAL MANAGEMENT CHAPTER 21: INTERNATIONAL FINANCIAL MANAGEMENT
Depress that country’s currency A particular country’s pattern of importing more than is being exported is likely to:- Increase the value of that country’s currency- Depress other countries’ currencies- Depress that country’s currency- More than one of the options is correct
All of these options are true As exchange rates change, the rates:- Can affect imports and exports between those two countries- Will affect the flow of funds between the countries- All of these options are true- Change the relative purchasing power between countries
A company that carries on some business activity outside of its own national borders A multinational corporation may be defined as:- A company that owns property in a foreign country- All of the options are true- A company that carries on some business activity outside of its own national borders- A company that hires foreign laborers
All of these options are true For a US company, foreign business operations are more complex because the:- Rules of taxation are different- Structure and operations of financial markets vary- All of these options are true- Host country’s economy may be different from the domestic economy
Strengthened against the krona In the past, the US dollar’s exchange rate with the Iceland krona was 0.0008 dollars per krona. If today the exchange rate is 0.0006 dollars per krona, the dollar:- Strengthened against the krona- The answer cannot be determined without knowing the number of kronas needed to buy a dollar- Weakened against the krona.- Is not highly correlated to the krona
A MNC that produces a product within its own borders, but sells in a foreign market Multinational corporations (MNC) may take several forms. An exporter could be described as:- A MNC that produces a product within its own borders, but sells in a foreign market- The least risky political arrangement- A MNC willing to commit itself to long-term foreign investment- More than one of the options is correct.
Establish a joint venture with a local entrepreneur or a group of multinationals To minimize exposure to political risk, a multinational firm may:- Purchase an insurance policy from the Foreign Credit Insurance Association- Hedge in the Eurodollar market- Purchase an insurance policy from any foreign company within the area that the corporation is doing business.- Establish a joint venture with a local entrepreneur or a group of multinationals
Pay less to buy Country B’s products When Country A’s currency strengthens against Country B’s, citizens of Country A will:- Not be affected by the change in their currency’s value.- Pay less to buy Country B’s products- pay more to buy Country B’s products- pay more to buy domestically produced products.
Should decrease by 50% If prices double in New York while the prices in Germany remain the same, the purchasing power of the dollar relative to the euro:- should increase by 100%.- should decrease by 50%.- should decrease by 100%.- should increase by 50%.
Allow a foreign firm to use its technology in exchange for a fee In a licensing agreement, the multinational corporation will very likely:- be able to compete with the local domestic manufacturers.- allow a foreign firm to use its technology in exchange for a fee.- none of these options are true.- experience import restrictions imposed by the foreign government.
A joint venture A form of a multinational corporation (MNC) that exposes the firm to the lest amount of political risk, and is therefor the preferred arrangement by both business and foreign governments, is called:- an exporter.- a fully owned foreign subsidiary.- a licensing agreement.- a joint venture.
Interest rate parity theory The interplay between interest rate differentials and exchange rates such that each adjusts until the foreign exchange market and the money market reach equilibrium is called:- balance of payments.- purchasing power parity theory.- interest rate parity theory.- multinational corporation.
CHAPTER 10: VALUATION CHAPTER 10: VALUATION
All of these options are assumptions of the model The Required Rate of Return for common stock is Ke = (D1/P0) + g. What are the assumptions of the model?- The price earnings ratio stays the same- The firm must pay a dividend to use this model- Growth (g) is constant to infinity- All of these options are assumptions fo the model
True True or False: The coupon rate is used to calulate the bond’s interest amount, while the yield is used to calculate the present value of both interest amount and principal amount of the bond.
All of these options are true A higher interest rate (discount rate) would:- Reduce the price of corporate bonds- Reduce the price of preferred stock- All of these options are true- Reduce the price of common stock
True True or False:Historically, the real rate of return has been about 2% to 3%
True True or False:The valuation of a financial asset is based on the concept of determining the present value of future cash flows that this financial asset will accumulate
True True or False:Preferred stock would be valued the same as a common stock with a zero dividend growth rate
False True or False:”Business risk” relates to the inability of the firm to meet its debt obligations as they come due
False True or False:In estimating the market value of a bond, the coupon rate should be used as the discount rate.
Goes down If the inflation premium for a bond goes up, the sales price of the bond:- Goes down- More information is needed for an answer- Is unaffected- Goes up
False True or False:The higher the yield to maturity on a bond, the closer to par the bond will trade.
There is no maturity date The price of preferred stock may react strongly to a change in Kp(required rate of return) because:- corporate recipients of preferred stock dividends may receive a partial tax exemption.- preferred stock may be cumulative.- preferred stock dividends have to be paid before common stock dividends.- there is no maturity date.
False True or False:When a bond trades at a discount to par, the yield to maturity on the bond will exceed the required return.
Future cash flows and appropriate discount rate Valuation of financial assets requires knowledge of:- company valuation.- an appropriate discount rate.- future cash flows and an appropriate discount rate.- past asset performance.
Relationship of dividends to market prices The dividend valuation model stresses the:- relationship of dividends to earnings per share.- relationship of dividends to market prices.- importance of dividends and legal rules for maximum payment.- importance of earnings per share.
Is an inverse relationship The relationship between a bond’s sales price and the yield to maturity:- is an inverse relationship.- is a linear relationship.- changes at a constant level for each percentage change of yield to maturity and is an inverse relationship.- changes at a constant level for each percentage change of yield to maturity.
True True or False:The constant dividend growth valuation formula is P0 = D1/(Ke – g)
False True or False:There is a negative correlation between risk and the return investors demand.
If the required rate of return increases, the price decreases Which of the following regarding preferred stock is true?- The price in the market remains at par.- If the required rate of return increases, the price decreases.- If the price decreases, the required rate of return has decreased.- If the required rate of return increases, the price increases.
Total number of years divided by 2 All of the following adjustments must be made when interest is paid semi-annually versus annually EXCEPT:- Annual coupon payment divided by 2 – Total number of years divided by 2- Annual interest rate divided by 2- Annual yield to maturity divided by 2

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