Finance Flashcards

International Finance Chapter 5

1 An arbitrage is best defined asa) A legal condition imposed by the CFTC.b) The act of simultaneously buying and selling the same or equivalent assets or commodities for the purpose of making reasonable profits.c) The act of simultaneously buying and selling the same or equivalent assets or commodities for the purpose of making guaranteed profits.d) None of the above C
2 Interest Rate Parity (IRP) is best defined asa) When a government brings its domestic interest rate in line with other major financial markets.b) When the central bank of a country brings its domestic interest rate in line with its major trading partners.c) An arbitrage condition that must hold when international financial markets are in equilibrium.d) None of the above C
3 When Interest Rate Parity (IRP) does not holda) there is usually a high degree of inflation in at least one country.b) the financial markets are in equilibrium.c) there are opportunities for covered interest arbitrage.d) both b) and c) C
4 Suppose you observe a spot exchange rate of $1.50/€. If interest rates are 5% APR in the U.S. and 3% APR in the euro zone, what is the no-arbitrage 1-year forward rate?a) €1.5291/$b) $1.5291/€c) €1.4714/$d) $1.4714/€ B
5 Suppose you observe a spot exchange rate of $1.50/€. If interest rates are 3% APR in the U.S. and 5% APR in the euro zone, what is the no-arbitrage 1-year forward rate?a) €1.5291/$b) $1.5291/€c) €1.4714/$d) $1.4714/€ D
6 Suppose you observe a spot exchange rate of $2.00/£. If interest rates are 5% APR in the U.S. and 2% APR in the U.K., what is the no-arbitrage 1-year forward rate?a) £2.0588/$b) $2.0588/£c) £1.9429 /$d) $1.9429/£ B
7 Suppose that the one-year interest rate is 5.0 percent in the United States and 3.5 percent in Germany, and the one-year forward exchange rate is $1.16/€. What must the spot exchange rate be? a) $1.1768/€ b) $1.1434/€c) $1.12/€ d) None of the above B
8 A higher U.S. interest rate (i$ ↑) will result in a) a stronger dollar.b) a lower spot exchange rate (expressed as foreign currency per U.S. dollar).c) both a) and b)d) none of the above A
9 If the interest rate in the U.S. is i$ = 5 percent for the next year and interest rate in the U.K. is i£ = 8 percent for the next year, uncovered IRP suggests that a) the pound is expected to depreciate against the dollar by about 3 percent.b) the pound is expected to appreciate against the dollar by about 3 percent.c) the dollar is expected to appreciate against the pound by about 3 percent.d) both a) and c) D
10 If IRP fails to holda) pressure from arbitrageurs should bring exchange rates and interest rates back into line.b) it may fail to hold due to transactions costs.c) it may be due to government-imposed capital controls.d) all of the above D
11 Although IRP tends to hold, it may not hold precisely all the timea) due to transactions costs, like the bid ask spread.b) due to asymmetric information.c) due to capital controls imposed by governments.d) both a) and c) D
12 If a foreign county experiences a hyperinflation,a) its currency will depreciate against stable currencies.b) its currency may appreciate against stable currencies.c) its currency may be unaffected—it’s difficult to say.d) none of the above A
13 As of today, the spot exchange rate is €1.00 = $1.25 and the rates of inflation expected to prevail for the next year in the U.S. is 2% and 3% in the euro zone. What is the one-year forward rate that should prevail?a) €1.00 = $1.2379b) €1.00 = $1.2623c) €1.00 = $0.9903d) $1.00 = €1.2623 A
14 Purchasing Power Parity (PPP) theory states thata) the exchange rate between currencies of two countries should be equal to the ratio of the countries’ price levels.b) as the purchasing power of a currency sharply declines (due to hyperinflation) that currency will depreciate against stable currencies.c) the prices of standard commodity baskets in two countries are not related.d) both a) and b) D
15 As of today, the spot exchange rate is €1.00 = $1.60 and the rates of inflation expected to prevail for the next year in the U.S. is 2% and 3% in the euro zone. What is the one-year forward rate that should prevail?a) €1.00 = $1.6157b) €1.6157= $1.00c) €1.00 = $1.5845d) $1.00 × 1.03 = €1.60 × 1.02 C
16 In view of the fact that PPP is the manifestation of the law of one price applied to a standard commodity basket, a) it will hold only if the prices of the constituent commodities are equalized across countries in a given currency.b) it will hold only if the composition of the consumption basket is the same across countries.c) both a) and b)d) none of the above C
17 Some commodities never enter into international trade. Examples includea) nontradables.b) haircuts.c) housing.d) all of the above D
18 Generally unfavorable evidence on PPP suggests thata) substantial barriers to international commodity arbitrage exist.b) tariffs and quotas imposed on international trade can explain at least some of the evidence.c) shipping costs can make it difficult to directly compare commodity prices.d) all of the above D
19 The price of a McDonald’s Big Mac sandwicha) is about the same in the 120 countries that McDonalds does business in.b) varies considerably across the world in dollar terms.c) supports PPP.d) none of the above. B
20 The International Fisher Effect suggests thata) any forward premium or discount is equal to the expected change in the exchange rate. b) any forward premium or discount is equal to the actual change in the exchange ratec) the nominal interest rate differential reflects the expected change in the exchange rate. d) an increase (decrease) in the expected inflation rate in a country will cause a proportionate increase (decrease) in the interest rate in the country. C
21 The Fisher effect states thata) any forward premium or discount is equal to the expected change in the exchange rate. b) any forward premium or discount is equal to the actual change in the exchange rate.c) the nominal interest rate differential reflects the expected change in the exchange rate. d) an increase (decrease) in the expected inflation rate in a country will cause a proportionate increase (decrease) in the interest rate in the country. D
22 The main approaches to forecasting exchange rates area) Efficient market, Fundamental, and Technical approaches.b) Efficient market and Technical approaches.c) Efficient market and Fundamental approaches.d) Fundamental and Technical approaches. A
23 The benefit to forecasting exchange ratesa) are greatest during periods of fixed exchange rates.b) are nonexistent now that the euro and dollar are the biggest game in town.c) accrue to, and are a vital concern for, MNCs formulating international sourcing, production, financing and marketing strategies.d) all of the above C
Finance Flashcards

Personal Finance Chapter 5 Review

After Tax Return= Taxable Return(1-marginal tax bracket) Formula to calculate which accounts are better in terms of a higher rate of return.
Truth and Savings Act of 1993 designed to help promote competition between depository institutions and make it easier for consumers to compare interest rates, fees and terms associated with savings institutions’ deposit accounts. Established uniform guidelines for how banks and other financial institutions disclose information about deposit accounts to individuals.
Liquid Assets Cash and investments that can easily be converted into cash.
They are important because without liquid funds you might have to compromise your long-term investments to cover unexpected expenses. Why are liquid assets important?
Money Market Mutual Funds What type of financial institution pools money together from investors and invest that money in stocks or bonds?
non profit organizations with low fees and generally high interest rates What are Credit Unions?
Savings and Loans Associations a financial institution that specializes in savings deposits and mortgage loans, and has become one of the primary sources of mortgage loans for homebuyers today. It offers mortgage services to people from the savings and deposits received from private investors.
Liquid, Safe, Low minimum balance, Convenient Advantages of Checking account
minimum balance required, monthly fee, opportunity cost, interest less than alternatives Disadvantages of Checking account
Liquid Safe federally insured Earns higher interest than a Checking Account Advantages of Savings account
Minimum holding time Charges/fees Low interest rate Inconvenient Disadvantages of savings account
Safe, Earns interest, Check writing privileges Advantages of a MMDA
High minimum balances/penalties, interest rates below alternatives Disadvantages of and MMDA
Money Market Deposit Account alternative to savings account, variable interest rates, check and ATM access.
Safe, fixed interest rate, convenient. Advantages of Certificate of Deposit
Early withdrawal penalty, fixed interest rate, minimum deposit required Disadvantages of Certificate of Deposit
Certificate of Deposit pays a fixed rate of interest while funds are on deposit for a period of time (30 days to years).
High interest rates, check writing, limited risk, convenient. Advantages of a MMMF
Money Market Mutual Fund investors receive interest on a pool of investments less an administrative (usually less than 1% of total investment)
Administrative fees, minimum initial investment, not insured, minimum checks. Disadvantages of a MMMF
Asset management account a comprehensive financial services package (checking account, credit card, MMFs, etc.) offered by a brokerage firm.
Monthly statements, coordination of money management, checks, high return, convenient. Advantages of Asset management account
Costly, minimum initial investment, not insured. Disadvantages of Asset management account
U.S. Treasury Bills short-term debt issued by the federal government with maturities from 3-12 months.
Risk-free, exempt from state and local taxes, federal tax vary with current rates. Advantages of T-Bills
Low rate of return Disadvantages of T-Bills
U.S. Savings Bonds Series EE and I bonds are safe, low risk savings products issued by the Treasury with low denominations.
Safe, affordable, no taxes, convenient, redeem at any bank, no commissions or fees. Advantages of Savings Bonds
Low liquidity, long maturity, semi-annual compounding. Disadvantages of Savings Bonds
Federal Government At what level of government are savings accounts insured?
NOW Accounts Interest bearing checking accounts are called what?
Allocated Funds When funds are not able to be used elsewhere because they are required for say a minimum balance, this represents a special type of cost, what is that cost?
Cashiers Check a check guaranteed by a bank, drawn on the bank’s own funds and signed by a cashier.
Monthly fee, flat charge per check, or minimum balance Common Fee Arrangements for checking accounts
Finance Flashcards

Management test 1

Donna, vice president of finance, and Bob, vice president of human resources, are ____ managers. functional
Gregson Production is keenly aware of the need to daily strive to produce goods and services more effectively than its competitors. Therefore, to achieve this standard, Gregson’s management strives to ____. maintain quality and efficiency
Lower-level managers typically make less than $10 million in their lifetime, but they do earn fairly good incomes compared with most workers.(T,F) True
When building a new residential development or mall, a national real estate organization typically does not remove many trees, basing its decision on the belief that natural resources are limited, and we need to not compromise the ability of future generations to meet their own needs. This management philosophy is known as ___. sustainability
New York Times columnist Thomas Friedman noted that globalization has leveled the competitive playing fields between industrial and emerging-market countries. This phenomenon proposes that ____. the world is flat
The owners of a local restaurant routinely try to develop new menu items and seek better ways of helping their customers; this is an example of ___. innovation
Robert is a district manager who oversees several store managers in a national chain of restaurants. Robert reports directly to the vice president of stores and marketing, a member of top management. Robert is a middle manager.(T,F) True
When Greg meets regularly with his workers to provide encouraging words so that they work hard to achieve the company’s goals, he is engaged in the management function of controlling.(T,F) False
Efficiency and effectiveness means to use resources—people, money, raw materials, and the like—wisely and cost effectively.(T,F) False
The management functions are sometimes called the six management parts.(T,F) False
Mintzberg proposed that managers utilize written communication more than verbal communication.(T,F) False
Mintzberg concluded that managers play three broad types of roles: interpersonal, analytical, and critical.(T,F) False
When Paul, a new restaurant owner, is determining which products to offer on his menu, he is involved in the management function of planning.(T,F) True
Within her company, Maria utilizes a management style that varies according to the individual and environmental situation, with a strategy for minimizing errors by managing each stage of production. She has also set up a system with inputs, outputs, transformation processes, and feedback. Maria’s management perspective is best described as _____. Contemporary
The human relations movement was based on increasing sales by utilizing improved marketing and customer service techniques with customers.(T,F) False
Ann is the owner of a family-owned grocery store. The culture and belief of Ann and the previous owners, her grandfather and father, is to hire good people you believe in and then trust them with responsibility so that they grow into valuable employees. Ann and the previous owners are an example of ___ managers. Theory Y
Abraham Maslow’s listing of physiological, safety, love, esteem, and self-actualization needs, and his belief that some of these needs must be satisfied before others, was proposed in his _________. hierarchy of human needs
Behavioral science includes the fields of psychology, marketing, accounting, and geology.(T,F) False
Quantitative management emphasizes the use of accounting to provide the needed internal controls related to inventory.(T,F) False
Don feels that inefficiency is the cause of increased costs in his production facility. Therefore, he is interested in making improvements in his factory by utilizing all components of a system, which include design, inputs, production processes, outputs, sales, and feedback.(T,F) False
Managers in a plumbing company have been having problems with employees starting cliques. To develop more of a team culture, the CEO suggested utilizing Mary Parker Follett’s belief: companies should _____. operate as a community, with employees working in harmony
Max Weber believed that a company that is a bureaucracy never achieves a competitive advantage because it is inefficient and is plagued with management problems.(T,F) False
Sofia, a restaurant manager, has been observing and analyzing the work process of each task because she would like to increase the productivity of employees in the restaurant. This is an example of ____ management. Scientific
The macroenvironment, which includes sociocultural, demographic, political-legal and international forces, cannot easily be controlled by organizations.(T,F) True
While setting up their corporation, Ming and Jie implement a system of governing their organization so that the interests of corporate owners and other stakeholders are protected. This is an example of a _____. Corporate governance
The system of governing a company so that the interests of corporate owners and other stakeholders are protected is known as corporate governance.(T,F) True
The notion that corporations are expected to go above and beyond following the law and making a profit to help society known is ____. corporate social responsibility
Tom, the CEO of a large landscaping company, has been studying an article in a business publication that instructs managers how to increase profits through boosting worker efficiency. This is the aim of corporate social responsibility, which states that it is the responsibility of corporations to be profitable even if the other goals in the community are not met.(T,F) False
Having some clients who are less knowledgeable about investing and seem to be more trusting of their firm, the management of a financial advising organization has decided to use cash from newer investors to pay off older ones. The actions of management are an example of ____. a Ponzi Scheme
The board of directors are elected by the employees.(T,F) False
Paul and Anna Jones are wealthy entrepreneurs who are very interested in helping children who have been abused. Their goal is to donate a percentage of their company profits to helping these children. The Jones’s actions are an example of _____. Philanthropy
A distributor is a person or an organization that helps another company sell its goods and services to customers. Distributors are considered external stakeholders.(T,F) True
When individuals or groups are in the process of purchasing a company, this action is known as being a stakeholder.(T,F) False
The shared set of beliefs, values, knowledge, and patterns of behavior common to its people is a nation’s _____. culture
International Fabric buys products for its customers from over 30 countries. The retailer is an example of a company that ____. imports
The American research committee that promoted one world government and one world economy was known as the GLOBE project.(T,F) False
Luis, the owner of a shoe factory in Panama, is unhappy due to a tax that the U.S. government has implemented on shoes exported there to protect U.S. shoe companies. This is an example of a tariff.(T,F) True
The United States has prohibited the import of products from Iran due to the political situation in that nation. This ban is an example of a(n) ____. Embargo
A multinational corporation is a(n) ____. business firm with operations in several countries
In discussing Americans as global citizens, Keith Reinhard from the nonprofit group Business for Diplomatic Action said, “Globally, Americans are viewed by the world as quiet humanitarians striving for equality and accord.”(T,F) False
Franchising allows restaurants internationally to pay a fee plus a percentage of the profits in return for using a company’s name and assistance with management, marketing, and the training of managers and nonmanagement employees.(T,F) True
Dave’s Furniture in South Carolina produces high-quality furniture and ships its products to customers in over 40 countries. This is an example of ____. Exporting
Maquiladoras are manufacturing plants allowed to operate in Mexico with special privileges in return for employing Mexican citizens.(T,F) True
Management scholar Henry Mintzberg found that in their workday, managers ____. have work that is characterized by fragmentation, brevity, and variety
Sally has a high-paying management position with a Fortune 500 company, but she is tired of working for corporate America. So Sally has decided to start a business, and she knows she will be successful as an entrepreneur because entrepreneurs typically ___. have a high need for achievement
The work time for most managers typically consists of long periods during the day that are uninterrupted.(T,F) False
One of the easier components of management is time and task management.(T,F) False
One of challenges of management is that problems and scenarios are seldom similar, so managers are not able to use past products and accomplishments as indicators of future success.(T,F) False
Over the last 10 years, business crime has all but disappeared, thanks to technological oversight.(False) False
Shoshanna, the regional manager of a global sales organization, gives freedom to the sales representatives on the amount spent on gifts for prospective Asian and European customers. Shoshanna is managing for ____. Ethical Standards
The belief that quality stemmed from “constancy of purpose,” and that managers should stress teamwork, be helpful rather than simply give orders, and make employees feel comfortable about asking questions was proposed by _____. W. Edwards Fleming
Susan, a movie theater manager, has observed that as workers feel some company policies are not fair, the employees have not been working as hard as in the past. This reduction in effort is known as ____. soldiering
A-Plus Manufacturing has a policy of using statistical sampling to locate errors by testing just some (rather than all) of the items in a particular production run. This strategy of minimizing errors is known as synergy.(T,F) False
That organizations should be operated as “communities,” with managers and subordinates working together in harmony, is one of the proposals of ____. Mary Parker Follet
Sal, a production manager, knows that some of his employees are upset with the new corporate policy, and as a result, are participating in soldiering. To eliminate soldiering Sal can ___. carefully select workers according to their abilities and give workers training
A problem with the classical viewpoint is that it does not consider overall company and global problems and goals.(T,F) False
The beliefs that there are few really new ideas and that true is better than new are two of the foundational principles of ___. Evidence based management
After returning home from a trade show, Mr. Jones, the president of a manufacturing company, spoke to his employees in a production meeting about a new approach that should increase their production bonus by improving their performance. To do so, Mr. Jones discussed a goal of “zero defects.” This is an example of ____. quality assurance
The father of scientific management is _____. Frederick Taylor
Don, the owner of a fishing business, attended an entrepreneurship workshop that discussed the triple bottom line, which measures an organization’s ____ performance. social, environmental, and financial
Finance Flashcards

Test 2 Personal Finance Turner

How do you compare cash management alternatives to determine which is best for you?A) Take into account their tax rateB) Consider their safety or riskC) Compare returns using comparable interest ratesD) All of the above are correct D
Cash and investments that can be easily converted into cash are termed:A) liquid assetsB) capital assetsC) illiquid assetsD) depositable assetsE) None of the above are correct A
What is the name of an investment company that raises funds from investors, pools the money, and invests in stocks or bonds?A) securities fund firmB) bond brokerage firmC) stockbrokerage firmD) mutual fund firmE) none of the above are correct D
Which of the following financial institutions is a not-for-profit organization that is only open to members of that institution and tends to offer more favorable interest rates to borrowers and savers?A) saving bankB) saving and loan associationC) commercial bankD) credit unionE) None of the above are correct D
Which of the following financial institutions were originally established to provide mortgage loans to depositors?A) commercial banksB) credit unionsC) savings and loan associationsD) internet banksE) None of the above are correct C
Financial institutions that provide traditional checking and savings accounts are commonly referred to asA) personal depository institutionsB) financial brokerage companiesC) deposit-type financial institutions D) non-deposit type financial institutionsE) None of the above are correct C
What is the name for comprehensive financial service packages offered by brokerage firms?A) asset management accountsB) platinum management accountsC) consolidated management accountsD) comprehensive management accountsE) None of the above are correct A
Money market mutual funds provide an alternative to traditional liquid investments offered by financial institutions. Advantages of MMMFs include which of the following?A) check-writing privilegesB) high interest ratesC) minimal riskD) convenience–deposits made through payroll deductionsE) All of the above are correct E
A savings alternative that pays a fixed rate of interest while keeping your funds on deposit for a contracted period of time that can range from 30 days to several years is called aA) certificate of depositB) demand depositC) negotiable order of withdrawal depositD) term depositE) None of the above are correct A
Savings accounts are insured ate the _______ level.A) stateB) localC) federalD) All of the above are correctE) None of the above are correct C
What is another name for an interest-bearing account?a) CWIb) demand depositc) IBCd)NOWe) none of the above D
Of the following, which is not an advantage of a CD as a cash management alternative?a) Wide selection of maturitiesb) Convenient to purchasec) Liquidityd) Fixed insurance rate, beneficial if interest rates drope) Is insured C
Pick the advantage of a certificates of deposit from this list of possibilities.a) The interest paid is compounded dailyb) Early withdrawals after 30 days do not incur a penaltyc) They earn the APY and not the APRd) Interest rates are generally higher than typical savings accounts D
Money Market Deposit accounts enjoy one advantage over savings accounts found in commercial banks. This advantage isa) Greater liquidityb) Lower fees and smaller minimum balancesc) Unlimited check-writing privilegesd) A variable rate that is generally higher D
Money market mutual funds provide attractive competition for bank deposits because a) Their short term, higher returns are generally regarded as practically risk freeb) They are convenient to purchase and use c) They are fully insuredd) Their low fees are affordable for almost anyonee) None of the above are correct A
What is the FDIC?a) Federal Department of Insurance and Compensationb) Federal Deposit Insurance Corporationc) Federal Deposit Insurance Collectived) Federal Depository Insurance Committeee) None of the above are correct B
Many banks offer free checking accounts. What may be the opportunity costs associated with free checking?a) Low interest ratesb) Overdraft protectionc) High minimum balance requirementsd) Both A and C are correct answers D
Suppose that you go to a bank at which you have no account, give the bank some cash, and in return obtain a check drawn against that bank which you will use to pay someone else. This is called a a) Traveler’s check b) Cashier’s checkc) Certified checkd) None of the above are correct B
What is the name for an automatic loan made to your checking account whenever your account does not contain enough cash to cover the checks that you have written against it?a) Draft-free checkingb) Automatic check coverage (ACC)c) No fee checking coveraged) Overdraft protectione) None of the above are correct answers D
Barbara Stallins had her bank certify one of her personal checks as being good. Which type of check has been issued?a) Traveler’s checkb) Cashier’s checkc) Money orderd) Audited checke) Certified check E
The percentage of the credit card sale the retailer owes to the credit card company is thea) Franchise feeb) Card usage allowancec) Retailer credit acceptance feed) Merchant’s discount feee) Interest rebate fee D
Typically, the credit card issuer allows you a grace period, which meansa) You do not have to make a payment during the current monthb) You are not charged any interest during the current monthc) You must pay your balance off in full to benefit from the grace periodd) Interest charges are reduced during this timee) Both A and C apply E
Which of the following apply to getting a cash advance with a credit card?a) Cash advances are available at ATM machines b) There may be a cash advance feec) The interest rate may be higher than on regular purchasesd) You being paying interest immediatelye) All of the above E
Credit cards are a form of __________ credita) Open endedb) Revolving c) Installmentd) Both A and B abovee) Both A and C above D
Kendra always thought the grace period feature of her credit card was such a wonderful idea. Why, in essence, she is getting her purchases interest free during this time. After taking Dr. Art Keown’s Personal Finance course she learned a startling truth about grace periods.a) There are higher fees associated with grace periodsb) All credit cards carry a grace periodc) Grace periods are actually beneficial to the credit card companyd) Most bank eliminate their grace period on new purchases if you don’t pay your balance in full. D
When you use a credit card at a store, the store is generally charged a fee ranging from 1.5% to 5 %. What is the fee called?a) Merchant discount feeb) Merchant ratec) Discount rated) Merchant back-end chargee) None of the above A
Which of the following is not an advantage of credit cards?a) Allows for online shoppingb) Convenience or ease of shoppingc) Allows for consumption before the purchase is fully paid ford) Emergency usee) The finance charge that accrues on the account if not paid off in full each month E
Which of the following are important to convenience users of credit cards?a) Low annual feeb) Card benefits and perksc) Interest-free grace periodd) Only A and Be) All of the above E
Which of the following is not a single-purpose credit card?a) Searsb) Bank of America Visac) Toys R USd) Shell Oile) Macy’s B
What is the main distinguishing feature(s) for T&E cards?a) They do not offer revolving creditb) The full balance must be paid each monthc) There is no annual feed) Both A and B above e) Both A and C above D
The major differences between a premium prestige card and a regular credit card includea) Higher interest ratesb) Higher credit limitsc) Additional perks and benefitsd) Both A and B abovee) Both A and C above E
Getting a credit card while a college student is an excellent idea becausea) It helps you learn about creditb) When used correctly it allows you to build up a solid credit historyc) You can shop online and make reservationsd) It works well for emergenciese) All of the above E
One of the following lists constitutes the five Cs of credit. Select the correct one.a) Character, capacity, capital, collateral, co-insuranceb) Character, capacity, capital, collateral, characteristicsc) Character, capacity, capital collateral, conditionsd) Character, capacity, capital collateral, carefule) Character, capacity, capital, collateral, credence C
A company that gathers and sells consumers’ financial history to creditors is a a) Credit issuance firmb) Credit card companyc) Credit investigation bureaud) Credit bureaue) Credit recovery firm D
__________ is not information generally found in your credit reporta) Personal credit historyb) College attended, grades, etc.c) Your public financial historyd) Past inquiries regarding your credit reporte) Employment information B
By law you have certain rights in connection with the credit bureau. They area) The right to view your personal credit reportb) The right to point out errors found in your filec) The right to file a statement presenting your view of a disputed issued) The right to request the credit bureau to correct mistakes in your filee) All of the above E
Your credit score affectsa) Your mortgage rateb) The amount of junk mail offering additional credit cards that you receivec) The size of your credit lined) The rate you pay on your credit cardse) All of the above are correct answers E
The process of mathematically evaluating your creditworthiness to obtain credit is calleda) Credit evaluationb) Credit statisticsc) Credit historyd) Credit scoringe) Credit references D
Which of the five Cs of credit would your actual home be in relation to your mortgage?a) Capitalb) Collateralc) Capacityd) Charactere) Conditions B
Wally currently has a balance of $14500 on his credit cards and he is having a hard time making the minimum payments on them. He has missed several payments and is now paying the default Apr of 29.99%. He and his wife own a nice home with $40000 in equity. They have $7,500 in a certificate of deposit with a 4% APR. He has come to you in tears asking f0r advice. What would you tell him to do?a) Take out a second loan on the houseb) Seek out a non-profit credit counseling companyc) Cash out his CD and pay down his credit cardsd) Become a convenience user, and maintain just one carde) All of the above E
A short-term loan that provides funding until a longer-term loan can be secured is called a(n)a) Gap loanb) Straddle loanc) Bridge loand) Amortized loane) None of the above C
A(n) ___________ loan calls for the repayment of both the interest and the principal at regular intervals and is commonly referred to as loan amortization.a) Simple interestb) Personalc) Termd) Installmente) None of the above D
A ________ is tied to a market interest rate, such as the prime rate or the six-month Treasury bill rate.a) Variable-rate loanb) Convertible-rate loanc) Flexible-rate loand) Prime-rate loane) None of the above A
Variable-rate loansa) Always adjust every monthb) Are never a better option than fixed-rate loansc) Usually have rate caps that prevent them from varying too muchd) All of the above C
Alice has fallen behind on her signature loan. She recently received a notice from the lender that her wages were going to be garnished to pay off debt. What is the loan clause that allows the lender to take this action against Alice because she was in default?a) Recovery clauseb) Recourse clausec) Default claused) Deficiency payments clausee) None of the above B
What is the loan clause stating that if you default on a secured loan, the lender can repossess whatever is secured, as well as bill you for the difference if that repossession does not cover what you owe?a) Deficiency payment clauseb) Insurance clausec) Default claused) Recourse clausee) None of the above A
Joshua recently purchased a new home. His lender required him to purchase credit life insurance on the loan in the event that he died before the mortgage is paid off. What is the loan clause that allows his lender to require him to purchase this additional insurance?a) Default contingency clauseb) Insurance agreement clausec) Recourse claused) Early payment clausee) None of the above B
Suppose you borrowed the money you needed to purchase an automobile and then failed to make a scheduled payment by the due date. Technically, youa) Are usually not given a chance to make good on the overdue paymentb) Are bankruptc) Are in defaultd) None of the above C
The “Repo man” recently repossessed your car for failure to make payments. You still owed $5000 on the loan, but since it was always broken you were glad to be rid of it anyway. The bank sold the car at wholesale auction for $3000. The bank also paid the “Repo man” $200 and paid attorney fees of $300. Based on the deficiency payments clause in your loan, what are you liable for?a) $0; repossession means the bank must “eliminate” the debtb) $500c) $2000d) $2500e) None of the above D
What is the name of the formal document that outlines the legal obligations of both the lender and the borrower?a) Claimb) Debenturec) Tortd) Notee) Default D
The loan contract is a formal document called a(n) ________ and may contain a(n) __________ specifying who retains control over the item being purchased in the case of default.a) Note, security agreementb) Agreement, indenturec) Indenture, security agreementd) Agreement, insurance clausee) Note, legal transaction A
Student loans are a smart source of financing for school because you pay part of the interest charges and the rest is subsidized bya) The state governmentb) The bank or lenderc) The federal governmentd) The educational institution C
If you own a home with a market value of $175000 and you have an outstanding balance on your mortgage of $60000, your home equity isa) $97,750b) $57500c) $235000d) $115000 D
Home equity/second mortgage loans have two important advantages over most other types of loans, they area) Tax deductibility of interest and lower interest ratesb) Tax deductibility of payments and longer termsc) Increase in future financing flexibility and no recourse claused) No risk borrower and less amortizatione) None of the above A
In driving around town one day, you noticed most of the payday loan companies were located close to the college and the local military base and there were none out in the newer neighborhoods. Why do you think this is so?a) Payday lenders tend to focus on less experienced borrowers who typically don’t make a lot of moneyb) The rent on these locations is less expensivec) Because their terms are so affordable people with low incomes really take advantage of themd) There are zoning laws that require these types of locations for these types of services A
A Loan that is paid back in a single lump sum payment at the due date of the loan is commonly called a(n)a) Balloon loanb) Secured loanc) Installment loand) Fully amortized loane) None of the above A
Which of the following statements regarding the risk-return relationship is most accurate?a) Lower credit scores are associated with lower APRs.b) Longer loan length is associated with lower APRs.c) Higher credit scores are associated with lower APRs.d) Shorter loan length is associated with higher APRs.e) Both B and D are correct C
What can a couple seeking to get out of debt do?a) Seek help from a reputable credit counselorb) Avoid future use of credit card debt, expect on emergency basisc) Use savings to pay off current debtd) See if their creditors will restructure their loanse) All of the above are correct E
Which of these are possible options for most people who cannot pay their bills?a) Declare Chapter 7 personal bankruptcyb) Obtain a debt consolidation loanc) Get help from a credit counselord) Declare Chapter 13 personal bankruptcye) All of the above are possible options E
What is the type of loan where the entire interest charge is subtracted from the loan principal before you receive the money, and at maturity you repay the entire principal?a) Simple interest methodb) Add-on methodc) Partial amortization methodd) Discount methode) None of the above D
Of the following possible sources of credit, which typically has the lowest borrowing rates?a) Savings and loansb) Personal finance companyc) Commercial banksd) Credit union D
With a(n) _______ installment loan, interest charges are calculated using the original balance, and these charges are the added to the loan.a) Discount methodb) Add-on methodc) Partial amortization methodd) Simple interest methode) None of the above B
Which of the following statements would most correctly complete the following sentence? As the interest rate on a loan increasesa) The payment amount would increase (other things held constant)b) The loan maturity would decrease (other things held constant)c) The payment amount would decrease (other things held constant)d) The amortization would increase (other things held constant)e) None of the above A
Which of the following does not require you to have a good credit rating to issue you a loan?a) Savings and loanb) Commercial bankc) Your familyd) All of the above require a good credit rating to issue a loan C
What is the name of the interest rates banks charge to their most credit worthy customers?a) Main rateb) Prime ratec) Premier rated) Blue chip ratee) None of the above B
How can you benefit from the following smart buying steps?a) Smart buying helps you maintain your budgetb) Smart buying allows you to buy what you want when you want itc) Smart buying allows a higher standard of living because you make smarter purchasesd) Both A and C are correct D
Suppose that you are the end of your automobile lease. The leasing company has just informed you that the car’s market value is greater than its residual value and they will be sending you a refund. What type of lease did you have?a) Residual leaseb) Walk-away leasec) Close-end leased) Open-end leasee) None of the above D
You have been having significant problems with your new car. Every time you turn around something is breaking or not working properly. Fortunately, the “lemon laws” are there to help. Which of the following is not one of the criteria for application of lemon laws?a) You must return the vehicle to the original dealershipb) Your car has been out of service for at least 30 days during the first year after purchasec) You have made at least four attempts to solve the problemd) You have under 12,000 miles on your car A
Which of the following factors plays a role in determining the monthly lease payment of a car?a) The agreed-upon price of a vehicleb) The value of the vehicle at the end of the leasec) The length of the leased) The capitalized cost based on your trade-ine) All of the above E
Another name for a closed-end lease is a(n)a) End-purchase leaseb) Terminal leasec) Take-out leased) Walk-away leasee) None of the above D
In auto sales a ______ is an amount of money, generally in the 2% to 3% range, that the manufacturer gives the dealer for selling an automobile.a) Holdbackb) Kickbackc) Markupd) Rebatee) None of the above A
Suppose that you were thinking about leasing a new vehicle. Which of the following should not be an important consideration?a) I like to get a new car every few yearsb) I drive less than 15,000 miles annuallyc) I dislike the hassle of trading-in or selling carsd) It’s the only way I can afford the vehicle that I wante) I dislike the hassle of maintenance D
You disagree with Ed “Shifty” Smith, a car salesperson, on the price of an open-end lease. He says the depreciation charge is only $6000. What is the actual depreciation charge for a car now worth $23,000 that is expected to drop in value to $15,000 in two years?a) $7000b) $7500c) $8000d) $11500e) $15500 C
Over the past decade the number of new car sales are down and the number of new car leases are up. What is probably the main reason why this is true?a) The manufacturers prefer it when people lease instead of purchaseb) The salesman makes a higher commission when cars are leasedc) New cars are getting so expensive that the average person can’t afford to buy themd) Both A and B are correct C
What kind of valuable information can you find online at websites such as or concerning smart buying for automobiles?a) The trade-in value on your current automobileb) The dealer cost and dealer holdback for the automobile you are interested inc) The final price you will pay for the automobile at the dealershipd) Only A and B are correcte) All of the above D
If you are considering purchasing a used car you shoulda) Ask questions about the mechanical history of the car, including whether it has been in any accidentsb) Do some research so you’ll know a fair price for the vehicle you’re looking forc) Have the car inspected by a mechanic before you purchase itd) All of the above D
Which should you consider when house hunting?a) The school districtb) The selling pricec) The neighborhoodd) All of the above D
What drawbacks might a co-op have over a house for a family of eight who are relocating to a new area and need to purchase a home?a) More expensive to operate and maintainb) More expensive to purchasec) No ownership of shares in the corporationd) Less freedom to make changes and less privacy D
Which of the following is not an advantage of living in a condo?a) Building equity for resale and investmentb) Limited maintenancec) Direct ownership of a specific unitd) Freedom from neighbors D
Which one of the following is not a key to finding housing that fits your needs?a) Future needsb) Locationc) Insurance costsd) Deciding what features you are looking fore) Present needs C
Which of the following housing alternatives puts the responsibility for maintenance and repairs on the occupant?a) A rental unitb) Homeownershipc) Condod) A co-op B
All of the following are advantages of renting versus buying a home excepta) Control over remodeling and decorating decisionsb) Not responsible for home repairs or maintenancec) Mobilityd) No risk of falling housing pricese) No property tax A
What is not a benefit normally associated with home ownership?a) A potential source of collateral for future loansb) Ability to build equity and net worthc) Tax advantages for those who qualifyd) Flexibility to respond to employment opportunities D
Private mortgage insurance typically is not needed with a down payment of 20% or larger. Why? a) Buyers who invest large down payments are more motivated to make their mortgage paymentsb) Buyers who have large down payments don’t choose the extra insurancec) Not true, all mortgage loans require PMId) All of the abovee) None of the above A
You are a newlywed, and you and your spouse have just found your dream home. Problem is, you do not have 20% for a down payment on the house. You will probably need to obtaina) APRb) EARc) PMId) PTI e) None of the above C
You are considering the purchase of an acre of land out in the country to build your future house on. You pay for an investigation of the public record to determine the current legal owner of the property. This is called a(n)a) Title searchb) Appraisal searchc) Escrow searchd) Legal entity searche) None of the above A
You have just obtained a mortgage to purchase your home. The ______ that you paid to obtain the loan are charges that must be paid at the time of the sale and serve to raise the effective cost of the loana) Escrow feesb) Pointsc) Security feesd) Closing feese) None of the above B
You are in the process if purchasing a new home. Expenses that the buyer and seller incur when finalizing the transfer of the ownership of the house are calleda) End costsb) Transfer feesc) Closing costsd) Finalization costse) None of the above C
You have an annual gross income of $36,000. Using the28/36 rule for maximum mortgage payment (PITI) estimation, what is your maximum PITI payment using your monthly gross income as a guide (28%)?a) $840b) $880c) $1080d) $680e) $640 A
With private mortgage insurance, many lenders will allow you to borrow more than 80% of the appraised value of the home. What is the purpose of this action?a) It protects the lender in the event the borrower is unable to make mortgage paymentsb) It protects the borrower from foreclosurec) It is required by federal and state lawd) The insurance will pay to damages to the home during the course of the mortgage A
Select the one cost that is not involved in home ownershipa) Points/discount pointsb) Closing/settlement costsc) Down paymentd) Loan origination feee) Rental deposit E
Bob and Marilyn Hartin know the bank will carefully evaluate their situation before lending them the money for the mortgage for their new home. Which is not a consideration?a) The number of children they haveb) Their ability to payc) Their level of debtd) Their financial historye) Appraised home value A
Name the items that are deposited in an escrow accounta) Property taxes, property insuranceb) PMI premiums, homeowner’s association duesc) Utility payments, homeowner’s association duesd) Liens, closing costs, pointse) Principal, interest, title fee, insurance A
Which of the following is not a recurring housing cost?a) Maintenance and operating costsb) Mortgage paymentsc) Pointsd) Homeowner’s insurancee) PITI C
A deposit included with an offer to buy that assures the seller that the buyer is serious about buying the house is calleda) Earnest moneyb) Home depositc) Buyer’s assuranced) Assurance deposite) None of the above A
The two primary advantages of a 15 year mortgage over a 30 year mortgage area) Lower interest rate and lesser interest charges over the life of the loanb) Easier qualification criteria and more affordable initiallyc) Greater financial flexibility and no prepayment penaltiesd) Lower payments and prepayment privilegese) None of the above A