Quiz Chp 15 BA 1301

" Which of the following businesses would be most likely to require an unsecured bank loan, such as a line of credit or a revolving credit agreement?"

a Christmas tree farm

Preferred stock is a form of debt financing because the dividend must be paid before dividends can be paid to the equity owners.

false

M2

is M1 plus time deposits (13.6 trillion in 2017)

M1

is the total of all currency and demand deposits (3.5 trillion in 2017)

store of value

money (inflation notwithstanding)does not decrease in value

divisibility

money must be capable of being divided into smaller parts

portability

money must be easily moved around

medium of exchange

much less complicated than abarter system

standard of value

pricing in a manner acceptableto all. (what if you walked into a store that hadpricing in 10 different currencies?

The funds that are reinvested in the firm out of profits and after dividends are paid are called:

retained earnings

"In finance, the opportunity for profit is called:"

return

Capital budgeting:

selects asset proposals for maximum profitability

Financial managers constantly strive for a balance between:

the opportunity for profit and the potential for loss

Securities are investment certificates issued by corporations or governments.

true

The NYSE and NASDAQ are vying for supremacy in the U.S. securities markets.

true

Tracy Lefteroff is the global managing partner for PricewaterhouseCoopers. She said that her company is eager to invest in newly created biotech companies because the U.S. has an aging population that will need new medications and treatments. What kind of equity capital would Lefteroff be likely to provide?

venture capital

"Of all the forms of equity capital, venture capital is the easiest to obtain."

false

"Treasury bills, certificates of deposit, and mortgage loans are the most popular marketable securities."

false

Lines of credit are short-term loans that are secured by collateral.

false

_____ is the process of selecting the capital expenditures that offer the best returns and meet the goal of maximizing the firm's value.

Capital budgeting

U.S. financial instructions

- Depository Financial Institutions: CommercialBanks, Thrift Institution (Savings and Loan), CreditUnions - Nondepository Financial Institutions: InsuranceCompanies, Pension Funds, Brokerage Firms,Finance Companies

trends in financial institutions

- Regulatory and compliance are issues - Operational efficiency and technology - Financial technology (or "fintech" services) will continue to disrupt the banking industry - PayPal, Apple Pay, Google Wallet, Shopify, Stripecontinue to impact banking

the federal reserve system

- Sets rules on credit for consumers and investors - Distributes Currency - prints the money, mints the coins - Operates as a clearing house for checks (who uses checks?)

international banking

- US banks provide loans to foreign governments and businesses - They offer trade-related services - Many US banks have expanded overseas - Face challenges dealing in foreign countries

the u.s. money supply

- composed of currency, demand deposits, and time deposits - time deposits cannot be withdrawn immediately.

managing the 2007-2009 financial crisis

- low interest rated and very loose credit standards led to a huge increase in loans and housing prices - many leading financial investment firms had sold high risk, mortgage backed products failed - the fed made huge loans to bail out many financial firms and the auto industry - congress passed dodd-frank to prevent future collapses and oversee banks with annual checkups, etc

the federal open market committee (FOMC)

- meets 8 times a year to: -- Conduct open market operations: buy/sell bonds to increase/decrease the money supply -- Increase/decrease the reserve (actual cash on hand as a percentage of deposits) -- Increase/decrease the discount rate, the interest rate that banks must pay

the federal reserve system

- the central bank of the united states - control the money supply - where private banks borrow money - hold deposits - supervise banking practices

insuring bank deposits

- what is a "run on the bank" - The Federal Deposit Insurance Corporation (FDIC)was created to make sure that couldn't happen - The FDIC now enforces fair lending laws, examinesand rates banks - we hope this all works

durability

Any item used as money must be durable

Which of the following statements does NOT describe an advantage inherent in equity financing?

Equity owners have residual claim on income.(wrong)

scarcity

Money should be scarce enough to havesome value but not so scarce as to be unavailable

credit cards

are not money, they are a form of borrowing

currency

cash, coins AND traveler's checks,cashier's checks, and money orders

demand deposits

checking accounts, savingsaccount and whatever can be withdrawn ondemand

A secured loan requires that the borrower pledge specific assets to secure the loan. These assets are called:

collateral