Unit 3: Session 1: Basic Economics and Financial Reporting

An agent is analyzing the financial statements of a corporation. The company has cash on hand of $2 million, accounts receivable of $500,000, accounts payable of $700,000, land valued at $3 million, wages payable of $300,000, goodwill of $100,000, inventory of $1.5 million, and retained earnings of $5 million. From this information, the agent would determine that the acid-test ratio for this company is A)2.5:1 B)3.375:1 C)4:1 D)1:1

A

Which of the following would lead to a credit to our foreign account balance? A)Interest received on money loaned to foreign business enterprises. B)Loans made to foreign governments. C)Services provided by foreign companies. D)Dividends paid on foreign investment in the U.S.

A

One measure of a corporation's intrinsic value is its book value per share. When performing this computation, which of the following must be taken into consideration? - Goodwill - Long-term debt - Retained earnings - Par value of the preferred stock

All 4

Which of the following techniques could be used by the Fed to reduce the money supply? A)Issuing Treasury bills B)Increasing the discount rate C)Reducing required reserves D)Buying back Treasury bills

B

Although there may be some slight differences in methodology, when S&P or Moody's evaluate a security in order to assign a rating, they would be least likely to consider the issuer's A)cash flow to debt ratio B)liquidity ratio C)asset turnover ratio D)profitability ratio

C

Under SEC rules, Form 8-K must be filed: A)within 15 business days of the event. B)within ten business days of the event. C)within four business days of the event. D)promptly.

C

A corporation calls in a portion of its long term debt at 101. This will have the effect of: - decreasing working capital. - increasing working capital. - decreasing net worth. - increasing net worth.

1 & 3

An analyst is viewing a subject company's financial statements. She notices that the company has current assets of $20 million, fixed assets of $50 million, and total liabilities of $45 million (of which $10 million is considered long-term). This company's debt to equity ratio is A)64.3% B)40% C)28.6% D)22.2%

C

To stimulate a sluggish economy using fiscal policy measures, policymakers would: A)increase income taxes. B)reduce the money supply. C)reduce income taxes. D)increase the money supply.

C - Fiscal not Monetary

A significant increase in importing of goods into the United States would have what effect on the strength of the U.S. dollar? A)Strengthen. B)No effect. C)Weaken. D)Fluctuation both ways.

C - Importing tends to weaken the dollar because it indicates an outflow of money from the United States to foreign countries. Much of this outflow is in the form of debt. When our debt (deficit in balance of payments) gets too high, there is international concern about our ability to pay our debts and a reluctance in accepting U.S. dollars as payment for goods. Therefore, the dollar weakens.

All the pundits are predicting bad times ahead—not only a recession, but a period where prices actually fall (deflation). If they are right, the best place for your client would probably be A)real estate B)common stock C)US Treasury securities D)gold

C - It is times like this that the flight to safety has investors commit their funds to US government securities. Gold (and other commodities) tends to increase in price during inflationary, not deflationary, periods. Both real estate and equities tend to rise when things are good, not during recessions.

The Conference Board releases information about the economy on a periodic basis. Included are a number of different indicators. These indicators can be used to predict how the economy as a whole might change. Which of the following would be considered a leading indicator? A)Gross domestic product. B)Industrial production. C)Stock prices as measured by a broad index such as the S&P 500. D)CPI for services.

C - The stock market, which anticipates economy activity, is a leading economic indicator. Industrial production is a coincident, or current, economic indicator. CPI for services is a lagging indicator. GDP is not included in the Conference Board's list of economic indicators.

If the dollar weakens, which of the following statements is TRUE? A)The dollar buys more foreign currency. B)U.S. exports will fall. C)Foreign securities denominated in their domestic currency decrease in value to the U.S. investor. D)A rise in U.S. interest rates might strengthen the dollar.

D