Chapter 15/16 Exam

_____ management is the art and science used to determine the most effective ways to acquire and use funds to achieve the firm's goals.

Financial

Which statement describes the major drawback to the use of debt financing?

Financial risk is always a possibility with debt financing.

Short-term loans:

are shown as a current liability on the balance sheet

State banks are:

chartered by the state in which they are based

Bo Riley pays his rent and utility bills each month by writing checks. Riley is using a _____ account.

demand deposit

When The Bank of Bank County borrows funds from the Federal Reserve; the rate the Fed charges the commercial bank is called the _____ rate.

discount

Cupcakes, hamburgers, and cut flowers would not make good mediums of exchange because they lack the key characteristic of:

durability

A bank is engaged in _____ when it accepts the farmer's deposit of $127,000, and then makes a business loan of $50,000 to a small business owner.

financial intermediation

The primary activity of _____ is underwriting.

investment bankers

A bank charter:

is an operating license for a commercial bank

The most important function of the Federal Reserve System is carrying out ______ policy.

monetary

Three important forms of long-term (capital) expenditures are:

term loans, mortgage loans, and bonds

Hal Silverstein has a savings account, also called a _____, at his local credit union.

time deposit

In its role as lender to member banks, the Federal Reserve is called the:

banker's bank

A(n) _____ is a type of loan often used to finance buildup of inventory for seasonal (cyclical) businesses just before their strongest sales period.

unsecured bank loan

Commercial paper is:

a type of IOU

Finance companies make loans to people who could not get credit anywhere else. To compensate for taking this extra risk, finance companies:

charge higher interest rates than commercial banks do

The two types of finance companies are:

commercial finance companies and consumer finance companies

The three most popular types of marketable securities are Treasury bills, certificates of deposit, and:

commercial paper

The Securities Exchange Act of 1934 gave the SEC the power to:

control the organized exchanges

_____ are specific repayment conditions as to how long customers have to pay bills and the amount of cash discount allowed.

credit terms

The Banking Act of 1933 gave the Federal Reserve System the authority to:

keep banks from investing in specific securities regulate interest rates on time deposits tell banks how much reserve to maintain ban interest on demand deposits

_____ are the link between public companies and the investors interested in buying their stock.

Stockbrokers

Secured short-term loans are usually secured by:

accounts receivable and inventory

_____ 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

Money is used as:

a standard of value a medium of exchange a means of payment a store of value

Credit cards:

are sometimes referred to as plastic money defer payment to a later point in time are used as a substitute for cash and checks do not replace money

ATMs let customers of banks make deposits and withdrawals while in a shopping center or supermarket 24 hours a day. The letters ATM stand for:

automated teller machine

The operating license for a commercial bank is called a(n):

bank charter

Dividends are:

payments to the shareholders from company earnings

Boulders, building trusses, and lead ingots would not make good mediums of exchange because they lack the key characteristic of:

portability

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

The power the Federal Reserve has to control credit terms on some loans made by banks and other lending institutions is called ______ controls.

selective credit

Capital budgeting:

selects asset proposals for maximum profitability

Which of the following statements about the Federal Deposit Insurance Corporation (FDIC) is true?

All member banks in the Federal Reserve must be insured by the FDIC. The FDIC reviews the financial records and management practices of banks it insures at least once a year. The ceiling on the size account insured by the FDIC is $250,000. Each bank insured by the FDIC pays a fixed percentage of the bank's domestic deposit as its premium.

A company sells its accounts receivable to a financial institution that is in the business of buying accounts receivable at a discount. This sale is called:

factoring

Making sure that enough cash is on hand to pay bills as they come due and to meet unexpected expenses is called cash:

management

The primary goal of the financial manager is to:

maximize the value of the firm to its owners

Which of the following statements about international banking is true?

Competing against foreign banks can be difficult for U.S. banks because the U.S. banks are subject to many more regulations. Some governments protect their banks against foreign competitors. International banking is a high-risk business. U.S. banks play an important role in global business by providing loans to foreign governments and businesses.