Roncagli exam 3 definition problems

You need to charge your purchases and know that you will not be able to pay within the discount period. Which one of these credit terms is best-suited to you? 1/5, net 15 2/5, net 30 2/5, net 20 1/10, net 45 2/10, net 30

1/10, net 45

Assume you put your purchases on your credit card and then take advantage of any cash discounts offered. Which one of these credit terms do you prefer? 1/10, net 20 2/5, net 30 2/10, net 30 1/15, net 45 2/15, net 30

2/15, net 30

International bonds issued in multiple countries but denominated in a single currency are called: Treasury bonds. Bulldog bonds. Eurobonds. Yankee bonds. Samurai bonds.

Eurobonds.

U.S. dollars deposited in a bank in Switzerland are called: foreign depository receipts. international exchange certificates. francs. Eurocurrency. Eurodollars.

Eurocurrency.

The LIBOR is primarily used as the basis for the rate charged on: short-term debt in the Lisbon market. mortgage loans in the Lisbon market. Eurodollar loans in the London market. U.S. federal funds. interbank loans in the U.S.

Eurodollar loans in the London market.

Money market securities generally have which of the following characteristics? Short maturity, low risk, low liquidity Low default risk, low liquidity, low return High return, high liquidity, low risk High liquidity, low risk, low return Long maturity, low risk, high return

High liquidity, low risk, low return

Which one of the following statements is correct if you purchase an item with credit terms of 3/15, net 45? If you pay within 3 days, you will receive a discount of 15 percent. If you pay within 15 days, you will receive a discount of 3 percent. If you do not pay within 15 days, you will be charged interest at a rate of 3 percent per month. If you pay 3 percent of your purchases within 15 days, you will have 45 days to pay for the remainder. One-third of your purchase is due in 15 days and the rest is due in 45 days.

If you pay within 15 days, you will receive a discount of 3 percent.

Which one of the following supports the idea that real interest rates are equal across countries? Unbiased forward rates condition Uncovered interest rate parity International Fisher effect Purchasing power parity Interest rate parity

International Fisher effect

Which two of the following are key reasons why companies temporarily accumulate large cash surpluses? Dividend payments and fixed expenses Fixed asset purchases and payroll Short-term investments and daily operations Large asset purchases and payments to creditors Large planned expenditures and cyclical activities

Large planned expenditures and cyclical activities

On Friday evening, Bank A loans Bank B Eurodollars that must be repaid the following Monday morning. Which one of the following is most likely the interest rate that will be charged on this loan? Eurodollar yield to maturity London Interbank Offer Rate Paris Opening Interest Rate United States Treasury bill rate International prime rate

London Interbank Offer Rate

Any written proof that a customer owes you money for goods or services provided is referred to as a(n): account document. sales draft. credit instrument. commercial paper. letter of debt.

credit instrument.

Assume that an item costs $100 in the U.S. and the exchange rate between the U.S. and Canada is: $1 = C$1.27. Which one of the following concepts supports the idea that the item that sells for $100 in the U.S. is currently selling in Canada for $127? Unbiased forward rates condition Uncovered interest rate parity International fisher effect Purchasing power parity Interest rate parity

Purchasing power parity

Assume the euro is selling in the spot market for $1.15. Simultaneously, in the three-month forward market the euro is selling for $1.17. Which one of the following statements correctly describes this situation? The spot market is out of equilibrium. The forward market is out of equilibrium. The dollar is selling at a premium relative to the euro. The euro is selling at a premium relative to the dollar. The euro is expected to depreciate in value.

The euro is selling at a premium relative to the dollar.

Which one of the following statements is correct? Two primary reasons why a company holds cash are seasonal fluctuations and short-term investments. Banks are prohibited from investing cash surpluses on behalf of their customers on a short- term basis. Short-term securities tend to have a high degree of interest rate risk. The money market refers to securities that mature in one year or less. Corporations are not permitted to invest in money market mutual funds but can invest in bank money market accounts.

The money market refers to securities that mature in one year or less.

Which one of the following states that the expected percentage change in the exchange rate between two countries is equal to the difference in the countries' interest rates? Unbiased forward rates condition Uncovered interest parity International Fisher effect Purchasing power parity Interest rate parity

Uncovered interest parity

A firm's total investment in accounts receivables depends primarily on the firm's: total sales and cash discount period. cash to credit sales ratio. bad debt ratio. average collection period and amount of credit sales. amount of credit sales and cash discount percentage.

average collection period and amount of credit sales.

Collection float: is more desirable to companies than disbursement float. is totally eliminated by the installation of a lockbox system. exists when the available balance exceeds the book balance. can be avoided by collecting payments electronically at the time of sale. is eliminated by implementing a concentration banking system.

can be avoided by collecting payments electronically at the time of sale.

The basic factors to be evaluated in the credit evaluation process, the five Cs of credit, are: conditions, control, cessation, capital, and capacity. conditions, character, capital, control, and capacity. capital, collateral, control, character, and capacity. character, capacity, control, cessation, and collateral. capacity, character, collateral, capital, and conditions.

capacity, character, collateral, capital, and conditions.

At the optimal order quantity size, the: total cost of holding inventory is fully offset by the restocking costs. carrying costs are equal to zero. restocking costs are equal to zero. total costs equal the carrying costs. carrying costs equal the restocking costs.

carrying costs equal the restocking costs.

The primary purpose of credit analysis is to: determine the optimal credit period. analyze the effects of granting a cash discount. determine the optimal discount period, if any. summarize the frequency and amount of sales by customer. evaluate whether or not a customer will pay.

evaluate whether or not a customer will pay.

A just-in-time inventory system: eliminates all inventory costs. reduces the inventory turnover rate. averages long-term inventory needs. focuses on immediate production needs. maximizes inventory costs.

focuses on immediate production needs.

A trader has just agreed to exchange British pounds for French francs three months from today. This exchange is an example of a: spot trade. forward trade. short sale. floating swap. triangle arbitrage.

forward trade.

The condition stating that the interest rate differential between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate is called: the unbiased forward rates condition. uncovered interest rate parity. the international Fisher effect. purchasing power parity. interest rate parity.

interest rate parity.

The EOQ model is designed to determine how much: total inventory a firm needs during any one year. total inventory costs will be for any one given year. inventory should be purchased at one time. inventory will be sold per day. a firm loses in sales per day when an inventory item is depleted.

inventory should be purchased at one time.

A 2/10, net 30 credit policy: is an expensive form of short-term credit if a buyer forgoes the discount. provides cheap financing to the buyer for 30 days. is an inexpensive means of reducing the seller's collection period if every customer takes the discount. tends to have little effect on the seller's collection period. tends to increase the seller's investment in receivables as compared to a straight net 30 policy.

is an expensive form of short-term credit if a buyer forgoes the discount.

Disbursements float: occurs when a deposit is recorded but the funds are unavailable. causes the book balance to exceed the bank balance. has tended to increase since the enactment of the Check Clearing Act for the 21st Century. is a recommended source of funds for short-term investments. is eliminated when payments are made electronically.

is eliminated when payments are made electronically.

A cash concentration account: is frequently used as a source of funds for short-term investments. cannot be used to cover a compensating balance requirement. can only be used to transfer funds into zero-balance accounts. is generally the only bank account needed to efficiently manage cash collections. is another name for a controlled disbursement account.

is frequently used as a source of funds for short-term investments.

A lockbox is a: special safe used for overnight storage of any cash or undeposited checks. special safe used that can only be opened at pre-specified times of the day. box located in a bank's vault that is rented and used to hold unprocessed checks. special post office box which can only be opened by pre-specified postal inspectors for direct delivery to the addressee. post office box strategically located so that a company's receivables can be collected faster.

post office box strategically located so that a company's receivables can be collected faster.

Relative purchasing power parity: states that identical items should cost the same regardless of the currency used to make the purchase. relates differences in inflation rates to differences in exchange rates. compares the real rate of return to the nominal rate of return. explains the differences in real rates across national boundaries. relates changes in exchange rates to changes in interest rates.

relates differences in inflation rates to differences in exchange rates.

Brown Trucking is buying a U.S. Treasury bill today with the understanding that the seller will buy it back tomorrow at a slightly higher price. This investment is known as a: commercial paper transaction. repurchase agreement. private certificate of deposit. revenue anticipation note. bill anticipation note.

repurchase agreement.

The EOQ model is designed to minimize: production costs. inventory obsolescence. the carrying costs of inventory. the costs of replenishing inventory. the total costs of holding inventory.

the total costs of holding inventory.

An account into which funds are deposited only in an amount equal to the value of the checks presented for payment that day is called a _____ account. lockbox concentration zero-balance compensating balance revolving

zero-balance