FinanceChapter1

10) Of the following, which is NOT an example of a financial intermediary? A) Commercial bank B) Insurance company C) Investment bank D) All of the above are financial intermediaries.

D

10) The form of business organization in the United States that has the greatest amount of capital is ________. A) the sole proprietorship B) the partnership C) the sub-chapter corporation D) the publicly traded corporation

D

11) Which of the following is NOT an activity of working capital management? A) Establishing the firm's receivable policies B) Establishing the firm's payment policies C) Choosing the appropriate level of inventory D) All of the above are working capital management activities.

D

14) Which of the following is NOT an activity of a financial institution or market? A) Bringing together buyers and sellers of financial assets B) Providing a market for the transaction of financial assets C) Providing information to buyers and/or sellers of financial assets D) All are activities of financial institutions.

D

11) Sale of new common stock in the primary market is regulated by the ________, and sales of used common on the secondary market is regulated by the ________. A) SEC; FDIC B) SEC; SEC C) FDIC; Federal Reserve D) Federal Reserve; SEC

B

12) "Concern with the multinational elements of financial activities" best describes which of the four main areas of finance? A) Investments B) International finance C) Corporate finance D) Financial institutions and markets

B

3) A firm's stock price most closely reflects which of the following? A) Current interest rates B) Expected future cash flows of the firm C) The amount of debt held by the firm D) None of the above

B

2) ________ is NOT a main category of financial management. A) Capital budgeting B) Capital structure C) Accounts receivable management D) Working capital management

C

2) In agency theory, the owners of the business are referred to as ________, and the managers are referred to as ________. A) bondholders, principals B) stockholders, bondholders C) agents, principals D) principals, agents

D

10) Capital structure is best defined by which of the following questions? A) How will we fund our product and service choices? B) What business are we in? C) How will we manage our day-to-day financial needs? D) What is our firm's best choice for corporate governance?

A

4) Bonds are bought and sold in ________ markets. A) equity B) debt C) derivatives D) foreign exchange

B

1) A ________ is a business that is owned entirely by an individual. A) sole proprietorship B) partnership C) sub-chapter s corporation D) corporation

A

1) Of the following activities which is MOST likely to be an interaction between the financial manager and the information systems manager? A) Developing a system to bill customers, pay suppliers, and track inventory B) Costing of products C) Setting credit policies D) Determining the appropriate pricing of products

A

1) When there are conflicts among managerial goals in U.S. markets, the most important priority is to ________. A) increase the current market value of equity B) keep all of the company's customers happy C) foster good relationships with the community D) maintain a safe and happy work place

A

12) Which of the following is true of a dealer market? A) The dealer buys and sells assets out of his own inventory. B) The dealer acts as a broker, lining up the owners of assets with the purchasers of assets. C) The dealer acts as an auctioneer of securities and takes a percentage of the sale as compensation. D) None of the above are true of a dealer market.

A

3) The process of planning, evaluating, selecting, and managing the long-term operating projects of the company is termed ________. A) capital budgeting B) capital structure C) accounts receivable management D) working capital management

A

3) The set of financial activities that support the OPERATIONS of a business is best described by which main area of finance? A) Corporate finance B) Investments C) Financial institutions and markets D) International finance

A

2) Of the following, which is NOT one of the four main areas of finance? A) International Finance B) Corporate Finance C) Investments D) All are considered main areas of finance.

D

3) The movement of money from lender to borrower and back again is known as ________. A) the circle of life B) corporate finance C) the cycle of money D) money laundering

C

6) Currencies are bought and sold in ________ markets. A) equity B) debt C) derivatives D) foreign exchange

D

6) You place $500 into your checking account at First Bank and earn 1% APR on your deposit. Your professor borrows money at a rate of 8% from the same bank for a tuition loan for her son. Which of the following statements is true? A) The bank is criminally liable to you for paying an interest rate lower than the expected rate of inflation. B) You and your professor have an obvious conflict of interest because you have accounts at the same financial institution. C) You benefit from earning interest on your deposit, safety for your funds, and having a recognizable means for paying for your financial obligations without having to hold cash. D) Your professor is the only party to be made worse off by this example because she is the only party paying net interest.

C

3) Which of the following is NOT a feature of the Sarbanes-Oxley Act? A) The company and auditors must annually assess the effectiveness of financial controls. B) The company must maintain effective internal financial controls. C) The CEO and CFO must attest to the fairness of the financial reports. D) All of the above are features of the Sarbanes-Oxley Act.

D

4) Of the following which group would be considered INTERNAL PLAYERS of the firm? A) The finance manager B) The shop foreman C) The human resources manager D) All of the above

D

4) Which of the following can lead to increased expected cash flow over time to the firm? A) Open and collaborative relations with the community B) Qualified and motivated employees C) Greater customer satisfaction D) All of the above

D

4) Which of the following is NOT a generally accepted way to remove ineffective management of a publicly traded firm? A) The Board of Directors can vote to remove management. B) The shareholders can vote out directors who won't discipline managers. C) Outside management teams can "take over" the company. D) All of the above are recognized methods for the removal of ineffective management.

D

6) ________ is the area of finance concerned with the activities of buying and selling financial assets such as stocks and bonds. A) Investments B) Corporate finance C) International finance D) Financial markets and institutions

A

9) Financial institutions and markets A) are the organized financial intermediaries and the forums that promote the cycle of money. B) compose the set of financial activities that support the operations of a business. C) are the activities centered on the purchase and sale of financial assets. D) are concerned only with the addition of a multinational element to all finance activities.

A

9) The sale of "new" securities,where the financial asset is being traded for the very first time, is said to take place in the ________ market. A) primary B) money C) secondary D) capital

A

9) ________ is a major disadvantage of the corporate form of business. A) Double taxation B) Unlimited liability C) Lack of ability to raise capital D) Transfer of ownership

A

1) At its most basic level, the function of financial intermediaries is to ________. A) track and report interest rates B) move money from lenders to borrowers and back again C) report all financial transactions to the federal government D) effect a transfer of wealth in society

B

1) ________ is the typical title of the corporate executive charged with determining the best repayment structure for borrowed funds to ensure timely repayment and sufficient cash for daily operations. A) Chief Executive Officer (CEO) B) Chief Financial Officer (CFO) C) Chairman D) Chief Operating Officer (COO)

B

13) Which of the following is NOT a characteristic of a dealer market? A) Dealers make a profit on the spread between what they pay for financial assets and what they sell them for. B) Securities are auctioned off to the highest bidder. C) Dealers buy and sell from their own portfolio. D) All of the above are characteristics of the dealer market.

B

2) Which of the following is NOT an ADVANTAGE of a sole proprietorship? A) The owner receiving all the after-tax profit B) Limited liability C) Quick decision making D) All are advantages of a sole proprietorship.

B

5) The means by which a company is financed refers to the firm's ________. A) capital budgeting B) capital structure C) accounts receivable management D) working capital management

B

5) Which of the following compensation packages is likely to work best for executive managers? A) Piece-meal B) Stock options C) Quarterly bonuses D) Commission

B

5) ________ is the area of finance concerned with activities like repayment of borrowed funds through dividends or interest payments. A) Investments B) Corporate finance C) Capital budgeting D) International finance

B

6) ________ addresses the question of where we raise money to finance our business activities. A) Capital budgeting B) Capital structure C) Working capital management D) Accounts receivable management

B

7) Which of the following is NOT an ADVANTAGE of a partnership? A) A potential increase in available capital over a sole proprietorship B) The commingling with the general partner's personal assets C) The potential for more talent and skills in the business D) All are advantages of a partnership.

B

7) Which of the following is NOT an example of an equity market transaction? A) Mary sells her shares of Apple stock. B) Mark contacts his broker and requests a purchase of IBM bonds. C) Sahid buys shares of a small company stock traded on the NASDAQ. D) All of the above are equity market transactions.

B

9) Capital budgeting is best defined by which of the following questions? A) How will we fund our product and service choices? B) What business are we in? C) How will we manage our day-to-day financial needs? D) What is our firm's best choice for corporate governance?

B

1) Which of the following best identifies the four main areas of finance? A) Exchange rate management, investments, financial institutions and markets, international B) Corporate, investments, capital structure, international C) Corporate, investments, financial institutions and markets, international D) Corporate, capital budgeting, financial institutions and markets, regulation

C

1) ________ are the forums where buyers and sellers of financial assets and commodities meet. A) Housing markets B) Federal Reserve banks C) Financial markets D) Automotive shows

C

1) ________ is the area of business that deals with how a company conducts its business and implements controls to ensure proper procedures and ethical behavior. A) Leadership B) Agency Relationship C) Corporate Governance D) None of the above

C

1) ________ is the name given to the processes surrounding recognition of the principal-agent problem and ways to align agents with the interests of the principals. A) Principal theory B) Interested party theory C) Agency theory D) Compensation process theory

C

10) The sale of "used" securities,where the financial asset is being traded from one individual to another and the proceeds do not go to the original issuer of the security, is said to take place in the ________ market. A) primary B) money C) secondary D) capital

C

11) Double taxation refers to which of the following scenarios? A) Both bondholders AND shareholders of a corporation must pay taxes on proceeds received. B) The corporation pays taxes on its earnings, and creditors pay taxes on interest received. C) The corporation pays taxes on its earnings, and shareholders pay taxes on dividends received. D) All of the above

C

12) Which of the following is NOT a capital budgeting question? A) The choice of which long-term assets to purchase to meet the firm's business goals B) The choice of what type of business a firm wants to operate C) The proper mix of stocks and bonds to issue for financing assets D) None of the above are capital budgeting questions.

C

13) ________ addresses the question of how to handle our day-to-day business needs. A) Capital budgeting B) Capital structure C) Working capital management D) Accounts receivable management

C

2) Of the following activities, which is NOT likely to be an interaction between the financial manager and the marketing manager? A) Costing of products B) Setting credit policies C) Determining that there are a sufficient number of trained workers to develop the product D) Setting advertising budgets

C

2) Of the following, which is the most recent example of legislation passed by the federal government to deal with a major economic or highly visible corporate event? A) The Federal Deposit Insurance Corporation Improvement Act B) The Securities and Exchange Act C) The Sarbanes-Oxley Act D) The Securities Act

C

3) Of the following activities, which is MOST likely to be an interaction between the financial manager and the manufacturing manager? A) Setting of credit policies B) Developing a system to bill customers, pay suppliers, and track inventory C) Budgeting the timing and amount of cash needed for the production schedule D) Determining that there are a sufficient number of trained workers to develop the product

C

3) Which of the following is NOT an example of an agency cost? A) Paying an accounting firm to audit your financial statements B) Paying an insurance company to assure that building codes have been met for new construction C) Paying a landscaping firm to maintain your firm's grounds D) All of the above are agency costs.

C

3) Which of the following is an ADVANTAGE of a sole proprietorship? A) The owner's unlimited liability B) The lack of continuity upon death of the owner C) The ease of start up D) The ability to raise capital

C

4) The problem of motivating one party to act in the best interest of another party is known as the ________. A) leadership directive B) management priority C) principal-agent problem D) sigma six structure

C

5) Options are bought and sold in ________ markets. A) equity B) debt C) derivatives D) foreign exchange

C

7) Which of the following is NOT typically thought of as an investment activity? A) Accurately pricing financial assets B) The process of buying and selling financial assets C) Repaying borrowed funds D) Negotiating the rules and regulations of financial transactions

C

8) The organized financial intermediaries and the forums that promote the cycle of money is a good definition of which of the following main areas of finance? A) Corporate finance B) Investments C) Financial institutions and markets D) International finance

C

11) Of the following, which is NOT an activity engaged in by a financial intermediary? A) Matching borrowers and lenders B) Bearing risk C) Managing retirement portfolios for large classes of employees D) All of the above are activities of financial intermediaries.

D

12) In practice, A) the structure of the corporation separates owners from managers. B) the corporate board selects the main corporate officers. C) the corporate board is elected by the shareholders. D) All of the above are true.

D

5) The ________ removed the removed the last segments of Federal law that separated investment banking activities from commercial banking activities. A) Gramm-Leach-Bliley Act B) Sarbanes-Oxley Act C) Federal Deposit Insurance Corporation Improvement Act D) Glass-Steagall Act

A

3) Stocks are bought and sold in ________ markets. A) equity B) debt C) derivatives D) foreign exchange

A

4) The common objective of borrowing and lending is to ________. A) make all parties better off B) gain a profit at the other's expense C) make a firm or individual appear more liquid than is really the case D) thwart regulatory authority

A

4) ________ addresses the question of what business we should be in over the long run. A) Capital budgeting B) Capital structure C) Working capital management D) Accounts receivable management

A

5) A ________ is a business that is jointly owned by two or more individuals. A) partnership B) sole proprietorship C) sub-chapter s corporation D) corporation

A

6) Of the following which group would be considered EXTERNAL PLAYERS of the firm? A) The loan officer at the firm's commercial bank B) The shop foreman C) The human resources manager D) All of the above

A

13) Which of the following is a reason why an expertise in international finance is important? A) Because the process of assessing risk among many countries is more difficult than assessing risk for a single country B) Because financial regulatory rules and requirements differ from country to country C) Because changes in economic conditions impact the relative values of currency among countries D) All of the above are reasons for gaining expertise in international finance.

D

2) Financial markets can be classified by which of the following? A) Type of asset traded B) Maturity of the financial asset C) Owner of the financial asset D) All of the above can be classified as financial markets.

D

2) Maximizing the market value of firm equity and which of the following are mutually exclusive? A) Maximizing market value and a safe and happy work place are mutually exclusive. B) Maximizing market value and good relationships with the local community are mutually exclusive. C) Maximizing market value and customer satisfaction are mutually exclusive. D) None of the above are mutually exclusive with maximizing the value of market equity.

D

2) Which of the following is NOT an example of a financial transaction? A) Your parents use their credit card to pay this term's college tuition. B) You use the ATM to withdraw British pounds so you can fly to London. C) Your roommate lends you $20 and you repay it in one week. D) All of the above are financial transactions.

D

4) A ________ has limited liability, is a legal entity, and has the greatest potential to raise capital. A) sole proprietorship B) general partnership C) limited partnership D) corporation

D

4) ________ is the area of finance concerned with activities like borrowing funds to finance projects such as plant expansions or new product launches. A) Working capital management B) International finance C) Investments D) Corporate finance

D

5) Which of the following is NOT a function of a financial intermediary in the lending/borrowing process? A) To help establish terms of the lending/borrowing agreement B) To match the borrower and the lender C) To bear the risk that the borrower will not repay D) All of the above are functions of the financial intermediary.

D

6) According to the annual Fortune Magazine list of top paid executives in America, what percentage of annual compensation for the very highest paid managers comes in the form of performance bonuses or stock options? A) Less than 10% B) Between 10% and 40% C) Between 50% and 60% D) Nearly 70%

D

6) Which of the following is NOT a DISADVANTAGE of a partnership? A) Unlimited liability to at least some of the owners B) The limited life of the business C) The potential difficulty in transferring ownership D) All are disadvantages of a partnership.

D

7) Managing the firm's short-term financing activities is known as ________. A) capital budgeting B) capital structure C) accounts receivable management D) working capital management

D

8) Financial assets that will mature within a year are bought and sold in the ________ market. A) debt B) capital C) stock D) money

D

8) Which of the following is NOT a capital structure question? A) A delivery company chooses to buy more trucks. B) A manufacturing firm chooses to take the discount for paying accounts payable early. C) A retail firm chooses to use a new supplier. D) None of the above are capital structure questions.

D

8) Which of the following is NOT true of a sole proprietorship? A) Sole proprietorships are the least regulated form of business. B) Sole proprietorships are the easiest form of business to establish. C) Sole proprietorships are the most popular form of business organization (more sole proprietorships than other forms of business). D) All of the above are true.

D