BEC - 5 Flashcards
If a country with a developed economy faces a debt crisis that makes it unable to satisfy its foreign debt obligations, which of the following international organizations is most likely to be called upon to help resolve the debt crisis?
International Monetary Fund (IMF).
The objective of the International Monetary Fund is to maintain order in the international monetary system by providing funds to countries in financial crisis. It can assist countries facing currency, banking, and financial debt crises.
A positive gross domestic product (GDP) gap exists when
Real GDP exceeds potential GDP.
The GDP gap is a measure of the difference between potential GDP and real GDP. Potential GDP is the maximum production of final goods and services that is possible in the economy without putting upward pressure on the general level of prices. Real GDP is the market value of all final goods and services actually produced, adjusted for changes in the price level, that is, in terms of constant prices of a base period.
The gap between real GDP and potential GDP is positive when real GDP exceeds potential GDP and negative when potential GDP exceeds real GDP. Furthermore, a negative GDP gap indicates that the economy is operating at less than full capacity, which implies unemployment and under-utilized plant and equipment.
Conversely, a positive GDP gap indicates that the economy is operating above normal full capacity, which will put upward pressure on prices.
Company specific risk is known as _________
Unsystematic Risk
Firm-Specific Risk
Diversifiable Risk
Risk can be mitigated by diversification of projects, investments, etc.
Describe the relationship between the marginal revenue curve and the demand curve in a perfect monopoly.
The marginal revenue curve is below the demand curve and the curves diverge as the quantity increases.
The basic reason for the relationship is that, facing a downward-sloping demand curve, the firm must continuously lower its selling price in order to sell more units; therefore, marginal revenue must be below demand
How do you calculate the breakeven point in units?
BE in units = Fixed Costs / Contribution Margin
Describe how to calculate a company’s cost of preferred stock.
The current cost of capital for newly issued preferred stock is computed as the net proceeds per share divided into the annual cost (dividends) of the newly issued shared.
Example:
A company recently issued 9% preferred stock. The preferred stock sold for $40 a share, with a par of $20. The cost of issuing the stock was $5 a share.
the net proceeds per share is given as $40 sales price less $5 per share issue cost, or $35 per share net proceeds. The annual cost of the newly issued shares is the par value, $20, multiplied by the preferred dividend rate, 9%, or $20 x .09 = $1.80 annual dividend per share. Therefore, the cost of capital for the newly issued preferred stock is $1.80/$35.00 = 5.1%.
___________ systems include redundancy of components.
Fault tolerant
According to the 17 COSO control principles, establishing a whistle-blower hot-line contributes to:
Both internal and external organizational communication.
According to the 17 COCO control principles, risk reduction primarily relates to which fundamental component of internal control?
Control activities.
Control activities primarily relate to risk reduction, technology controls, and policies.
A product-possibility curve measures ____________
The maximum amount of various goods and services an economy can produce at a given time with available technology and efficient use of all available resources.
