Final Exam prep: Test 1

Question 1

Finance as a discipline is divided in three areas

Answer 1

Financial institutions
Investments
Business Finance

Question 2

The goal of the financial manager is to…

Answer 2

Maximize the value of the firm

Question 3

t/f The yield curve relates risk and interest rates

Answer 3

False

Question 4

t/f During most historical periods, the yield curve has been positively sloped

Answer 4

True

Question 5

t/f What serves for money in France may not serve for money in another country

Answer 5

True

Question 6

t/f The US treasury creates most of the nations money supply

Answer 6

False

Question 7

t/f When individuals deposit cash in a demand deposit, the money supply is reduced

Answer 7

False

Question 8

t/f M-1 includes savings accounts in commercial banks

Answer 8

False

Question 9

t/f In general, banks prefer loans that stress liquidity and safety

Answer 9

True

Question 10

t/f Insurance companies are a major source of loans to individuals

Answer 10

False

Question 11

t/f Money market mutual funds invest in short term securities like US treasury bills

Answer 11

True

Question 12

Money serves as

Answer 12

A medium of exchange

Question 13

The assets of a typical commercial bank include

Answer 13

Commercial loans

Question 14

If Mary deposits $100 of her currency in her savings account then

Answer 14

M2 will increase by $100

Question 15

Treasury Bills are

Answer 15

Short term securities issued by the federal government

Question 16

t/f The purchasing of a new issue of stock is different than buying stock on the NYSE because the formed funds flow to the firm while in the latter the funds flow to the individual selling the shares

Answer 16

True

Question 17

A firm that guarantees the proceeds from the sale of the new issue of securities is the

Answer 17

underwriter

Question 18

An investment banker

Answer 18

Often underwrites new issues of securities
May be a division within a brokerage firm
Facilitates the sale of new securities

Question 19

t/f The FOMC has 12 members that include the board of governors

Answer 19

True

Question 20

t/f The federal funds rate is the interest rate the Fed charges banks when they borrow reserves

Answer 20

False

Question 21

t/f If an issue of securities is overpriced, the underwriters may let the price fall to sell the securities

Answer 21

True

Question 22

The federal reserve may contract the money supply by

Answer 22

selling securities

raising reserve requirements

Question 23

The tools of the monetary policy include

Answer 23

open market operations

Question 24

t/f If an investment banker makes a best effort agreement to sell 1.2 million shares at $10 a share, the investment banker must sell at least 200k shares

Answer 24

False

Question 25

Income is

Answer 25

A flow of earnings per unit of time

Question 26

Of the following which is the least liquid

Answer 26

painting by Van Gogh b/c theres a small market and its expensive

Question 27

Which is not one of the top 5 competitive forces in a marketplace

Answer 27

the threat of complement products

Question 28

t/f securities markets are often inefficient so investors can anticipate beating the market over a period of years

Answer 28

False