Finance Flashcards
Acid Test Ratio
Current Assets - Inventory / Current Liability = Ratio
What is one role of a financial manager?
Preparing tax returns
Collecting accounting information
Auditing the firm’s accounting books
Analyzing major investment decisions
Analyzing major investment decisions
Which two activities are knance activities rather than accounting activities?
Choose 2 answers
Reconciliation of financial statements
Recording of business transactions
Making capital market investments
Managing cash how
Creating a financial plan
Making capital market investments
Creating a financial plan
Which three sources should a business consider when seeking a long-term funding source?
Choose 3 answers
Venture capital
Public sale of stocks
Commercial paper
Hedge funds
Trade credit
Venture capital
Public sale of stocks
Hedge funds
In which type of security should a business invest its excess cash in anticipation of paying off the current
year’s tax liability?
Commercial paper
Preferred stock
Municipal bonds
Common stock
Commercial paper
Which role does the underwriter play in enhancing business operations when using the capital market to sell securities to the public?
- It insures the value of the security to the investor.
- It determines the qualifications of an investor to securities from the issuer.
- It arranges financing for the issuer to support the initial public offering.
- It assumes the risk of the assessed value of the security from the issuer.
It assumes the risk of the assessed value of the security from the issuer.
Why should a manager use financial controls in a firm’s financial plan?
-To prevent unauthorized expenditures in variance with the financial plan
To pace the inhow of revenue and outhow of expenses
To determine the accuracy of forecasted revenues, costs, and expenses
To identify and incorporate unanticipated costs related to business operations
To determine the accuracy of forecasted revenues, costs, and expenses
What does a CFO use in financial planning to determine the expected level of revenue for future periods?
-Revenue projections based on historical performance
-Expenditure rate based on current revenue
-Cash sales forecast
-Sales forecast plus non-sales revenue
Sales forecast plus non-sales revenue
How did the Dodd-Frank Wall Street Reform and Consumer Protection Act impact retailers?
-It capped the liability of consumers for credit card fraud at $100.
-It enabled retailers to seek reimbursement for fraudulent credit card charges.
-It capped the debit card swipe fee at 21 cents.
-It allowed banks to levy the debit card swipe fee on cardholders.
It capped the debit card swipe fee at 21 cents.
Which two activities are prohibited by insider trading laws and should be avoided by a firm’s employees?
Choose 2 answers
- Unloading company stock because the employee has observed the company’s lax
quality control process - Buying stock in the public company for which the employee works based on a
conversation the employee overheard at a cocktail party between two of the
company’s executives - Selling company stock because a co-worker told the employee the company’s new
drug is failing in clinical trial - Buying stock in a public company based a Fortune article mentioning a possible
hostile takeover bid by its largest competitor
- Buying stock in the public company for which the employee works based on a
conversation the employee overheard at a cocktail party between two of the
company’s executives - Selling company stock because a co-worker told the employee the company’s new
drug is failing in clinical trial
Which two risks does a firm face by funding the purchase of long-term assets with short-term funding sources?
Volatility of interest rates
Faster depreciation of long-term assets
Negative credit rating
Frequent renewals
Volatility of interest rates & Frequent renewals
Which funding source should a firm use if it wishes to secure long-term financing while retaining all of its equity?
Venture capital
Public stock sale
Long-term commercial bank loan
Private equity fund
Long-term commercial bank loan
Which three characteristics make commercial paper a low-risk, attractive source of short-term funding for a business?
-It can make large amounts of money available.
-It carries interest rates that are 1 to 2 percent less than bank loans.
-It can be issued by virtually any business.
-It is sold in multiples as low as $10,000.
-It has a maturity that ranges between 1 and 270 days.
-It can make large amounts of money available.
-It carries interest rates that are 1 to 2 percent less than bank loans.
-It has a maturity that ranges between 1 and 270 days.
What should a firm do to manage the risk of using leverage when exploring long-term funding options?
- Ensure that earnings remain larger than interest payments
-Capitalize returns to shareholders to maximize retained earnings on invested funds - Hedge against borrowed funds with an equal amount of equity capital
- Subordinate dividends to interest payments to creditors
Ensure that earnings remain larger than interest payments.
Which financial statement should an investor examine to identify the liabilities of a firm?
The balance sheet
The income statement
The statement of owner’s equity
The statement of cash hows
The balance sheet
A company wishes to determine if it should fund a project with bonds or equity.
Which business concept would it most likely use to assist in the decision?
Leverage
Financial plan
Liquidity
Monetary policy
Leverage
Liquidity ratio
current assets / current
liabilities
Total productivity
output (goods or services) /
input (human, natural resources, capital)
acid test
current assets - inventory / current
liabilities
Inventory turnover
cost of goods sold /
average inventory (average of 2013 + 2014)
receivables turnover
credit sales / average
account receivables (average of 2013 + 2014)
total assets turnover
sales / average total assets
what ratios are considered liquidity ratios
the firms abilities to meet its short term obligations and include the liquidity ratio and acid test
what ratios are considered activity ratios
measue managements use of the firms resources
and include all turn over ratios
what ratios are considered profitability ratios
gross profit, net profit, and return on equity
gross profit margin
gross profit / sales
net profit margin
net income / sales
return on equity
net income / average equity
what are leverage ratios
measure the extent to which a firm relies on debt financing and includes debt ratio and long-term debt to equity
debt ratio
total liabilities / total assets
long-term debt to equity
long-term debt /
owner’s equity
The _____ was created by the Sarbanes-Oxley Act of 2002.
A) Federal Reserve Board
B) Public Accounting Oversight Board
C) Securities Exchange Commission
D) Financial Accounting Standards Board
B) Public Accounting Oversight Board ✅
Why do we avoid an over-reliance on borrowing?
A) To gain leverage
B) To minimize risks associated with debt
C) To reduce the cost of goods sold
D) To maintain control of business operations
To Gain Leverage
Households, businesses, government, financial institutions, and financial markets together form what is known as the _____?
A) Monetary policy
B) Financial system
C) Credit markets
D) Capital markets
B) Financial system ✅
What are three money market instruments?
A) Corporate bonds, common stock, and futures contracts
B) Convertible bonds, savings accounts, and REITs
C) Mortgage-backed securities, mutual funds, and preferred stock
D) Treasury bills, commercial paper, and bank certificates of deposit
Treasury bills, commercial paper, and bank certificates of deposit ✅
Which of the following are three types of bonds?
A) Treasury bonds, callable bonds, and dividend bonds
B) Municipal bonds, corporate bonds, and mortgage pass-through securities
C) Convertible bonds, zero-coupon bonds, and money market instruments
D) Growth bonds, preferred bonds, and venture capital bonds
B) Municipal bonds, corporate bonds, and mortgage pass-through securities ✅
What are the three main types of securities?
A) Money market instruments, bonds, and stock
B) Mutual funds, derivatives, and commodities
C) Treasury bills, ETFs, and index funds
D) Futures contracts, cryptocurrencies, and venture capital
Money market instruments, bonds, and stock ✅
Money market instruments are:
A) Government-backed securities with indefinite maturity
B) Long-term investment securities with high liquidity
C) Equity instruments that provide voting rights
D) Short-term debt securities issued by governments, financial institutions, and corporations
Short-term debt securities issued by governments, financial institutions, and corporations ✅
The basic form of corporate ownership is embodied in _____.
A) Common stock
B) Preferred stock
C) Corporate bonds
D) Treasury securities
Common stock
Tom just bought a bond from United Pet Group that is only backed by the financial reputation of the company. What type of bond did Tom buy?
A) Secured bond
B) Municipal bond
C) Debenture
D) Convertible bond
Debenture ✅
An owner of which form of stock would receive dividend payments first?
A) Common stock
B) Treasury stock
C) Preferred stock
D) Restricted stock
Preferred stock
The _____ is a collection of financial markets in which previously issued securities are traded among investors.
A) Primary market
B) Money market
C) Secondary market
D) Bond market
Secondary market
Which of the following is true about the Federal Reserve?
A) The Fed acts as the banker’s bank
B) The Fed is a commercial bank
C) The Fed directly issues loans to businesses
D) The Fed is responsible for setting corporate tax rates
The Fed acts as the banker’s bank
The chairman of the Federal Reserve Board can accelerate economic activity by lowering interest rates. What primary method does the Fed use to accomplish this?
A) Raising reserve requirements
B) Selling government bonds
C) Buying Treasury securities
D) Increasing the discount rate
Buying Treasury securities ✅
Which agency regulates both state and federally chartered commercial banks?
A) The Federal Reserve
B) The SEC
C) The FDIC
D) The IRS
C) The FDIC ✅
The Securities and Exchange Commission requires virtually all new public issues of corporate securities to be registered. As part of the registration process, the issuer must prepare a(n) _____.
A) Annual report
B) Income statement
C) Balance sheet
D) Prospectus
D) Prospectus
Preferred stockholders receive fixed dividends.
A) True
B) False
TRUE
_____ are short-term securities issued by the U.S. Treasury and backed by the full faith and credit of the U.S. government.
A) Treasury bonds
B) Treasury notes
C) Treasury bills
D) Corporate bonds
Treasury bills
The risk-return trade-off refers to:
A) The process of maximizing shareholder wealth by striking the optimal balance between risk and return
B) A guarantee that all high-risk investments yield high returns
C) The elimination of investment risk through diversification
D) The strategy of minimizing risk by avoiding stock investments
The process of maximizing shareholder wealth by striking the optimal balance between risk and return
Finance managers are:
A) Analysts who assess company budgets
B) Government regulators overseeing financial policies
C) Employees responsible for filing tax returns
D) Executives who develop and implement the firm’s financial plan and determine the most appropriate sources and uses of funds
Executives who develop and implement the firm’s financial plan and determine the most appropriate sources and uses of funds ✅
What is the first step in preparing a financial plan?
A) Determining additional assets needed
B) Forecasting sales over a future period of time
C) Setting aside retained earnings
D) Conducting an external audit
Forecasting sales over a future period of time
What are the two aspects of accounts receivable management?
A) Setting prices and collecting payments
B) Determining credit policy and deciding which customers will be offered credit
C) Reducing expenses and minimizing liabilities
D) Increasing dividend payouts and reinvesting profits
Determining credit policy and deciding which customers will be offered credit
Capital structure refers to:
A) A company’s mix of debt and equity capital
B) The total value of assets held by a firm
C) The portion of profits paid as dividends
D) The allocation of expenses in an annual budget
A company’s mix of debt and equity capital
The accounting equation states that:
A) Owner’s Equity = Liabilities – Assets
B) Liabilities = Assets + Owner’s Equity
C) Assets = Revenue + Expenses
D) Assets = Liabilities + Owner’s Equity
Assets = Liabilities + Owner’s Equity
Leverage is:
A) The process of minimizing financial risk
B) The strategy of increasing the rate of return on funds invested by borrowing funds
C) A method for measuring stock performance
D) A government regulation on corporate loans
The strategy of increasing the rate of return on funds invested by borrowing funds ✅
Which of the following individuals has the direct responsibility for shareholder relations?
A) CFO
B) Controller
C) Treasurer
D) CEO
Treasurer
In a typical firm, the _____ is the chief accounting manager.
A) Treasurer
B) Controller
C) Auditor
D) Financial analyst
Controller
A financial plan should include:
A) What funds the company will require during the appropriate period of operations
B) A record of all past transactions
C) A list of company shareholders
D) Only the firm’s expected liabilities
What funds the company will require during the appropriate period of operations
_____ would be the LEAST likely to obtain a private placement.
A) Institutional investors
B) Hedge funds
C) Small individual investors
D) Pension funds
Small individual investors
Most private placements are _____.
A) Corporate debt issues
B) Government bonds
C) Venture capital investments
D) Stock options
Corporate debt issues
Trade credit is a major source of short-term financing.
A) False
B) True
True
Private Equity Funds are:
A) Investment vehicles that primarily invest in public stocks
B) A form of personal savings accounts
C) A type of government bond
D) Pooled investment vehicles investing in generally highly illiquid assets, including venture capital and buyout funds
Pooled investment vehicles investing in generally highly illiquid assets, including venture capital and buyout funds ✅
Venture capital is:
A) A government grant for small businesses
B) Money invested in new or emerging companies with high profit potential
C) A loan from commercial banks with low interest rates
D) A type of mutual fund for retirement
Money invested in new or emerging companies with high profit potential
Commercial paper refers to:
A) A long-term loan issued by financial institutions
B) A short-term unsecured debt issued by large corporations
C) Government-backed securities for consumer lending
D) A form of private equity financing
A short-term unsecured debt issued by large corporations
Why should a manager use financial controls in a firm’s financial plan?
A) To determine the accuracy of forecasted revenues, costs, and expenses
B) To eliminate the need for external auditors
C) To minimize employee wages
D) To ensure maximum tax deductions
To determine the accuracy of forecasted revenues, costs, and expenses
What should a firm do to manage the risk of using leverage when exploring long-term funding options?
A) Ensure that earnings remain larger than interest payments
B) Increase debt without assessing profitability
C) Eliminate equity financing altogether
D) Lower wages to offset interest expenses
Ensure that earnings remain larger than interest payments
Why should companies that are conservative investors with liquidity concerns invest their excess cash in money market funds?
A) It converts easily into cash
B) It provides the highest possible return
C) It eliminates all financial risk
D) It is protected from inflation
It converts easily into cash
Which users of financial statements use them to evaluate operations of the firm and to make investment decisions?
A) Owners and creditors
B) Government agencies only
C) Internal managers exclusively
D) Competitors and suppliers
Owners and creditors
Does a firm pay taxes on profits that are repatriated as part of global operations?
A) Yes
B) No
Yes
What is fixed for preferred stockholders?
A) Dividends
B) Voting rights
C) Equity value
D) Market price
Dividends
What is a debenture?
A) A secured bond backed by collateral
B) An unsecured bond
C) A short-term note payable
D) A convertible stock option
An unsecured bond
Which of the following is the most liquid?
A) Real estate investment
B) Corporate bond
C) Common stock
D) Money market instrument
Money market instrument
Which organization insures deposits at commercial and savings banks?
A) FDIC
B) SEC
C) Federal Reserve
D) Treasury Department
FDIC
State-chartered banks have to be members of the FED.
A) False
B) True
False
What is the central bank of the United States?
A) Securities and Exchange Commission (SEC)
B) Federal Reserve System (FED)
C) Department of Treasury
D) World Bank
Federal Reserve System (FED)
Who can increase and decrease the money supply by buying and selling Treasury securities?
A) U.S. Treasury
B) Congress
C) FED
D) SEC
FED
Which organization protects investors by pursuing civil actions against businesses for violations?
A) Federal Deposit Insurance Corporation (FDIC)
B) Securities and Exchange Commission (SEC)
C) Internal Revenue Service (IRS)
D) Federal Reserve System (FED)
Securities and Exchange Commission (SEC)
Frank, chief financial officer for a company, wants to take a look at the summary of expenses, revenues, and profits of the firm for the most recent quarter. He can best find this information by consulting the _____.
A) Balance sheet
B) Statement of cash flows
C) Income statement
D) Statement of owner’s equity
Income statement
Households, businesses, government, financial institutions, and financial markets together form what is known as the _____.
A) Financial system
B) Business cycle
C) Economic structure
D) Market index
Financial system
Which of the following are considered money market instruments? (Select Three)
A) Treasury bills
B) Commercial paper
C) Bank certificates of deposit
D) Corporate bonds
✅ A) Treasury bills
✅ B) Commercial paper
✅ C) Bank certificates of deposit
Which of the following are types of bonds? (Select Three)
A) Treasury bills
B) Municipal bonds
C) Corporate bonds
D) Mortgage pass-through securities
B) Municipal bonds
C) Corporate bonds
D) Mortgage pass-through securities
Which of the following are types of securities?
A) Stocks and real estate
B) Money market funds and options
C) Money market instruments, bonds, and stocks
D) Commodities and derivatives
Money market instruments, bonds, and stocks
Money market instruments are _____.
A) Long-term debt securities
B) Equity investments
C) Convertible bonds
D) Short-term debt securities issued by governments, financial institutions, and corporations
Short-term debt securities issued by governments, financial institutions, and corporations
The basic form of corporate ownership is embodied in _____.
A) Common stock
B) Preferred stock
C) Bonds
D) Treasury securities
Common stock
Tom just bought a bond from United Pet Group. This bond is only backed by the financial reputation of the company. What type of bond did Tom buy?
A) Secured bond
B) Convertible bond
C) Debenture
D) Municipal bond
Debenture
An owner of which form of stock would receive dividend payments first?
A) Common stock
B) Preferred stock
C) Convertible stock
D) Treasury stock
Preferred stock
The _____ is a collection of financial markets in which previously issued securities are traded among investors.
A) Primary market
B) Secondary market
C) Money market
D) Futures market
Secondary market
Which of the following is true about the Federal Reserve?
A) The Fed acts as the banker’s bank
B) The Fed is controlled by Congress
C) The Fed sets income tax rates
D) The Fed directly funds government spending
The Fed acts as the banker’s bank
The chairman of the Federal Reserve Board can accelerate economic activity by lowering interest rates. What primary method does the Federal Reserve use to accomplish this?
A) Raising the reserve requirement
B) Increasing the federal funds rate
C) Buying Treasury securities
D) Issuing corporate bonds
Buying Treasury securities
Which agency regulates both state and federally chartered commercial banks?
A) Federal Reserve System (FED)
B) Federal Deposit Insurance Corporation (FDIC)
C) Securities and Exchange Commission (SEC)
D) Consumer Financial Protection Bureau (CFPB)
Federal Deposit Insurance Corporation (FDIC)
The Securities and Exchange Commission requires virtually all new public issues of corporate securities to be registered. As part of the registration process for a new security issue, the issuer must prepare a(n) _____.
A) Annual report
B) Income statement
C) Prospectus
D) Balance sheet
C) Prospectus
Preferred stockholders receive fixed dividends.
A) True
B) False
True
___ are short-term securities issued by the U.S. Treasury and backed by the full faith and credit of the U.S. government.
A) Municipal Bonds
B) Commercial Paper
C) Treasury Bills
D) Corporate Bonds
Treasury Bills
The risk-return trade-off refers to:
A) The concept that high risk always leads to high returns
B) The strategy of minimizing risk at all costs
C) The balance between short-term and long-term financial planning
D) Maximizing shareholder wealth by balancing risk and return
Maximizing shareholder wealth by balancing risk and return
Finance managers are responsible for:
A) Managing only the day-to-day expenses of the company
B) Developing and implementing the firm’s financial plan and determining sources and uses of funds
C) Handling only tax-related financial activities
D) Overseeing only investment strategies
Developing and implementing the firm’s financial plan and determining sources and uses of funds
What is the first step in preparing a financial plan?
A) Determining asset allocation
B) Forecasting sales over a future period of time
C) Estimating tax liabilities
D) Preparing an income statement
Forecasting sales over a future period of time
Bridgette, a chief executive officer, reviews the internal performance of her company’s stock, as well as market trends for the industry. To access this information, Bridgette uses a(n):
A) Transaction processing system
B) Decision support system
C) Executive support system
D) Accounting information system
Executive support system
Which three sources should a business consider when seeking a long-term funding source?
A) Crowdfunding, short-term loans, and trade credit
B) Credit cards, business overdrafts, and supplier financing
C) Venture capital, public sale of stocks, and hedge funds
D) Government grants, discounts on raw materials, and bartering
Venture capital, public sale of stocks, and hedge funds
In which type of security should a business invest its excess cash in anticipation of paying off the current year’s tax liability?
A) Stocks
B) Commercial paper
C) Real estate
D) Cryptocurrency
Commercial paper
Why should a manager use financial controls in a firm’s financial plan?
A) To increase sales revenue regardless of operational efficiency
B) To boost stock prices and investor confidence
C) To determine the accuracy of forecasted revenues, costs, and expenses
D) To reduce employee turnover and absenteeism
To determine the accuracy of forecasted revenues, costs, and expenses
What is one role of a financial manager?
A) Preparing tax returns
B) Managing day-to-day bookkeeping
C) Analyzing major investment decisions
D) Setting product prices
Analyzing major investment decisions
Which two activities are finance activities rather than accounting activities? Choose 2 answers:
A) Making capital market investments
B) Creating a financial plan
C) Managing payroll
D) Auditing financial statements
Making capital market investments & Creating a financial plan
Which three sources should a business consider when seeking a long-term funding source? Choose 3 answers:
A) Short-term loans
B) Venture capital
C) Public sale of stocks
D) Hedge funds
Hedge funds, public sale of stocks, Venture capital
In which type of security should a business invest its excess cash in anticipation of paying off the current year’s tax liability?
A) Commercial paper
B) Corporate bonds
C) Mutual funds
D) Stock options
Commercial paper
What does a CFO use in financial planning to determine the expected level of revenue for future periods?
A) Historical expense trends
B) Current year profits
C) Sales forecast plus non-sales revenue
D) Dividend payout ratio
Sales forecast plus non-sales revenue
Which two risks does a firm face by funding the purchase of long-term assets with short-term funding sources? (Choose 2 answers)
A) Volatility of interest rates
B) Increased equity dilution
C) Higher long-term interest rates
D) Frequent renewals
Volatility of interest rates & Frequent renewals
Which funding source should a firm use if it wishes to secure long-term financing while retaining all of its equity?
A) Issuing common stock
B) Long-term commercial bank loan
C) Convertible bonds
D) Venture capital investment
Long-term commercial bank loan
Which three characteristics make commercial paper a low-risk, attractive source of short-term funding for a business? (Choose 3 answers)
A) It can make large amounts of money available
B) It carries interest rates that are 1 to 2 percent less than bank loans
C) It has a maturity that ranges between 1 and 270 days
D) It requires collateral to secure the loan
✅ A) It can make large amounts of money available
✅ B) It carries interest rates that are 1 to 2 percent less than bank loans
✅ C) It has a maturity that ranges between 1 and 270 days
What should a firm do to manage the risk of using leverage when exploring long-term funding options?
A) Decrease its total asset value
B) Issue more common stock
C) Ensure that earnings remain larger than interest payments
D) Reduce employee wages
Ensure that earnings remain larger than interest payments
Which calculation determines a firm’s return on equity?
A) Net income divided by total assets
B) Net income divided by average equity
C) Gross profit divided by revenue
D) Total liabilities divided by total equity
Net income divided by average equity
Why should companies that are conservative investors with liquidity concerns invest their excess cash in money market funds?
A) They offer the highest return on investment
B) They provide tax-free income
C) They are not subject to market fluctuations
D) They convert easily into cash
They convert easily into cash
Which regulatory relationship within the Securities and Exchange Commission (SEC) historically has acted to prohibit the U.S. from adopting the International Financial Reporting Standards (IFRS)?
A) The SEC does not regulate financial reporting standards
B) The PCAOB mandates IFRS compliance
C) FASB requires companies to comply with GAAP that differ from IFRS
D) The IRS enforces IFRS compliance
FASB requires companies to comply with GAAP that differ from IFRS
Which manager is responsible for the tax planning and preparation of the firm?
A) CFO
B) VP of Financial Planning
C) Controller
D) Treasurer
Treasurer
Which manager makes recommendations for capital investments?
A) CEO
B) VP of Financial Planning
C) Treasurer
D) Chief Operating Officer
VP of Financial Planning
Who does the VP of Financial Planning report to?
A) Treasurer
B) Chief Marketing Officer
C) Board of Directors
D) CFO
CFO
Who certifies the accuracy of the firm’s financial statements?
A) External auditor
B) CFO
C) VP of Accounting
D) Controller
CFO
What is a prepared document that specifies the funds needed by a firm for a specific amount of time?
A) Business strategy
B) Profit and loss statement
C) Financial plan
D) Budget forecast
Financial plan
Which of the following represents the “When” question of the financial plan?
A) When will the firm need additional funds?
B) When will profits increase?
C) When will the company file taxes?
D) When will employee salaries be reviewed?
When will the firm need additional funds?
Which of the following represents the “What” question of the financial plan?
A) What is the firm’s stock price?
B) What is the expected ROI?
C) What funds will the firm require during the planning period?
D) What will be the market interest rate?
What funds will the firm require during the planning period?
Which of the following represents the “Where” question of the financial plan?
A) Where will the firm expand next?
B) Where will the firm obtain the necessary funds?
C) Where will the company invest profits?
D) Where will the firm reduce costs?
Where will the firm obtain the necessary funds?
The CFO uses the sales forecast to indicate where necessary funds will come from.
A) True
B) False
True
Which of the following statements about non-sales revenue is correct?
A) It is a primary source of funding for planning periods.
B) It is always considered by the CFO for necessary funds.
C) It is only used for emergency funding.
D) It is not considered by the CFO for origin of necessary funds for the planning period.
It is not considered by the CFO for origin of necessary funds for the planning period.
Is commercial paper considered short-term financing?
A) No
B) Yes
Yes
Which of the following is considered a free loan?
A) Bank loan
B) Corporate bond
C) Convertible debt
D) Trade credit
Trade credit
Which financial statement provides managers with a picture of cash needed for day-to-day operations?
A) Balance sheet
B) Income statement
C) Statement of cash flows
D) Statement of owner’s equity
Statement of cash flows
Why do stockholders and potential investors use accounting information?
A) To determine tax obligations
B) To evaluate managerial performance
C) To make investment decisions
D) To calculate depreciation
To make investment decisions
What are the types of securities?
A) Bonds, Stocks, Money Market Instruments
B) Bonds, Insurance Policies, Commodities
C) Stocks, Derivatives, Currencies
D) Bonds, Stocks, Real Estate
Bonds, Stocks, Money Market Instruments
What are Mortgage Pass-Through Securities backed by?
A) Government bonds
B) A pool of mortgage loans purchased from lenders
C) Corporate bonds
D) Real estate properties
A pool of mortgage loans purchased from lenders
What role do bondholders play in a corporation?
A) Shareholders of the company
B) Management
C) Employees
D) Creditors
Creditors
What is Commercial Paper?
A) Long-term debt issued by the government
B) Unsecured debt issued by small companies
C) Short-term unsecured debt issued by large corporations
D) Stocks issued by financial institutions
Short-term unsecured debt issued by large corporations
What type of financial market is the primary market?
A) The type of market in which corporations and governments issue securities and sell them initially to the general public
B) The market for trading stocks on secondary exchanges
C) A market for mergers and acquisitions
D) The market for corporate bonds
The type of market in which corporations and governments issue securities and sell them initially to the general public
What is the New York Stock Exchange (NYSE)?
A) A financial institution that provides loans
B) The world’s largest stock market
C) A platform for corporate bonds
D) A federal government agency
The world’s largest stock market
What are specialists in the stock market?
A) Automated trading systems
B) Unique investment firms that maintain an orderly and liquid market in the stock assigned to them
C) Analysts who forecast stock prices
D) Banks that underwrite new stocks
Unique investment firms that maintain an orderly and liquid market in the stock assigned to them
What are commercial banks?
A) Institutions that specialize in bonds and securities
B) Non-profit organizations that fund educational initiatives
C) The largest and probably most important financial institution in the United States
D) Agencies that issue government bonds
The largest and probably most important financial institution in the United States
How does the Federal Reserve control the money supply?
A) By directly managing financial institutions
B) By allowing the economy to expand and inflation remain in check
C) By regulating interest rates on loans
D) By implementing strict credit policies
By allowing the economy to expand and inflation remain in check
What is the primary responsibility of the Securities and Exchange Commission (SEC)?
A) Regulating insurance companies
B) Setting interest rates for financial markets
C) Administering securities law and protecting investors
D) Managing stock market trading systems
Administering securities law and protecting investors
What is the financial system?
A) A method for controlling inflation
B) The process of the flow of money from savers to users
C) The regulation of financial institutions
D) A framework for setting financial policies
The process of the flow of money from savers to users
What is finance?
A) The analysis of government spending
B) The collection of data on market trends
C) Planning for, obtaining, and managing a company’s funds
D) The preparation of tax reports
Planning for, obtaining, and managing a company’s funds
What is the risk-return trade-off?
A) The process of maximizing the wealth of a company’s shareholders by striking the optimal balance between risk and return
B) The act of determining financial penalties for bad decisions
C) An analysis of stock market volatility
D) The measure of debt to equity ratio
The process of maximizing the wealth of a company’s shareholders by striking the optimal balance between risk and return
What is a financial plan?
A) A plan for short-term investments
B) Short-term in nature
C) A long-term strategy for capital gains
D) A balance sheet for business projections
Short-term in nature
What is a revolving credit agreement?
A) A one-time loan from a financial institution
B) A line of credit that’s guaranteed but usually comes with a fee
C) A credit facility for businesses only
D) A loan that must be paid in full annually
A line of credit that’s guaranteed but usually comes with a fee
What are short-term bank loans used for?
A) Funding business acquisitions
B) Line of credit and revolving credit agreements
C) Long-term financing needs
D) Investing in foreign markets
Line of credit and revolving credit agreements
What are sovereign wealth funds?
A) Corporate savings funds
B) Funds used to support private companies
C) A form of private equity owned by governments
D) Public investment funds in global markets
A form of private equity owned by governments
What is the role of a financial manager?
A) To oversee the day-to-day operations of the company
B) To develop a financial plan and determine the most appropriate sources and uses of funds
C) To manage human resources policies
D) To regulate tax payments
To develop a financial plan and determine the most appropriate sources and uses of funds
