What federal agencies are responsible for supervising and regulating depository institutions that are not commercial banks?
> 1. Which of the following is not a basic policy instrument of the Fed? a. Changing reserve requirements b. Changing the discount rate c. Conducting open-market operations d. Implementing monetary easing programs 2. Excess reserves occur in which of
> You manage the cash for a large multinational industrial enterprise. As a result of credit sales on 90-day payment terms you have a large claim against a customer in Madrid. You have heard rumors of the possible devaluation of the Spanish peseta. What ac
> As a speculator in the financial markets, you notice that for the last few minutes Swiss Francs are being quoted in New York at a price of $0.5849 and in Frankfurt at $0.5851. a. Assuming that you have access to international trading facilities, what act
> As an importer of merchandise, you depend upon the sale of the merchandise for funds to make payment. Although customary terms of sale are 90 days for this type of merchandise, you are not well known to foreign suppliers because of your recent entry into
> As an exporter of relatively expensive electronic equipment, you have a substantial investment in the merchandise that you ship. Your foreign importers are typically small- or medium-size firms without a long history of operations. Although your terms of
> Explain the concept of “balance” as it relates to a nation’s balance of payments.
> You are the owner of a business that has offices and production facilities in several foreign countries. Your product is sold in all of these countries, and you maintain bank accounts in the cities in which you have offices. At present you have short-ter
> The prime rate, and other interest rates, offered by banks often change in the same direction as a change in the Fed’s target for the federal funds rate. As an employee of a Federal Reserve District Bank you have been told that your District Bank will be
> You have recently retired and are intent on extensive travel to many of the exotic lands you have only read about. You will not only be receiving a pension check and Social Security check but also dividends and interest from several corporations. You are
> An economic contraction (recession) is now well under way and the Fed plans to use all facilities at its command to halt the decline. Describe the measures that it may take.
> The Fed Board of Governors has decided to ease monetary conditions to counter early signs of an economic downturn. Because price inflation had been a burden in recent years, the Board is anxious to avoid any action that the public might interpret as a re
> 1. Approximately what percentage of commercial banks in the United States are members of the Fed? a. 10 percent b. 33 percent c. 67 percent d. 90 percent 2. What is the number of Federal Reserve Banks in the U.S. Federal Reserve System is? a. One
> 1. Which was a major development that closely preceded the 2007-08 “financial crisis”? a. The bursting of a housing bubble b. A credit or liquidity crunch c. The Great Recession d. A peak in the unemployment rate 2. When did the “Great Recession” o
> As the executive of a bank or thrift institution you are faced with an intense seasonal demand for loans. Assuming that your loanable funds are inadequate to take care of the demand, how might your Reserve Bank help you with this problem?
> You are a resident of Seattle, Washington, and maintain a checking account with a bank in that city. You have just written a check on that bank to pay your tuition. Describe the process by which the banking system enables your college to collect the fund
> We are faced with ethics decisions involving money almost every day. For example, we all probably have seen money in the form of coin or currency lying on the ground or floor somewhere. We also may have at some time discovered a lost wallet. Should it ma
> Find several recent issues of Bloomberg Business week. Identify articles relating to developments in the U.S. monetary system. Search for possible developments occurring in foreign monetary systems.
> Go to the Website of the Federal Reserve Bank of St. Louis at http://www.stlouisfed.org. Go to “Research and Data” and click on “FRED Economic Data” to access the Federal Reserve Economic Database (FRED). Compare the present size of M1 and M2 money stock
> Match the following money market securities with the level of secondary market activity.
> Match the following money market securities with their issuers.
> Go to the Small Business Administration (SBA) Web site, www.sba.gov , and search for information on starting a new business. Identify and prepare a written summary of the startup basics described on the SBA site.
> Obtain several recent issues of the Wall Street Journal or Bloomberg Business week. Identify, read, and be prepared to discuss at least one article relating specifically to recent changes in the financial environment.
> Obtain several recent issues of The Wall Street Journal or Bloomberg Business week. Identify, read, and be prepared to discuss at least one article relating to one of the four types of financial markets identified in this chapter.
> 1. What is an essential requirement of a well-operating financial system? a. An efficient national payments system. b. An elastic or flexible money supply that can respond to changes in the demand for money. c. A lending/borrowing mechanism to help al
> Obtain several recent issues of The Wall Street Journal or Bloomberg Business week. Identify, read, and be prepared to discuss at least one article relating to one of the six principles of finance.
> In business, ethical dilemmas or situations occur frequently. Laws and regulations exist to define unethical behavior. However, the practicing of high quality ethical behavior often goes beyond just meeting laws and regulations. Indicate how you would re
> You are the treasurer of a mid-size industrial manufacturer, your firm’s cash balances vary between $300,000 and $1,000,000. During the last three board meetings a board member has asked how you protect this cash while it is being lodged in banks or othe
> Go to http://www.stlouisfed.org and identify sources and uses of funds for commercial banks. (Try typing “commercial banks” in the Search box.)
> The president and members of Congress are elected by the people and are expected to behave ethically. Let’s assume that you are a recently elected member of Congress. A special-interest lobbying group is offering to contribute funds to your next election
> An economic recession has developed and the Federal Reserve Board has taken several actions to retard further declines in economic activity. The U.S. Treasury now wishes to take steps to assist the Fed in this effort. Describe the actions the Treasury mi
> Important policy objectives of the federal government include economic growth, high employment, price stability, and a balance in international transactions. The achievement of these objectives is the responsibility of monetary policy, fiscal policy, and
> Go to the St. Louis Federal Reserve Bank’s website at http://www.stlouisfed.org, and access current economic data via the Research & Data tab. a. Find M1 and the monetary base, and then estimate the money multiplier. b. Determine the nominal gross domest
> Banks provide checking account services, accept savings deposits, and lend to borrowers. In other words, they are in the money business. We all have heard stories of banks or their partner firms “misplacing” or “losing” bags of money. Lending rates are a
> You are the mayor of a community of 12,000 people. You are active in virtually all of the civic activities of the town and as such your opinion is solicited on political, economic, sociological, and other factors. You have been asked by one of the civic
> 1. Which of the following is true of the Federal Reserve System? a. It is the central bank of the United States. b. It is responsible for setting monetary policy. c. It is responsible for regulating the banking system. d. All of the choices are corre
> You and three other staff members of the U.S. Offices of Comptroller of the Currency have been assigned identical projects. You are to review the various articles that have been written, the various speeches made, and in general the various suggestions t
> What actions did the Fed take to help avoid a financial system collapse in 2008-09?
> Identify some of the institutional participants in the mortgage markets.
> Indicate the difference between a call option and a put option.
> What is an option contract?
> What is a futures contract?
> Briefly describe what is meant by a derivative security.
> Briefly describe and compare the central banks in the United Kingdom, Japan, and European Monetary Union.
> In what way do the Reserve Banks serve as fiscal agents for the U.S. government?
> What is the special role of the Federal Reserve Interdistrict Settlement Fund in the check- clearance process?
> 1. When banks operate in more than one country, this is called a. branch banking. b. universal banking. c. international banking. d. dual banking. 2. The International Banking Act of 1978 was intended to provide a level playing field for United Sta
> Describe how a check drawn on a commercial bank but deposited for collection in another bank in a distant city might be cleared through the facilities of the Federal Reserve System.
> Explain the process by which the Federal Reserve Banks provide the economy with currency and coin.
> Describe the objectives of the Consumer Credit Protection Act of 1968. What is the Truth in Lending Section of the Act? What is Regulation Z?
> Explain the usual procedures for examining national banks. How does this process differ from the examination of member banks of the Federal Reserve System holding state charters?
> Describe the two “targets” that the Fed can use when establishing monetary policy. Which target has the Fed focused on in recent years?
> Reserve Banks have at times been described as bankers’ banks due to their lending powers. What is meant by this statement?
> Describe what is meant by quantitative easing by the Fed.
> Identify and briefly describe the three traditional instruments that may be used by the Fed to set monetary policy.
> Distinguish among the dynamic, defensive, and accommodative responsibilities of the Fed.
> 1. The ability to meet depositor withdrawals and to pay off other liabilities when they come due reflects a. bank liquidity. b. bank solvency. c. default risk. d. interest rate risk. 2. The risk associated with changing market interest rates on the
> Identify the seven individuals who served as chairs of the Fed Board of Governors since the early 1950s. Indicate each individual’s approximate time and length of service as chair.
> Discuss the structure, the functions, and the importance of the Federal Open Market Committee.
> How are members of the Board of Governors of the Federal Reserve System appointed? To what extent are they subject to political pressures?
> What is a Reserve Branch Bank? How many such branches exist, and where are most of them located?
> Explain how the banking interests and large, medium, and small businesses are represented on the board of directors of each Reserve Bank.
> Describe the organizational structure of the Federal Reserve System in terms of its five major components.
> What functions and activities do central banks usually perform?
> Describe the weaknesses of the national banking system that was in place prior to passage of the Federal Reserve Act of 1913.
> 1. All else the same, as a firm’s use of nondebt tax shields rises, the firm’s use of debt will most likely do which of the following? a. Decline b. Not change c. Rise d. Theory doesn’t give us any guidance in this area. 2. All else the same, higher ban
> 1. What are the effects of financial leverage on earnings per share? a. A higher degree of financial leverage increases earnings per share. b. A higher degree of financial leverage does not affect earnings per share. c. A higher degree of financial lever
> 1. What is usually the largest category of bank assets? a. Cash and balances due from depository institutions b. Securities c. Loans d. Other assets 2. What is usually the largest category of bank liabilities and stockholders’ equity? a. Deposits
> 1. What does EBIT/eps analysis indicate? a. It shows the relationship between EBIT and eps. b. It is a profitability ratio. c. It is a capital structure ratio. d. It can be used to compare the risk and earnings levels under different capital structures.
> 1. What does the internal growth rate measure? a. How quickly firm assets can grow without any new sales. b. How quickly sales can grow without issuing new shares of stock. c. How quickly sales can grow as the firm acquires new assets. d. How quickly ass
> 1. How is WACC computed? a. It is an average of bank loan interest rates. b. It is a weighted average of the after-tax cost of each long-term financing source used by the firm. c. It is a weighted average of the after-tax cost of all financing sources u
> 1. How is a firm’s after-tax cost of debt determined? a. It is the same as the before-tax cost of debt. b. It equals the pretax cost of debt estimate multiplied by one minus the firm’s tax rate. c. It equals the firm’s tax rate multiplied by the yield to
> 1. What is the relationship between a project’s cost of capital and its minimum required rate of return? a. The cost of capital is always greater than the minimum required return. b. The cost of capital is always less than the minimum required return. c.
> 1. What are the components of a firm’s capital structure? a. Current assets and fixed assets b. Current assets, fixed assets, current liabilities, and long-term debt c. Long-term debt, fixed assets, and stockholders’ equity d. Long-term debt and equity
> 1. What is the stand-alone principle? a. Mutually exclusive projects should be considered one at a time. b. Independent projects should be considered one at a time. c. Each capital budgeting project must have a manager to strongly support it to upper man
> 1. Why might managers prefer to use capital budgeting techniques other than the NPV? a. They give the manager an intuitive feel for a safety margin in case cash flow estimates are too high. b. Because they use all the project’s cash flows and the cost of
> 1. The payback period is the amount of time until a project achieves which of the following? a. Profits are positive b. Total cash flows (outflows and inflows) sum to zero c. Revenues equal operating expenses d. Revenues equal operating and financing exp
> 1. What is the profitability index (PI)? a. The benefit/cost ratio of a capital budgeting project, in present value terms. b. The benefit/cost ratio of a capital budgeting project, in future value terms. c. The benefit/cost ratio of a capital budgeting p
> 1. Which of the following depository institutions is only state-chartered? a. Commercial banks b. Savings and loan associations c. Savings banks d. Credit unions 2. Which of the following terms describes the degree of branch banking permitted in mo
> 1. How is MIRR computed? a. By finding the discount rate that equates the present value of the cash outflows with the terminal value of the cash inflows of a capital budgeting project b. By finding the discount rate that equates the present value of the
> 1. The relationship between the cost of capital and net present value can be described by which of the following? a. Upward sloping b. Rises, then falls c. Called the NPV profile d. Shows that NPV is always positive 2. The IRR measures which of the foll
> 1. How is NPV computed? a. Present value of future cash flows minus cost b. Sum of cash inflow minus cost c. Future value of cash inflows minus future value of cost d. Present value of profits from the project 2. What does the cost of capital represent
> 1. The stages of the capital budgeting process do not include which one of the following? a. Design b. Identification c. Development d. Follow-up 2. In which stage of the capital budgeting process are project cash flows estimated? a. Implementation b.
> 1. True or False? Net working capital changes will affect a project’s operating cash flow estimates. a. True because the project may affect levels of inventory or accounts receivable. b. True because changes in financing strategy will affect a project’s
> 1. The expense of developing initial outlay or cost estimates for a project should be considered which of the following? a. A sunk cost b. Part of the total initial outlay expenses c. An depreciable expense over the project’s life d. None of the choices
> 1. Risk-adjusted discount rates should be used to evaluate capital budgeting projects for which of the following reasons? a. The risk/expected return tradeoff in finance b. Otherwise low-risk, low-return projects will appear less attractive than high-ris
> 1. Which of the following types of cash flow, according to surveys, are the least likely to be audited? a. Initial investment b. Operating cash flow c. Financing costs d. Salvage value 2. Purposely overestimating a project’s operating cash flows—or unde
> 1. Capital budgeting is the process of doing which of the following? a. Allocating capital among bonds and stocks. b. Making certain adequate capital is available to pay bills when they come due. c. Budgeting for public finance projects. d. Identifying,
> 1. When determining the cost of a loan, the business owner should consider the effects of which of the following? a. Discounting the loan b. Compensating balance requirements c. Fees d. All of the choices are correct. 2. The correct way to compute
> 1. Which Act allowed banks to receive federal charters? a. National Banking At of 1864 b. Federal Reserve Act of 1913 c. Glass-Steagall Act of 1933 d. Depository Institutions Deregulation and Monetary Control Act of 1980 2. Which Act repealed the l
> 1. Which of the following is not a means for a business owner to personally guarantee a loan for his/her business? a. Co-maker loan b. Life insurance loan c. Stock and bonds as loan collateral d. Provide evidence of property insurance coverage on the
> 1. Which of the following are two types of accounts receivable financing? a. Accounts payable and notes payable b. Notes payable and promissory notes c. Factoring and accounts payable d. Pledging and factoring 2. Compared to factoring, which of the
> 1. Trade credit represents which of the following? a. The least formal of all forms of financing b. The most important form of short-term business financing c. Funds owed to a firm’s suppliers d. All of the choices are correct. 2. Which of the foll
> 1. Which of the following is a major difference between a bank line of credit and a revolving credit agreement? a. The line of credit cannot be renewed but the revolver automatically renews each year without further credit checks. b. Funds granted on a
> 1. A firm can estimate its short-term financing needs by which of the following? a. Using a cash budget b. Estimating its external financing needs c. Comparing credit sales to expenses d. The percentage-of-sales approach 2. Which one of the followi
> 1. Which of the following describes a firm’s working capital? a. The firm’s operating assets such as trucks, airplanes, and machinery b. The same as stockholders’ equity c. The money needed to start a new business d. Its current assets 2. A firm’s
> 1. RFID tags do which of the following? a. Help to track inventory and can reduce theft b. Indicate who the best-paying customers are c. Alert credit bureaus to improper credit card usage d. Reduce banking system float by using electronic data interc
> 1. Reducing working capital such as inventory can result in which of the following? a. Increased cash b. Higher profits c. Lower financing costs d. All of the choices are correct. 2. What does a just-in-time inventory system accomplish? a. It reduc
> 1. Which of the following is measured by viewing a person’s past credit history to see the person’s willingness to pay bills on time? a. Character b. Capacity c. Collateral d. Conditions 2. Examining liquidity ratios to gauge a firm’s ability to pa
> 1. What is float? a. The difference between cash inflows and cash outflows for a business. b. The difference between operating income and net income. c. The difference between accounts receivable and accounts payable. d. The delay between when funds
> 1. The first incorporated bank, the Bank of North America, was created in a. 1492. b. 1782. c. 1816. d. 1863. 2. The First Bank of the United States was established in a. 1791. b. 1811. c. 1816. d. 1863. 3. The first “thrift institutions” to
