Test Bank for Contemporary Financial Management 13th Edition Moyer,

McGuigan, Ra
1. Complete downloadable file at:
a. https://TestBanksCafe.eu/Test-Bank-for-Contemporary-Financial-Management-13th-Edition-Moyer,-
McGuigan,-Ra
b. hasdirectinvestmentsinmanufacturingfacilitiesinmorethanonecountry
c. exportsfinishedgoodsforsaleinanothercountry
d. importsrawmaterialsfromanothercountry
e. hasamanufacturingrepresentativeinanothercountry

ANSWER: a

2. Thedifferencebetweenmerchandiseexportsandimportsisknownasthe .
a. transactionexposure
b. differenceinpurchasingpower
c. goodsandservicestradebalance
d. import/exportreserve

ANSWER: c

3. TheinterestrateatwhichbanksintheEurocurrencymarketlendtoeachotherisknownasthe .
a. Eurocurrencycurrencyrate(ECR)
b. Londoninterbankofferrate
c. exchangerate
d. interestrateparity

ANSWER: b

4. Anexchangeratequotedas$1.47perBritishpoundisknownasa quote.
a. hedge
b. direct
c. futures
d. indirect

ANSWER: b

5. IfJapaneseyenaredepositedinabankinParis,thedepositswouldbecalled
a. Eurofrancs
b. EuropeanCurrencyUnit
c. Eurobond
d. Euroyen

ANSWER: d

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Full file at https://TestBanksCafe.eu/

6. IfthespotrateforSwissfrancsis$0.6658/francandthe180-
dayforwardrateis$0.6637,themarketisindicatingthattheSwissfrancisexpectedto
a. strengthenrelativetothedollar
b. weakenrelativetotheECU
c. losevaluerelativetothedollaroverthenext6months
d. gainvaluerelativetothedollaroverthenext6months

ANSWER: c

7. Whichofthefollowingisnotacorrectstatementaboutforeigncurrencyfutures?
a. futurescontractshaveastandardizedmaturitydate
b. futurescontractsareanexchange-tradedagreement
c. futurescontractsarenotliquid
d. futurescontractsare"markedtomarket"daily

ANSWER: c

8. ThemostimportantforeigncurrencyfuturesmarketintheUnitedStatesisthe .
a. ChicagoBoardofTrade
b. NewYorkMercantileExchange
c. CommodityExchange
d. ChicagoMercantileExchange

ANSWER: d

9. Thebuyerofaforeigncurrencycalloptionhasthe afixedamountofaforeigncurrency.
a. righttosell
b. rightbutnottheobligationtobuy
c. obligationtobuy,onlyatexpiration,
d. obligation to buy

ANSWER: b

10. EurodollarsareU.S.dollarsthathavebeendepositedin
a. foreignbanks
b. foreignbranchesofU.S.banks
c. foreignsubsidiaries
d. foreignbanksandforeignbranchesofU.S.banks

ANSWER: d

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Full file at https://TestBanksCafe.eu/

11. IftheexchangeratefromU.S.dollarstoCanadiandollarsis$0.80/Canadiandollar,thentheexchangeratefromCanadia
ndollarstoU.S.dollarsis
a. 0.80Canadian$/USdollar
b. $1.25Canadian$/USdollar
c. $1.20Canadian$/USdollar
d. $8.00Canadian$/USdollar

ANSWER: b

12. IftheexchangeratefromU.S.dollarstoSwissfrancsis$0.20/franc,thentheexchangeratefromfrancstodollarsis
a. 0.20francs/dollar
b. 0.80francs/dollar
c. 5.0francs/dollar
d. 2.0francs/dollar

ANSWER: c

13. Ifthespotrate(inU.S.dollars)forJapaneseYenis0.00703andthe180dayforwardrateis0.00717,thentheYenistradin
gata(n) .
a. expectedgain
b. premium
c. reciprocal
d. discount

ANSWER: b

14. Iftheforward(directquote)exchangerateislowerthanthespotrate,thenthecurrencyissaidtobetradingata _____.

a. forwardpremium
b. forwardgain
c. forwarddiscount
d. forwardloss

ANSWER: c

15. Financialmiddlemeninclude
a. securitiesbrokers
b. securitiesdealers
c. investmentbankers
d. allofthese

ANSWER: d

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Full file at https://TestBanksCafe.eu/

16. ThefollowingarelistedsecurityexchangesintheUnitedSates:
a. NewYorkStockExchange
b. PacificExchange
c. CincinnatiExchange
d. Allof thesearelistedexchanges

ANSWER: d

17. TheStandardandPoor's500StockPriceIndexisa index.

a. priceweighted
b. marketvalueweighted
c. priceaverage
d. noneoftheseanswersiscorrect

ANSWER: b

18. Securitiesnotlistedonexchangesaresaidtobetraded
a. ontheAMEX
b. ascompositetransactions
c. overthecounter
d. ontheregionalexchanges

ANSWER: c

19. Financial intermediaries include

a. securities brokers
b. commercial banks
c. securities dealers
d. all of these

ANSWER: b

20. marketsdealinlong-termsecuritieshavingmaturitiesgreaterthanoneyear.
a. Credit
b. Money
c. Commodityfutures
d. Capital

ANSWER: d

21. marketsdealinshort-termsecuritieshavingmaturitiesofoneyearorless.
a. Credit
b. Money
c. Capital
d. Capitalandcredit

ANSWER: b

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Full file at https://TestBanksCafe.eu/

22. Whichofthefollowing(ifany)arenotfinancialintermediaries?
a. commercialbank
b. thriftinstitution
c. securitiesbroker
d. allarefinancialintermediaries

ANSWER: c

23. In the market,thefirmreceivestheproceedsfromthesaleofitssecurities.

a. over-the-counter
b. secondary
c. fullyintegrated
d. primary

ANSWER: d

24. Asavingsandloanassociationisanexampleofwhichtypeoffinancialintermediary?
a. commercialbank
b. investmentcompany
c. financecompany
d. thriftinstitution

ANSWER: d

25. Inanyeconomyasawhole,theactualsavingsforagivenperiodoftimemust theactualinvestments.

a. begreaterthan
b. beunrelatedto
c. equal
d. belessthan

ANSWER: c

26. Financialintermediaries
a. issuesecondaryclaimstothelender
b. arecompensatedfortheirservicesbyfixedfees
c. includebothbrokersanddealers
d. issueprimaryclaimstothelender

ANSWER: a

27. Themainpurposeofaneconomy'sfinancialsystemistofacilitatethetransferoffundsfrom
a. financialmiddlementofinancialintermediaries
b. surplusspendingunitstodeficitspendingunits
c. primaryclaimholderstosecondaryclaimholders
d. lenderstofinancialintermediaries

ANSWER: b

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Full file at https://TestBanksCafe.eu/
28. Moneymarketsdealinsecuritieshavingmaturitiesof ;capitalmarketsecuritieshavematurities .
a. lessthan18months,greaterthan18months
b. oneyearorless,greaterthanoneyear
c. lessthan9months,greaterthan9months
d. lessthan6months,greaterthan6months

ANSWER: b

29. Commercialbanksareanimportantsourceof
a. mortgageloans
b. equityloans
c. realestateloans
d. short-termloansandtermloans

ANSWER: d

30. Financecompaniesobtainasignificantamountoftheirfundsby
a. issuingtheirownequitysecurities
b. acceptingbothdemandandtimedeposits
c. issuingtheirowndebtsecurities
d. poolingfunds

ANSWER: c

31. Whenaninvestorpurchasessharesinano-loadcommonstockmutualfund,sheisusinga(n)
a. primaryintermediary
b. financialintermediary
c. over-the-countermarket
d. broker

ANSWER: b

32. TheinterestrateintheEurodollarmarketisrelatedto
a. theDOW
b. thestockmarket
c. theLIBOR
d. interestratesintheUnitedStates

ANSWER: c

33. Capitalmarketsinfinanciallysophisticatedeconomiesarenotperfectlyefficientbecauseof
a. anomalousevents
b. theSunSpottheory
c. irrationalinvestorbehavior
d. anomalouseventsandirrationalinvestorbehavior

ANSWER: d

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Full file at https://TestBanksCafe.eu/
34. Commercial banks are a major source of term loans. These loans are best used for:
a. financing the expansion of the business.
b. financing the establishment of overseas operations.
c. financing current assets like inventory and accounts receivable.
d. financing the payment of dividends.

ANSWER: c

35. TheDowJonesIndustrialAverageiscalculatedusingthe
a. totalmarketvalueof30stocks
b. priceof30stocks
c. aweightedindexof30stocks
d. industrial,railroad,financial,andutilitystocks

ANSWER: b

36. Insidertradingisdefinedas
a. anindividualusingpropertradingrules
b. anindividualbuyingorsellingusingnon-SECdisclosurerules
c. anindividualbuyingorsellingonthebasisofmaterialnonpublicinformation
d. azero-plusgame

ANSWER: c

37. TheU.S.financialmarketsaresaidtobehighlyinformationallyefficient.Thismeans
a. theyprocessstocktradesaccuratelyandquickly
b. themarketprovidesquickaccesstoafirm'sfinancialstatements
c. theyquicklyreflectinformationrelevanttodeterminingstockvalue
d. accuratestockquotesarequicklyavailabletoallinvestors

ANSWER: c

38. Expostreturnsdifferfrom returnsinthattheyrepresent valuesratherthan values.

a. exante;estimated;actual
b. expost;accounting;economic
c. exante;actual;estimated
d. exante;economic;accounting

ANSWER: c

39. Thefactthatnoinvestorcanexpecttoearnexcessreturnsbasedonaninvestmentstrategyusingonlyhistoricalstockp
riceorreturninformationisanexampleof marketefficiency.
a. strong-form
b. weak-form
c. semiweak-form
d. semistrong-form

ANSWER: b

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Full file at https://TestBanksCafe.eu/
40. Withsemistrong-
formmarketefficiency,noinvestorcanexpecttoearnexcessreturnsbasedonaninvestmentstrategyusing any
information.
a. pastmarketprice
b. marketvalue
c. publiclyavailable
d. private

ANSWER: c

41. Inanefficientcapitalmarket,allsecurityinvestmentswillhave:
a. arequiredrateofreturnthatexceedsthecostofcapital
b. apositiveNPV
c. arequiredrateofreturnthatiszero
d. aNPVofzero

ANSWER: d

42. Inanefficientcapitalmarket,corporatediversificationis .
a. unnecessary
b. inexpensive
c. ofbenefittocorporatemanagers
d. ofgreatbenefit

ANSWER: a

43. Thebarrierstothefreeflowofcapitalamongthemajorworldcapitalmarketsincludeallofthefollowingexcept:
a. lowtransactioncosts
b. taxationpolicies
c. foreignexchangerisks
d. legalrestrictions

ANSWER: a

44. For the financial manager, taxes have important implications for
a. dividend policy
b. financial restructurings
c. capital structure policy
d. all of these

ANSWER: d

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Full file at https://TestBanksCafe.eu/
45. Changesinthetaxcodethatslowdowndepreciation,
thepresentvalueofinvestmentcashflowsand,therefore,maketheinvestme
nt desirable.
a. decrease,more
b. decrease,less
c. increase,more
d. increase,less

ANSWER: b

46. In an efficient capital market

a. requiredreturnsequalexpectedreturns
b. investorswillhaveholdingperiodreturnsequaltozero
c. purchaseofanysecurityyieldszeroprofit
d. purchasingstocksisnobetterthangambling

ANSWER: a

47. IfthespotratefortheBritishpoundis$1.5077andthe180-
dayforwardrateis$1.4934,whatistheannualizedpremium(discount)?
a. premiumof1.90%
b. premiumof0.97%
c. discountof(-)1.90%
d. discountof(-)0.97%

ANSWER: c
RATIONALE:Solution:[($1.4934-$1.5077)/($1.5077)](12/6)(100%)=-1.897%

48. IfthespotratefortheJapaneseyenis$0.009204andthe90-
dayforwardrateis$0.009227,whatistheannualizedpremium(discount)?
a. premiumof1.00%
b. premiumof0.50%
c. discountof-0.99%
d. premiumof0.25%

ANSWER: a
RATIONALE:Solution:[(.009227-.009204)/(.009204)](12/3)(100%)=0.9996%

49. Christypurchased100sharesofGoodIdeastockfor$48lastyear.Yesterdayshesoldthestockfor$45.Ifshereceived$4
individendsduringthetimesheheldthesecurity,whatisherholdingperiodreturn?
a.2.08%
b.8.30%
c.-6.30%
d.14.60%

ANSWER: a
RATIONALE:Solution:($45-$48+$4)/$48=0.0208or2.08%

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Full file at https://TestBanksCafe.eu/
50. Ifaninvestorpurchased100sharesofBiggeestockfor$30pershare,6monthsago,andthensoldthestocktodayfor$3
3pershare,whatwastheinvestor'sholdingperiodreturnifatotalof$1pershareindividendswasreceivedoverthe6mo
nthperiod?
a.10%
b.27.1%
c.17.1%
d.13.3%

ANSWER: d
RATIONALE:Solution:HPR=($33-$30+$1)/$30=13.3%

51. Whatistheholdingperiodreturntoaninvestorwhobought100sharesofOilSlickstockninemonthsagofor$36pershare,
receivedtwo$50dividendchecks,andsoldthestocktodayat$38ashare.
a.5.56%
b.8.33%
c.11.11%
d.6.94%

ANSWER: b
RATIONALE:Solution:($38+$1-$36)/$36=0.0833or8.33%

52. If a treasury bond can be purchased for $9,450 today and the bond holder will receive $850 in interest and
the$10,000 face value at maturity, what is the percentage holding period return?
a. 14.8%
b.5.8%
c.6.7%
d.12.6%

ANSWER: a
RATIONALE:Solution:($10,000- $9,450+$850)/$9,450=0.148or14.8%

53. Youbought100sharesofRiskyVenturestocksixmonthsagofor$14pershareandsoldityesterdayfor$12.Thecompan
ypaidatotalof$0.24pershareindividendstoyouduringthetimeyouheldthestock.Whatwasyourholdingperiodreturn
?
a.-25.14%
b.-16.67%
c.-12.57%
d.16.00%

ANSWER: c
RATIONALE:Solution:HPR=($12-$14+$0.24)/$14=-0.1257or-12.57%

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Full file at https://TestBanksCafe.eu/
54. Maher purchased 100 shares of Chill Pill Pharmaceuticals at $30 per share last spring and sold them in six
monthsfor $36 per share. The stock paid no dividend. What was Maher's holding period return?
a.40%
b.20%
c.10%
d.5%

ANSWER: b
RATIONALE:Solution:HPR=(3600-3000)/3000×100%=20%

55. Two years ago you bought 100 shares of Big Bubba convertible preferred stock at $25 per share. The
preferred stock had an annual dividend of $2.125 per share, and a total of $3.19 in dividends per share have
been paid so far. Today the company announced that the stock is redeemable for $26.70 plus accrued and
unpaid dividends, for a total of $27.76. Alternatively, holders may convert their shares of preferred stock at a
conversion rate of 1.6393 shares of Big Bubba common stock for each share of preferred stock. If the closing
price of Big Bubba common stock is$27.50, what is your holding period return?
a.93.08%
b.23.80%
c.80.32%
d.64.60%

ANSWER: a
RATIONALE:Solution:Endingprice=$27.50(1.6393)=$45.08
HPR=($45.08-$25+$3.19)/$25=0.9308or93.08%

56. Ifthespotrate(inU.S.dollars)forJapaneseYenis0.00703andthe180dayforwardrateis0.00717,thentheYenistradin
gatanannualized
a. premiumof4.04%
b. premiumof3.98%
c. premiumof3.91%
d. discountof3.89%

ANSWER: b
RATIONALE:Solution:Premium=[(0.00717-0.00703)/0.00703](12/6)=0.0398

57. Learpurchased100sharesofQuitchaTwitchinAnti-
inchCreamstockat$30persharelastyearandsoldthemelevenmonthslaterfor$24pershare.Thesharessplit2for1sho
rtlyafterLearpurchasedthestock.Ifthestockpaid$0.25pershareindividendslastyear,whatisLear'sholdingperiodret
urn?
a.61.67%
b.-19.17%
c.21.67%
d.6.17%

ANSWER: a
RATIONALE:Solution:HPR=[2400-1500+.25(100)]/1500×100%=61.67%

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Full file at https://TestBanksCafe.eu/
58. Whichofthefollowingreflect(reflects)theimplicationsofincometaxesforfinancialmanagers:
I. Interestpaymentsondebtincurredbythefirmarenottaxdeductibleforthefirm.
II. Preferredstockandcommonstockdividendsaretaxdeductibleforthefirmandareusedasoftenaspossibletor
aisecapital.
a. OnlystatementIiscorrect.
b. OnlystatementIIiscorrect.
c. BothstatementsIandIIarecorrect.
d. NeitherstatementInorIIiscorrect.

ANSWER: d

59. Savingsandloanassociationsareconsidered:
a. commercialbanks
b. investmentcompanies
c. thriftinstitutions
d. loansharks

ANSWER: c

60. Whichofthefollowingiscorrectregardingtheformsofmarketefficiency?
I.Inanefficientcapitalmarketstockpricesprovideanunbiasedestimateofthetruevalueofanenterprise.
II. Inanefficientcapitalmarket,stockpricesreflectthepresentvalueofthefirm’sexpectedcashflows.
a. OnlystatementIiscorrect
b. OnlystatementIIiscorrect
c. BothstatementsIandIIarecorrect
d. NeitherstatementInorIIiscorrect

ANSWER: c

61. Whichofthefollowingstatementsis/arecorrectaboutfinancialintermediaries?
I. Financialintermediariesprimarilyoperatewithinthesecondarymarket.
II. Examplesoffinancialintermediariesare:commercialbanks,thriftcompaniesandtheinternalrevenueserv
ice.
a. OnlystatementIiscorrect.
b. OnlystatementIIiscorrect.
c. BothstatementsIandIIarecorrect.
d. NeitherstatementInorIIiscorrect.

ANSWER: d

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Full file at https://TestBanksCafe.eu/
62. Therearethreeformsofmarketefficiency.AllofthefollowingstatementsarecorrectEXCEPT:
a. Theweakformefficiencystatesthatnoinvestorcanearnexcessreturnsbasedonhistoricalpriceinformation.
b. Thestrongformofefficiencystatesthatnoinvestorcanconsistentlyearnexcessreturnssinceallpublicandprivatei
nformationisreflectedinstockprices.
c. Thesemi-
strongformofefficiencystatesthatnoinvestorcanearnexcessreturnsbasedonaninvestmentstrategyusingpublici
nformation.
d. Marketefficiencyisahardandfastrulethathasbeenverifiedinreal-worldsituations.

ANSWER: d

63. There are highly publicized hedge fund problems, for example Julian Robertson’s Tiger fund or Long Term
CapitalManagement. The impact that this has had on hedge funds is:
a. minimal.Theyhavecontinuedtogrowinsizeandnumber.
b. huge.Hedgefundsarebeingdiscontinued.
c. beingfeltintheoverallreallocationofhedgefundsintobonds.
d. inconsequentialandirrelevant.Investorsmayrelyontheduediligenceofthefundmanagersforsafeinvesting.

ANSWER: a

64. Anexampleofafinancialmiddlemanisa:
a. commercialbank
b. stockbroker
c. insurancecompany
d. thriftinstitution

ANSWER: b

65. Anexampleofalistedsecurityexchangewithinthesecondarymarketis:
a. OTC
b. NYSE
c. NASDAQ
d. Automatedquotations

ANSWER: b

66. Asagroup,netsaversare:
a. businesses
b. households
c. government
d. partnerships

ANSWER: b

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Full file at https://TestBanksCafe.eu/
67. Trading on the NYSE is conducted by members of the exchange. The members that execute orders and
act asagents on behalf of their clients are:
a. FloorBrokers
b. ExchangeRunners
c. DesignatedMarketMakers
d. SECAgents

ANSWER: a

68. Thedifferencebetweenthebidpriceandtheaskpriceonasecurityisthe:
a. spread
b. value
c. assetfactor
d. commission

ANSWER: a

69. Therearemanyreasonswhytherewasafinancialcrisisin2007.Themostsignificanteventcloselyassociatedwiththiscr
isisis:
a. thestockmarketcrash
b. therealestatebubble
c. governmentoverspending
d. theuseoffinancialhedging

ANSWER: b

70. Inthefinancialcrisisof2007therewascheapmoneycomingfromemergingmarkets.Examplesofemergingmarketsar
eallofthefollowingEXCEPT:
a. SouthKorea
b. Australia
c. India
d. China

ANSWER: b

71. Althoughtherewasafinancialcrisisin2007-
2010,somefirmswereabletoweatherthecrisis.Thesefirmshadallofthefollowingcharacteristicswhichweredirectlyr
esponsiblefortheirabilitytosurvivethecrisisEXCEPT:
a. Tightcontroloverfixedandvariablecosts
b. Lowbusinessrisk
c. Abusinessmodelwhichencouragedrisktakingbymanagementthatpaidoff
d. Lowproductpricing

ANSWER: c

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Full file at https://TestBanksCafe.eu/
72. Whatarethedifferencesbetweentheprimaryandsecondarymarkets?

ANSWER:
Theprimarymarketallowstheinvestortopurchasenewsecurities.Netproceedsfromsuchsalesgotothei
ssuingcorporation.

Thesecondarymarketallowstheinvestortopurchasesecuritiesthatarealreadyincirculation.Thesearep
urchasedthroughanorganizedsecurityexchange,forexampleNYSE,orintheover-the-
countermarket,andnoneoftheproceedsgototheissuingcorporation.

73. Whatisthepurposeandimportanceofthestockmarketindexes?

ANSWER:
Stockmarketindexesgiveabroadindicationofhowthestockmarketorasegmentofitperformedduringap
articularday.ThemostknownindexistheDowJonesIndustrialAverage(DJIA),whichiscomposedof30
stocks.Theindexgivesanoverviewofhowwellstocksaredoing,theoverallhealthoftheeconomy,andthe
anticipatedmarketabilityofsecurities.

74. Explainthedegreesofmarketefficiencyandtheirapplicabilitytothestockmarket.

ANSWER:
1.Weakformmarketefficiency:Noinvestorcanearnexcessreturnsbasedonhistoricalpriceinformati
onorpastreturninformation.
2. Semi-
strongmarketefficiency:Noinvestorcanearnexcessreturnsbasedonaninvestmentstrategyusingan
ypublicinformation.Stockpricesconsistentlyincorporateanynewinformationaboutthestockorthei
ssuingcompany.
3. Strongmarketefficiency:Noinvestorcanconsistentlyearnexcessreturnsbasedonanypublicorpriva
teinformation.Stockpricesreflectallinformation,bothpublicandprivate.

Thenumberofinvestorswhohavetradedwithinsiderknowledgeprovidesgraphicevidencethatthes
trongformefficiencydoesnothold.

75. Definethedifferencesbetweenthecapitalmarketandthemoneymarket.Giveexamplesofthekindsofsecuritiesfoun
dineachcategory.

ANSWER: Moneymarketsecuritiesareshort-
termandliquidwithmaturitiesunderoneyear.Thereisminimalriskinthemoneymarketandmoneymark
etsecuritiesgenerallypayinterestthatisguaranteed.Typesofmoneymarketsecuritiesare:cashandcashe
quivalents,commercialpaper,treasurybills,governmentsecurities,andcertificatesofdeposit.

Capitalmarketsecuritiesarelong-
termandilliquidwithmaturitiesgreaterthanoneyear.Thereissignificantriskinvolvedandcapitalmarket
securitiesearnarateofreturnthatisnotguaranteed.Typesofcapitalmarketsecuritiesare:preferredstocks
,commonstocksandbonds.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Full file at https://TestBanksCafe.eu/

76. ListthetypesofdisclosureformsrequiredbytheSECandexplainwhatinformationiscontainedineachform.

ANSWER: ThevariousSECformslistedinthetextare:
1.10-K.Thisisthefirm’sannualreporttotheSECrequiredfromfirmswithpubliclyheld
securities.
2. 10-Q.Thisformcontainsquarterlyinformationwhichupdatesthe10-K.
3. 14-
AfilingorProxyStatement.Thisformissubmittedpriortoannualshareholdermeetingsdetailingmatte
rstobediscussedandvoteduponbythestockholders.

77. ListchangesthathaveoccurredwithinfinancialmarketsregulationasaresultofthepassageoftheSarbanes-
OxleyActof2002.

ANSWER: Thesignificantchangesthathaveoccurredare:
1. Topmanagementisdirectlyresponsiblefortheaccuracyoftheirfirm’sfinancialstatements.Theymu
stpersonallycertifytotheaccuracyofthefinancialstatementsandinternalcontrolsystems.
2. Theactstrengthenstheindependenceandaccountabilityoftheauditcommitteeofthefirm’s
internalcontrolsystem.
3.TheactcreatesthePublicCompanyAccountingStandardsBoardtooverseetheauditingindustrytoim
provetheindependenceandcredibilityofauditorsandtheauditingfunction.
4.Theactrequiresthatauditorsnowcertifyafirm’sfinancialcontrolsystemandreportany
materialweaknesses.
5. Theactcreatesstructuralseparationbetweenfinancialanalystsandinvestmentbankersworkingforth
esamefirm.
6. Theactinstitutesnewrulestoensureindependenceoffinancialanalysts.

78. Howdidthemortgagemarketprovidetheimpetusforthefinancialcrisisof2007-2010?

ANSWER: MortgagemarketsintheUSevolvedtotakeadvantageofeasymoneyflowinginfromaroundtheworld.

Mortgagesbecamesecuritized.Banks,inthepast,wereverycautiouswithregardtowhotheylenttoande
nsuredthatborrowershadsufficientincomeandcollateraltorepaytheirloanstothebank.

Beginningin1980,thischanged.Banksandmortgagebrokersandlenderswouldoriginatetheloansandth
enresellthemtootherfinancialinstitutions.Theseinstitutionswouldbundlethemortgagesintoamortgage
-
backedsecurityorbondandsellthemtoinvestorsaroundtheworld.Thesebondswereperceivedtobever
ysafe.Butintheearly2000’sthedemandexceededthesupplyandinvestmentbanksfoundawaytoexpand
supplybyreachingintomoreriskymortgages(knownassubprime).Aslongasrealestatepricesweregoin
gupandtheeconomyandemploymentlevelswerehigh,thesederivativesecuritiesenjoyedagreatdealof
popularityandthedefaultriskonthesebondswasverylow.Theincreaseinhomepriceswasunsustainable
andintheendtheownersofthesederivativessufferedhugelosses.Therearosefearoflendingmoneybetw
eenbankswhicheventuallyledtoaliquiditycrisiswhichresultedinbanksandfinancialinstitutionsbeingli
quidatedortakenoverbyastrongerfinancialinstitution.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Full file at https://TestBanksCafe.eu/

79. Thedifferencebetweenputsandcallsis:
a. acallisanoptiontobuy
b. aputallowsthepurchaseofextrastock
c. acallcannotberesold
d. aputrequiresthattheowneroftheputmustsellonaspecificdate

ANSWER: a

80. Foreigncurrencyforwardandfutureoptionsarecontractsthatreflect :
a. an obligation
b. achoice
c. adeliverydateoftheproduct
d. aspecificrequirement

ANSWER: b

81. Foreigncurrencyforwardandfutureoptionsprovideameansforfirmstocontrol
a. foreigngovernmentintervention
b. foreignpoliticalproblems
c. foreignexchangerisk
d. theforeigntransportofthegoods

ANSWER: c

82. Aninvestordecidestosellhisstockbasedoninformationhereceivedaboutsomeinternalauditrevealingthatthecomp
anyhasseverefinancialproblems.Tradingonthisinformationiscalled:
a. privatetrading
b. insidertrading
c. optionstrading
d. informationtrading

ANSWER: b

83. financeseekstoidentifywhysomeinvestorsreactirrationallywhenconfrontedwithunexpectedupsanddownsi
nthemarket
a. Systematic
b. Weak-form
c. AssetEvaluation
d. Behavioral

ANSWER: d

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Full file at https://TestBanksCafe.eu/
84. AllofthefollowingareanomaliesthathaveimpactedthefinancialmarketinthepastEXCEPT:
a. therealestatemarket
b. thepurchaseandsubsequentsaleofinternetstock
c. therunupofgoldprices
d. investinginbluechipstock

ANSWER: d

85. Allofthefollowingcontributedtothefinancialcrisisof2007-2010EXCEPT:
a. theGulfWar
b. thesecuritizationofmortgageloans
c. verylowinterestrates
d. foreign investment in the bond market

ANSWER: a

86. All of the following have tax implications as it concerns financial management decisions EXCEPT:
a. Capitalstructure
b. Dividendpolicy
c. Inventorycontrol
d. Leasing

ANSWER: c

87. Financialintermediariesarecompensatedfortheirservicesby
a. theinterestratespread.
b. salary.
c. stockoptions
d. preferredstockcertificates

ANSWER: a

88. FinancialassetsareallofthefollowingEXCEPT:
a. money
b. debtsecurities
c. equitysecurities
d. inventory

ANSWER: d

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.