Fin 2b HW

Question 1
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Managing a firm’s cash outflows through use of a “zero balance account” system offers all but which of the following benefits?

Centralized control over disbursements.

Reduction of management time spent on superficial cash management activities.

Higher rate of return on invested funds.

Reduction of excess balances in outlying accounts.

Question 2
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_______________ arise out of the financing of foreign trade.

Federal agency securities.

Bankers’ acceptances.

U.S. Treasury bills.

Commercial paper.

None of the above.

Question 3
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Float is best described by which of the below?

Investing excess cash balances.

The time required for a deposited check to clear through the commercial banking system and be available for payment.

The term used to describe payment for the purchase of raw materials that are needed to complete production of a luxury liner.

The time that is required to receive payment on a ZBA.

Question 4
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What differentiates “discretionary financing needs” from “external financing needs?”

Assets.

Retained earnings.

Sales.

Spontaneous liabilities.

Question 5
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Which of the following statements regarding a line of credit is true?

The purpose for which the money is being borrowed must be stated by the borrower.

A line of credit agreement usually fixes the interest rate that will be applied to any extensions of credit.

A line of credit agreement is a legal commitment on the part of the bank to provide the stated credit.

Such agreements usually cover the borrower’s fiscal year.

Question 6
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A company trying to optimize the use of float will try to

increase its disbursing float

decrease its disbursing float

decrease processing float

both a and c

Question 7
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Which of the following is not a reason for adoption of a common currency by the European Union?

It eases inter-border travel and trade.

It eliminates currency exchange charges.

It eliminates exchange rate risk.

All of the above are valid reasons.

Question 8
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Buying and selling in more than one market to make a riskless profit is called:

profit-maximization

arbitrage

international trading

cannot be determined from the above information

Question 9
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Which of the following would not be a valid use of pro forma financial statements?

To determine a firm’s needs for financing.

To enhance a firm’s ability to offer shareholders guaranteed operating results.

To analyze the effects of a firm’s forecasts on its financial performance.

To serve as a benchmark when comparing actual results to planned activities.

Question 10
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Which of the following is the least liquid?

U.S. Treasury bills

commercial paper

money market mutual funds

federal agency securities

Question 11
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Strategies to counter exchange rate risk include all of the following except:

futures contracts

spot-market hedges

forward-market hedges

money-market hedges

Question 12
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What is a “CD”?

a negotiable certificate of deposit

a corporate controlled disbursement account

a commercial demand deposit

a certified disbursement

Question 13
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All of the following are false except:

The mail float is caused by the time lapse from the moment a firm receives the check and begins to process it.

The processing float is caused by the time necessary for a bank to process the check.

The transit float is caused by the time lapse from the moment a customer mails a check until the firm begins to process it.

The disbursing float derives from the fact that funds remain in a firm’s bank account until its payment check is cleared through the banking system.

Question 14
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Which of the following is the initial and most important step in the preparation of pro forma financial statements?

Estimate the levels of investment in current and fixed assets.

Determine the rate of interest that will be required for borrowed funds.

Project the firm’s sales revenues for the planning period.

Approximate the cost of raw materials.

Question 15
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A floating lien, chattel mortgage, or terminal warehouse receipt have which of the following in common?

They all pledge accounts receivables as security.

They have nothing in common.

They are all unsecured forms of financing.

They all use inventory to secure a loan.

Question 16
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Exchange rate risk:

arises from the fact that the spot exchange rate on a future date is a random variable

applies only to certain types of international businesses

has been phased out due to recent international legislation

all of the above

Question 17
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A firm’s cash position would most likely be helped by:

delaying payment of accounts payable

more liberal credit policies for their customers

purchasing land for investment purposes

holding larger inventories

Question 18
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The primary advantage that pledging accounts receivable provides is:

the flexibility it gives to the borrower

that the financial institution bears the risk of collection

the low cost as compared with other sources of short-term financing

that the financial institution services the accounts

Question 19
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Which type of exposure is generally considered just a paper gain or loss:

transaction

translation

economic

financial

Question 20
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The prime rate of interest is:

the rate the bank charges its most credit-worthy borrowers

the rate the bank charges for money it borrows from the Federal Reserve Board

the rate the bank charges its average borrower

the rate the bank charges on home mortgages

Question 21
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A sales forecast for the coming year would reflect:

any past trend which is expected to continue

the influence of any events that might materially affect that trend

both a and b

neither a nor b

Question 22
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Forward rates are:

quoted in both direct and indirect form

quoted at a premium or discount

beneficial to risk-reduction

all of the above

Question 23
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Inflation affects the EOQ model in all of the following ways except:

changing the investment in accounts receivable

encourages anticipatory buying

increased carrying costs

encourages buying early to avoid price increases

Question 24
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Which of the following is an advantage of utilizing short-term debt to finance the acquisition of short-term assets?

Interest rates on short-term debt are usually lower than interest-rates on long-term debt.

It exposes the firm to less risk than if the firm were to use long-term debt.

It improves the firm’s debt ratio.

None of the above.

Question 25
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A Spot transaction occurs when:

one currency is deposited in a foreign bank

one currency is immediately exchanged for another currency

one currency is exchanged for another currency at a specified price

none of the above

Question 26
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Which of the following would normally occur if a firm increases its investment in current assets?

The firm’s liquidity would be improved.

The firm’s net working capital would decline.

The firm’s liquidity would be worsened.

The firm’s profit margin would improve.

Question 27
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Which of the following can be used by a company to increase its disbursing float?

remote disbursing

wire transfer

depository transfer checks

payable through draft

Question 28
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Under a field warehouse financing agreement:

collateral inventories are physically separated from other inventories of the borrower

collateral inventories are placed under the control of a third party

a warehouse receipt is issued which may or may not be negotiable

all of the above

Question 29
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A firm’s “sustainable rate of growth” is adversely affected by

An increase in a firm’s dividend payout ratio.

An increase in a firm’s net profit margin.

An increase in a firm’s ROE.

An increase in a firm’s gross profit margin.

Question 30
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Which of the following is an advantage of the use of current liabilities to finance assets?

less risk of illiquidity

more flexibility

lower interest costs

both b and c

Question 31
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A firm’s credit and collection policies usually include:

terms of sale, quality of customers, and collection of credit sales

average collection period, dollar value of aged receivables, and terms of sale

terms of sale and collection of credit sales

terms of sale, level of credit sales, and collection of credit sales

Question 32
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Cash inflows come from:

purchase of marketable securities

purchase of fixed assets

credit sales

cash sales

Question 33
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Which of the following is not a motive for a corporation to hold cash balances?

Transactions.

Float.

Precautionary.

Speculative.

Question 34
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What is the primary advantage of a firm that is able to issue commercial paper to finance its short-term assets?

Commercial paper provides greater flexibility in terms of repayment.

Interest rates on commercial paper are generally lower than rates on bank loans.

Commercial paper does not need to be repaid.

All of the above.

Question 35
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Considerations in the selection of a proper marketable-securities mix include all of the following except:

financial risk

interest rate risk

maturity

liquidity

Question 36
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Which of the following are motives for holding cash?

cash needs arising in the ordinary course of doing business

cash needs that may possibly arise but as of yet are unknown

cash needs arising from potential profit-making situations

all of the above

Question 37
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Working capital includes all of the following except:

cash

accounts receivable

accounts payable

inventories

Question 38
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Which of the following would be an example of the “transactions motive” for a firm holding cash balances?

Investing “excess cash balances.”

Anticipating a downturn in the economy.

Purchase of inventory.

Take advantage of an anticipated decline in the price of raw materials.

Question 39
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Which of the following is a limitation of the “percent of sales method” of preparing pro forma financial statements?

A firm’s investment in accounts receivable is seldom related to sales volume.

Not all assets and liabilities increase or decrease as a constant percent of sales.

Inventory levels are seldom affected by changes in sales volume.

None of the above is a limitation of the “percent of sales method” of preparing pro forma financial statements.

Question 40
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The foreign exchange market

provides the mechanism for transfer of equity ownership from one party to another.

is a network of telephone and computer connections across the world.

is relatively small in number and size of purchases.

sets a commission for all exchange transactions.

Question 41
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All of the following are found in the cash budget except:

a net change in cash for the period

inventory

cash disbursements

new financing needed

Question 42
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With regard to the hedging principle, which of the following assets should be financed with permanent sources of financing?

cannot be determined from information supplied

inventories

accounts receivable

cash

Question 43
2 points
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Which of the following types of collateral can be used to obtain a loan?

Accounts receivable.

Commercial paper.

Factoring.

All of the above.

None of the above.

Question 44
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Since 1970 the exchange rates between the major currencies of the world are

On a floating exchange rate system.

On an arbitrage exchange rate system.

On a fixed exchange rate system.

On a spot exchange rate system.

Question 45
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The financial manager should include the following security in a portfolio of marketable securities:

high-grade shares of common stock

long-term shares of common stock

high-quality preferred stock

high-grade commercial paper

Question 46
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The percent of sales method can be used to forecast:

expenses

assets

liabilities

all of the above

Question 47
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A firm might use current liabilities versus long-term debt for financing because:

it reduces the chances of illiquidity.

generally it is less costly than long-term debt.

it offers greater flexibility.

a and b

b and c

Question 48
2 points
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Atlas Tire Irons, Inc. is considering borrowing $5,000 for a 90-day period. The firm will repay the $5,000 principal amount plus $150 in interest. What is the effective annual rate of interest? Use a 360-day year.

7%

12%

15%

25%

Question 49
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Exchange rate risk:

exists when the contract is written in terms of the foreign currency

exists also in direct foreign investments and foreign portfolio investments

does not exist if the international trade contract is written in terms of the domestic currency

all of the above

Question 50
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Which of the following are government-sponsored corporations that have been created to effect lending programs of the United States government?

I and II

IV only

I, II, and III

all of the above

the Federal National Mortgage Association (FNMA)

II. the Federal Home Loan Banks (FHLB)

III. the Federal Land Banks

IV. the Federal Deposit Insurance Corporation (FDIC)