Chapter 15 & 16 Quiz

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When inflation is very high, money is no longer a __________________ means of exchange.

portable
durable
difficult to counterfeit
→ stable
divisible

Which was not a problem during the most recent financial crisis?

Excessively risky securities
Dramatic declines in bank assets
Declining home values and foreclosures
→ Total confidence in the long-term health of U.S. financial markets

If a person invests in the stock market through a vehicle that pools funds from a large number of people and buys and professionally manages stock from a number of diversified companies, that person is investing in a(n)

* mutual fund.
time deposit.
banker's acceptance.
certificate of deposit.
individual retirement account.

When the Federal Reserve sells investments, it

clears all checks in the system immediately.
→ decreases the money supply.
increases the amount of insurance for accounts.
keeps the money supply the same.
increases the money supply.

Which of the following actions did the Federal Reserve not take during the most recent financial crisis to stave off economic collapse?

Lowered key interest rates
→ Allowed most troubled banks to fail
Lent money at discount rates to nonbanking institutions
Paid interest in reserve banks kept by the Fed
Purchased troubled assets from banks

If consumers do not pay off their entire credit card balance, they will

get a rebate from the card issuer.
* have to pay interest on the unpaid amount.
have to pay interest on the total paid and unpaid amount.
receive interest on the paid amount.
have the purchased goods repossessed.

Most brokerage firms also provide other services such as investment banking or selling securities.

True*
False

When used to accumulate wealth, money functions as a

yardstick of value.
medium of exchange.
→ store of value.
transaction.
measure of value.

When discussing financial institutions, what is a shrinking capital base?

→ When the amount of debt in relation to equity increases
When an institution's credit rating is downgraded
When the institution loses a large quantity of its customers in a short amount of time
When the institution gives out a lot of large loans
When the institution experiences a large influx of new equity

When currency is stable, it provides no incentive to save.

False

Cash, investments, accounts receivable, and inventory are also known as

*current assets.
current liabilities.
long-term liabilities.
fixed assets.
long-term assets.

Fixed assets, such as production facilities, are expected to last for many years.

True

Good financial managers minimize the amount of cash available to pay bills in

→ transaction balances.
marketable securities.
the float.
banker's acceptances.
inventory.

If the interest rate on a loan changes according to the daily average of the prime rate over the life of the loan, the interest rate is said to be

fixed.
flexible.
→ floating.
non-variable.
sporadic.

Securities markets provide all of the following except

liquidity.
a mechanism for buying and selling stocks and bonds.
the primary market where firms raise capital.
→ a federally insured place to deposit savings.
a secondary market.

Which of the following is a stock market performance measure that compares current stock prices with those in a specified base period?

Dow Jones Industrial Average
Dividend yield
Average
Current yield
Index*

If a firm tries to produce goods just in time to meet sales demand, its level of inventory will tend to be

excessive.
relatively high.
wasteful.
very high.
→ relatively low.

A lockbox is a technique for getting cash into a business's account faster.

False

Which of the following is a sequence of small bond issues of progressively longer maturity?

Sequence bonds
Progressive bonds
→ Serial bonds
Junk bonds
Secured bonds

The most widely used source of short-term financing is

commercial paper.
mothers and fathers.
→ trade credit.
finance companies.
bank loans.

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