Finance 363 Final Review From Midterm 1

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A reduction in market interest rates.

Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds?

American Depository Receipts (ADRs) or mutual funds that hold international stocks.

Most American investors who are interested in investing in companies listed on foreign exchanges do so by purchasing ____

Which of the following statements is correct?

Shareholder agency costs include the opportunity costs associated with constraining managerial freedom but do not include managerial salaries.

Current tax laws have which of the following effects?

Favor capital gains because the tax does not have to be paid until the stock is sold.

Which of the following statements is correct?

A good example of an agency relationship is the one between stockholders and managers.

All else equal, a decrease in reserve requirements will cause

excess reserves to increase.

The major asset of savings and loans is

residential (home) mortgages.

Which statement is not true about life insurance companies?

They invest heavily in short-term highly marketable securities.

A goldsmith who operated under strict 100 percent reserve requirements

served only a safekeeping function in the economy.

An indirect transfer through a financial intermediary.

You have just purchased shares in the Hi-Tech Long-Term Bond Fund, a mutual fund that invests in long-term corporate bonds. Your purchase constitutes

Which of the following statements is correct?

A "prospectus" is a document which describes a company and the securities it plans to offer, and the prospectus generally must be approved by the SEC before a public offering of new securities can be made.

Put option.

An option which gives the holder the right to sell a stock at a specified price at some time in the future is called a(n)

Money markets are markets for

Short-term debt securities

Which of the following assets are traded in the derivative markets.

Options, futures, and swaps

Which of the following statements is correct?

Partnerships have difficulties attracting capital in part because of the other disadvantages of the partnership form of business, including impermanence of the organization.

Which of the following statements is correct?

Agency problems exist between stockholders and managers, and between stockholders and creditors.

All else equal, the money supply should decrease when

the Fed sells securities on the open market.

Federal deposit insurance has

prevented bank depositor panics, but not bank failures.

semistrong-form; strong-form

When a firm makes an earnings announcement that is different than what the analysts expected the market price of the firm's stock adjusts immediately. This is evidence consistent with markets being ____ efficient but not ____ efficient

Financial markets are important because they

allow individuals to transfer purchasing power over time.
provide for the efficient transfer funds to businesses.
facilitate exchanges between the providers and users of capital.

Of the following provisions that might be found in a bond indenture, which would tend to reduce the coupon interest rate on the bond in question?

A convertible feature.

A call provision under which the firm may call the bonds for redemption after 5 years.

A firm plans to sell $100 million of 20-year bonds to raise capital for expansion. Which of the following provisions, if it were included in the bond's indenture, would tend to raise the coupon interest rate over what it would be if the provision were not included?

Which of the following types of debt protect a bondholder against an increase in interest rates?

Floating rate debt.
Bonds that are redeemable ("putable") at par at the bondholders' option.

Suppose the following exchange rates prevail:260CLP(Chilean Peso)/BRL(Brazilian Real)
2.53ARS(Argentine Peso)/BRL
110CLP/ARS
How would you make money with triangular arbitrage?

Convert CLP to BRL to ARS to CLP

Which of the following statements about purchasing power parity is true?

PPP helps explain long run exchange rate movements reasonably well.

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