1. What is a loan repaid in equal payments over a specified time period called? a. Simple interest loan b. Amortized loan c. Usury loan d. All of the choices are correct. 2. For an amortized loan, the period payment contains an interest payment portion that a. Stays constant over the life of the loan b. Increases over the life of the loan c. Decreases over the life of the loan d. First increases and then decreases over the life of the loan 3. What would be the annual periodic payments for an ordinary annuity, with a 10 percent compound interest rate, that will have a future value of $1,000 three years from now? a. $285 (rounded) b. $302 (rounded) c. $333 (rounded) d. $350 (rounded)
> Describe the principal factors that influence the level of savings by individuals.
> How and why do corporations save?
> Describe the recent levels of savings rates in the United States.
> Also, differentiate between voluntary and contractual savings.
> What is capital formation?
> 1. What does it mean to “annualize a return”? a. Computer how many dollars you receive each year b. Determine the total price change during the past year c. Determine what the compounded average annual return is on an investment. d. Take 12 monthly holdi
> Trace the effect on its accounts of a loan made by a bank that has excess reserves available from new deposits.
> Why are the expansion and contraction of deposits by the banking system possible in our financial system?
> Explain how Federal Reserve notes are supported or backed in our financial system.
> Discuss the various objectives of debt management.
> Federal government deficit financing may have a very great influence on monetary and credit conditions. Explain.
> Describe the effects of tax policy on monetary and credit conditions.
> Discuss how the U.S. government influences the economy and how the government responded to the 2007-09 perfect financial storm.
> Describe the relationship between policy makers, types of policies, and policy objectives.
> Why does it seem to be important to regulate and control the supply of money?
> Define the velocity of money and explain why it is important to anticipate changes in money velocity.
> 1. The “holding period” in “holding period return” refers to this length of time: a. One year. b. It always refers to how long an asset has been owned. c. Any time frame over which you’d like to know the return. d. One month. 2. The holding period retur
> Briefly describe what is meant by the money multiplier and indicate the factors that affect its magnitude or size.
> What is the difference between the monetary base and total bank reserves?
> Summarize the factors that can lead to a change in bank reserves.
> Describe the effect on bank reserves when the Federal Reserve sells U.S. government securities to a bank.
> Trace the effect on bank reserves of a change in the amount of cash held by the public.
> Explain the potential for deposit expansion when required reserves average 10 percent and $2,000 in excess reserves are deposited in the banking system.
> Explain how deposit expansion takes place in a banking system consisting of two banks.
> List and describe briefly the economic policy objectives of the nation.
> Comment on the objectives of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA).
> Why was it considered necessary to create the Federal Reserve System when we already had the benefits of the National Banking Act?
> 1. Which is the major source of new financing for U.S corporations each year? a. bonds b. stock c. internal financing (retained earnings) d. It depends on the year. 2. Why would a U.S. firm issue bonds overseas? a. The Securities and Exchange Commission
> Briefly describe why and when thrift institutions were founded.
> How did the First Bank of the United States serve the nation? Also briefly describe why the Second Bank of the United States was chartered.
> Describe the three basic ways for processing or collecting a check in the United States.
> Describe the functions of banks and the banking system.
> Compare commercial banking with investment banking. What is universal banking?
> Define international banking. Describe how some foreign banking systems differ from the U.S. banking system.
> What were the Basel Accords and what was their purpose?
> Define and describe the following terms: common equity capital ratio, tier 1 ratio, and total capital ratio. How are these used by bank regulators?
> Describe the major financial institutions engaged in getting the savings of individuals into business firms that want to make investments to maintain and grow their firms.
> Describe what is meant by liquidity risk, credit risk, and interest rate risk.
> 1. If you wish to compound or discount quarterly (four times a year), for a period of five years, what would be the number of periodic payments (or receipts)? a. Five b. Ten c. Fifteen d. Twenty 2. The act of lending money at an excessively high in
> Describe how assets are managed in terms of a bank’s liquidity risk. Also briefly describe how liquidity management is used to help manage liquidity risk.
> What is meant by bank liquidity and bank solvency?
> What are the major asset categories for banks and identify the most important category. What are a bank’s major liabilities and stockholders’ equity and which category is the largest in size?
> Describe the structure of banks in terms of bank charters, branch banking, and bank holding companies.
> How are depositors’ funds protected today in the United States?
> Briefly describe the purpose of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989. Also indicate the purpose of the Resolution Trust Corporation (RTC).
> Describe the reasons for the savings and loan crisis that occurred during the 1980s.
> Why was the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 passed?
> Why was the Garn–St. Germain Depository Institutions Act of 1982 thought to be necessary?
> Discuss how and why banks suffered financial difficulties during the financial crisis.
> Briefly describe the development of money, from barter to the use of precious metals.
> Describe how an individual’s net worth is determined.
> Define money and indicate the basic functions of money.
> Indicate how real assets and financial assets differ.
> Identify the major participants in the U.S. monetary system.
> Identify economic units in addition to business firms who might need funds from savers.
> Describe the three basic ways whereby money is transferred from savers to investors.
> How do surplus economic units and deficit economic units differ?
> Define money market securities and briefly describe the major types of these securities.
> What are debit cards and how are they used?
> 1. Which of the following variables is unique to solving annuity problems? a. Future value b. Interest rate c. Number of periods d. Payment 2. Assume you are the recipient of a two-year, $100 per year, ordinary annuity that has a future value of $2
> What are automatic transfer service (ATS) accounts?
> What is deposit money and how is it “backed”?
> Describe how representative full-bodied money and fiat money differ.
> What is the difference between full-bodied money and token coins?
> Briefly describe the development of the international monetary system.
> How do Keynesians view the relationship between money supply and economic activity?
> Briefly describe the monetarists’ view of the relationship between money supply and economic activity.
> How does M2 differ from M1? What are money market mutual funds?
> Describe the M1 definition of the money supply and indicate the relative significance of the M1 components.
> Indicate some of the career opportunities in finance available to business graduates today.
> 1. Assume you are the recipient of a two-year, 5 percent, $100 per year ordinary annuity. What is the present value of the amount to be received at the end of the first year? a. $105 b. $100 c. $95 (rounded) d. $90 (rounded) 2. Assume you are the r
> 1. What do coins that are full-bodied money contain? a. Both silver and gold amounts that are equal in value b. Less value in metal than their face value c. The same value in metal as their face value d. More value in metal than their face value 2.
> Identify the four types of major financial markets.
> How do debt securities and equity securities differ?
> What are the differences between primary and secondary markets?
> Briefly describe the differences between money and capital markets.
> Identify and briefly describe the financial functions in the financial system.
> What are the four major components of an effective financial system?
> Describe what is meant by ethical behavior.
> What are the six principles of finance?
> Identify and briefly describe several reasons for studying finance.
> If your belief about future exchange rates differ from those quoted as forward rates, how can you attempt to profit from this difference in expectations?
> 1. What is a series of equal payments (or receipts) that occur over a number of time periods called? a. Annuity b. Reverse annuity c. Simple interest problem d. Rule of 72 example 2. What is a series of equal payments (or receipts) that occur at th
> Why is hedging similar to buying insurance?
> What are the four requirements that need to be determined when entering into a forward contract?
> What risks does a company face due to changing exchange rates?
> Explain the process to estimating a bid price by estimating zero-NPV cash flow needs.
> Explain the process to estimating cash flows for a cost-saving project.
> Explain the process to estimating cash flows for a revenue-enhancing project.
> Why might there be tax implications when an asset is sold at the termination of a capital budgeting project?
> What information sources are used to develop estimates for a project's a. initial outlays? b. operating life? c. salvage value?
> A U.S. based multinational corporation (MNC) sold some equipment to a British firm today and will receive £1,000,000 from the British firm one month from today. Today’s spot rate is $1.12/£. The MNC is certain the spot rate will be $1.10/£ one month from
> A U.S. based multinational corporation (MNC) purchased equipment from a British firm today and must pay them £1,000,000 one month from today. The MNC is certain the spot rate will be $1.10/£ one month from today. The current forward rate is $1.05/£. Shou
> 1. How many variables are in the future value and present value equations? a. One b. Two c. Three d. Four 2. Which of the following is not a variable in the present value equation? a. Default risk b. Number of periods c. Future value d. Interes
> The current U.S. one month forward rate is $1.25/€. You are an American speculator with $40,000. You are sure the spot rate will be $1.32/€ one month from today. What steps should you take today and one month from today to make a profit buying and sellin
> The current U.S. one month interest rate is 5% compared to 7% in Europe. Today’s spot rate between the euro and dollar is $1.18/€ and today’s one month forward rate is $1.25/€. The U.S. is the home country. You have $1,000 to invest. What steps should yo
> Explain the process for using forward contracts when comparing home currency investments and overseas investments over a given time period.
> Describe the Bretton Woods system for setting currency exchange rates. What are “special drawing rights” and how are they used to foster world trade?
> What is meant by the statement that the international monetary system has operated mostly under a “gold standard”? What are the major criticisms associated with being on a gold standard?
> What is the purpose of an international monetary system?
