FIN 6320 - Fall 2003 test 2.
Please read the following carefully:
Multiple Choice -25 questions. Please use a 50 question scantron (882-ES)
with a pencil. Hand in only the scantron
(you may keep this question paper).
This is a closed book exam. Cheating will result in a zero (among other
possible sanctions).
Among the possibilities given
in each question select the best
alternative.
Solution and grade
distribution at end.
1.
The
majority of small businesses
a.
are
privately owned
b.
are
managed by professional managers
c.
raise
funds in financial markets
d.
are
self-financing
2.
Firms
with a continuous need for working capital financing will probably want to have
_________________ with a bank.
a.
trade
credit
b.
individually
negotiated loans
c.
repurchase
agreements
d.
a
line of credit
3.
An
"unsecured" loan is one
a.
with
no stated collateral
b.
that
is pending approval by a bank loan committee
c.
which
has collateral
d.
in
which the borrower is delinquent in loan payments but on which it has not
formally defaulted
4.
A
clause in a loan contract disallowing the borrower from acquiring other
companies during the term of the loan is an example of a
a.
guarantee
b.
collateral
agreement
c.
restrictive
covenant
d.
moral
hazard
5.
Private
placements avoid
a.
restrictive
agreements
b.
SEC
registration costs
c.
the
need for collateral
d.
the
primary market
6.
In
the private placement market the term "due diligence" means
a.
an
investor finding an honest agent from whom to buy a bond
b.
a
borrower finding an honest agent to sell its bonds
c.
conducting
a credit analysis of the borrower
d.
an
agent tailoring terms of the placement to meet investor needs
7.
Insurance
companies
a.
are
the major buyers of private placements for their own portfolio of assets
b.
help
firms sell private placements
c.
sell
their own private placements
d.
have
nothing to do with private placements
8.
Do
underwriters normally run any kind of risk?
a.
They
risk being unable to sell the bonds they underwrite
b.
They
risk receiving a lower price than the commitment price to the bond issuer
c.
They
risk default on the bonds
d.
No,
their operations are generally risk-free
9.
Asymmetric
information is a particular problem for _______ firms or firms with _________
relationship with a particular lending institution.
a.
small,
a longstanding
b.
small,
only a recent
c.
large,
a longstanding d.
d.
large,
only a recent
10. Which of the following
is a regulator of intermediated markets?
a.
SEC
b.
Commodities
Futures Trading Commission
c.
NYSE
d.
FDIC
11. Must a corporation
inform the SEC when it borrows from a commercial bank or the private placements
market?
a.
from
both
b.
only
from the commercial bank
c.
only
from the private placements market
d.
from
neither
12. "Insider
trading" laws are meant to prevent
a.
the
executives of a corporation from holding a majority of its outstanding shares
b.
buying
or selling shares based on information not available to the public
c.
foreign
investors from gaining controlling interest in
d.
the
issuing of bonds for the purpose of buying stock
13. Margin requirements on
stocks are set by
a.
the
b.
the
National Association of Securities Dealers
c.
the
Federal Reserve System
d.
the
Securities Exchange Commission
14. The two major types of
financial systems are the __________-oriented systems.
a.
federal-
and local
b.
banking-
and markets
c.
securities-
and equities
d.
contributor-
and stockholder
15. ___________ occurs
because firm owners have an incentive to understate their true riskiness to
borrow on a more favorable basis
a.
moral
hazard
b.
adverse
selection
c.
manager-stockholder
conflict
d.
manager-lender
conflict
16. Which of the following
is a derivative financial asset?
a.
mortgages
b.
commercial
paper
c.
Treasury
bills
d.
options
17. The precise terms of
each futures contract are
a.
negotiated
by the long and the short
b.
set
by the short
c.
set
by the long
d.
established
by the exchange in which the trade takes place
18. For the settlement of
futures contracts, the clearing corporation requires that a margin be placed
with the corporation by
a.
the
short only
b.
the
long only
c.
the
short and the long in all contracts
d.
the
short and the long only in extraordinary circumstances
19. In the options market,
the short has the
a.
right
to buy shares at a specified price
b.
obligation
to buy shares at a specified price
c.
right
to sell shares at a specified price
d.
obligation
to sell shares at a specified price
20. The best general answer
to the question "What determines exchange rates?" is
a.
supply
and demand
b.
the
International Monetary Fund
c.
interest
rates
d.
differences
in money growth rates
21. Exporting a good gives
rise to a _________ foreign exchange and a _______ the currency of the
exporting country in the foreign exchange market.
a.
demand
for, demand for
b.
demand
for, supply of
c.
supply
of, demand for
d.
supply
of, supply of
22. Considerable day-to-day volatility
in major exchange rates is caused by
a.
shifts
in tastes or preferences for domestic versus foreign goods
b.
international
capital mobility
c.
sudden
changes in productivity in one nation versus others
d.
highly
variable inflation rates in some industrialized countries
23. Which is the most recent piece of
banking legislation?
a. the Banking Act of 1863
b. the McFadden Act
c. the Glass-Steagall Act
d. the Depository Institutions
Deregulaton and Monetary Control Act
24. The relatively large number of
banks in the
a. a high degree of competition in the
financial sector
b. past government policies designed
to restrict where and how banks may operate
c. the result of consumer choice
d. all of the above
25. Which industry experienced the most
severe financial problems in the past 15 years?
a.
the
commercial banking industry
b.
the
life insurance industry
c.
the
savings and loan industry
d.
the
credit union industry
GRADE DISTRIBUTION:
If you score is greater than or equal to: your grade is
|
23 |
A |
|
21 |
B+ |
|
20 |
B |
|
19 |
B- |
|
ELSE |
C |
Solution:
1.
a
2.
d
3.
a
4.
c
5.
b
6.
c
7.
a
8.
b
9.
b
10. d
11. d
12. b
13. c
14. b
15. b
16. d
17. d
18. c
19. d (or b)
20. a
21. c
22. b
23. d
24. b
25. c