financial ch 7

Card Set Information

Author:
wsrdpc
ID:
82346
Filename:
financial ch 7
Updated:
2011-04-27 21:19:08
Tags:
financial
Folders:

Description:
financial 7
Show Answers:

Home > Flashcards > Print Preview

The flashcards below were created by user wsrdpc on FreezingBlue Flashcards. What would you like to do?


  1. The difference between the amount of cash on the firm’s books and the amount credited to tit by the bank is
    a. An overdraft
    b. Interest revenue
    c. Extended disbursement
    d. Float
    d Float
  2. How would electronic funds transfer affect the use of “float”?
    a. Increase its use somewhat
    b. Decrease its use somewhat
    c. Virtually eliminate its use
    d. Have no effect on its use
    c Virtually eliminate its use
  3. For most firms, the primary motive for holding cash is the transaction motive
    True
  4. Computerized cash management and electronic funds transfer allow firms to carry smaller cash balances.
    True
  5. Treasury Inflation Protected Securities (TIPS)
    a. Pay interest semiannually that equals a real rate of return by the U.S. Treasury, plus principal at maturity that is adjusted annually to reflect inflation’s impact on purchase power
    b. Are a useful short-term investment if interest rates should rise quickly because of rapid increases in inflation
    c. Increase the coupon rate of the security to adjust for change in inflation
    d. a and b are true
    d a and b are true
  6. The cash generating process for a firm is continuous, even though cash flow can be sporadic.
    True
  7. Small-denomination certificates of deposit are usually more liquid than large-denomination CDs.
    False
  8. The problem in stretching out the maturity of marketable securities is that
    a. You are legally locked in until the maturity date
    b. Longer term securities are often not available
    c. There is greater possibility of loss
    d. Interest rates are generally lower
    c There is greater possibility of loss
  9. One way business try to overcome the risk associated with new customers is to access a credit scoring report that will predict the probability of a customer causing credit problems in the future.
    True
  10. In the management of cash and marketable securities, the primary concern is profitability.
    False
  11. The system whereby funds are moved between computer terminals without use of checks is
    a. Electronic funds transfer
    b. Float
    c. A lock box system
    d. Magnetic character recognition
    a Electronic funds transfer
  12. The three primary policy variables to consider when extending credit include all of the following except
    a. Credit standards
    b. The level of interest rates
    c. The terms of trade
    d. Collection policy
    b The level of interest rates
  13. The cost of carrying inventory do not include
    a. The interest on funds ties up in inventory
    b. The cost of warehouse space
    c. Ordering costs
    d. Insurance and handling costs
    c Ordering costs
  14. The “SWIFT” transfer system was developed to aid regional bank fund transfers within the United States.
    False
  15. Massa Machine Tool expects total sales of $10,000. The price per unit is $5. The firm estimates an ordering costs of $7.50 per order, with an inventory cost of $0.70 per unit. What is the optimum order size?
    a. 327 units
    b. 463 units
    c. 147 units
    d. 207 units
    d 207 units
  16. Just-in-time inventory systems can leave manufacturers empty handed if suppliers can’t keep up with product growth rates.
    True
  17. A Just-In-Time (JIT) inventory management program has all but which of the following requirements?
    a. Quality production
    b. Large safety stocks
    c. Close ties between suppliers, manufacturers, and customers
    d. Minimizing inventory levels
    b Large safety stocks
  18. For a given firm, holding other factors constant, ordering costs per unit generally
    a. Decline as average inventory increases
    b. Increase in proportion to increase in inventory
    c. Are considered fixed costs
    d. Are negotiated
    a Decline as average inventory increases
  19. Inventories are usually the most liquid, but lowest-yielding, current assets of a firm.
    False
  20. Average daily remittances are $5 million, and “extended disbursement float” adds 3 days to the disbursement schedule, how much should the firm be willing to pay for a cash management system if the firm earns 10% on excess funds.
    a. $500,000
    b. $1,500,000
    c. $1,000,000
    d. $0
    b $1,500,000
  21. Multinational firms find it difficult to shift funds from one country to another.
    False
  22. Minimizing cash balances can improve overall corporate profitability.
    True
  23. The economic order quantity
    a. Assumes that inventory usage is seasonal
    b. Assumes that delivery times of each order are consistent
    c. Considers stock-outs
    d. All of the above
    b Assumes that delivery times of each order are consistent
  24. Which of the following is not a factor influencing the selection of a marketable security?
    a. Yield
    b. Maturity
    c. Float
    d. Safety
    c Float
  25. Float is the difference between the cash balance on the corporate books and the amount credited to the corporation by the bank.
    True
  26. “Float” takes place because
    a. A firm is early in paying its bills
    b. The level of cash on the firm’s books is equal to the level of cash in the bank
    c. A lag exists between writing a check and clearing it through the banking system.
    d. A customer writes “hot checks”
    c A lag exists between writing a check and clearing it through the banking system.
  27. Probably the safest and most marketable instrument for short-term investment is
    a. Commercial paper
    b. Large denomination certificates
    c. Treasury notes
    d. Treasury bills
    d Treasury bills
  28. When developing a credit score report, many variables would be considered. Which of the following best represent the major factors Dun & Bradstreet would examine?
    a. The age of the management team, the dollar amount of sales, net profits and long term debt
    b. The age of the company, the number of employees, the level of current assets
    c. The financial statements, satisfactory or slow payment experiences, negative public records (suits, liens, judgments, bankruptcies).
    d. The company’s cash balances, return on equity, and its average tax rates.
    c The financial statements, satisfactory or slow payment experiences, negative public records (suits, liens, judgments, bankruptcies).
  29. Bankers’ acceptances rank behind treasury bills and commercial papers as a vehicle for short-term investments.
    True
  30. Cash management becomes more important as the level of short-term interest rates rise.
    True
  31. A multinational company may prefer to hold sizeable cash balances in one currency rather than another because
    a. Of high interest rates existing in one country
    b. One country’s currency may be strong relative to the dollar
    c. Both a and b
    d. None of the above
    c Both a and b
  32. A lock-box is used by the selling corporation to speed up the check collection and check-clearing process
    True
  33. The economic order quantity helps a firm determine the most efficient size order to place
    True
  34. Automated clearinghouses are commonly used by consumers to make direct payments for
    a. Insurance premiums
    b. Mortgage payments
    c. Utility bills
    d. All of the above
    d All of the above
  35. Every message routed through SWIFT is encrypted and every money transaction is authorized by another code for security purposes.
    True
  36. Cash balances are usually determined by the amount of cash flowing through the firm on a yearly basis.
    False
  37. The use of automated clearinghouses (ACHs) saves money for consumers, corporations and financial institutions by reducing transaction costs.
    True
  38. Money market funds are
    a. Accounts that allow small investors to participate in buying large denomination securities
    b. Extremely risky but high-yielding accounts used by large corporations to finance operations
    c. Accounts that allow small investors to buy shares in companies that then buy shares of common stock
    d. Pools of bonds held by large utility companies
    a Accounts that allow small investors to participate in buying large denomination securities
  39. Waldron Inc. is considering selling to a group of new customers that will bring in sales of $15,000 with a return on sales of 5%. The only new investment will be in accounts receivable. Waldron has a turnover ratio of 5 to 1 between sales and accounts receivable. What is the return on investment?
    a. 3%
    b. 25%
    c. 5%
    d. None of the above
    b 25%
  40. One of the major cost savings for consumers using automated clearing houses is
    a. Saving more than 1 billion in postage
    b. Saving time paying bills through check writing
    c. Security of having the payments and deposits directly deposited or deducted from your account
    d. All of the above are true
    d All of the above are true
  41. Some of the services provided around the clock by SWIFT are
    a. International payments between banks
    b. Foreign exchange
    c. Trade finance transactions
    d. All of the above
    d All of the above
  42. Probably the safest and most marketable instrument for short-term investment is
    a. Commercial paper
    b. Large denomination certificates
    c. Treasury notes
    d. Treasury bills
    d Treasury bills
  43. Dun & Bradstreet is known for providing
    a. Interest rate information to cash managers
    b. Credit scoring reports that rank a company’s payment habits relative to its peer group.
    c. Cash management systems to corporate treasures
    d. Consumer credit reports to credit card companies
    b Credit scoring reports that rank a company’s payment habits relative to its peer group.
  44. The most subjective and also significant segment of the 5 C’s of credit for giving final approval is
    a. Capacity
    b. Collateral
    c. Character
    d. Conditions
    c Character
  45. Which of the following is not a method of speeding up collections?
    a. Lock-box system
    b. Regional collection centers
    c. Extended disbursement float
    d. All of the above are methods for speeding up collections
    c Extended disbursement float
  46. Bankers’ acceptances are short-term securities that arise from foreign trade.
    True
  47. One of the most popular uses of automated clearing houses is the
    a. Direct deposit of checks such as social security payments, and government and private
    b. Transfer of funds between U.S. banks and foreign banks
    c. Transfer of funds between government agencies
    d. Collection of accounts receivable from customers
    a Direct deposit of checks such as social security payments, and government and private
  48. The 5 C’s of credit include character, capital, capacity, conditions, and collateral.
    True
  49. Inventory is usually divided into three basic categories except
    a. Projected sales
    b. Work in progress
    c. Finished goods
    d. Raw materials
    a Projected sales
  50. A goal of cash management is to insure that the inflows and outflows of cash are synchronized.
    True
  51. A firm that wishes to minimize risk when investing idle cash would be least likely to buy
    a. Commercial paper
    b. Long-term corporate bonds
    c. Negotiable certificates of deposit
    d. Treasury bills of the U. S. government
    b Long-term corporate bonds
  52. Which of the following is not a valid reason for holding cash?
    a. To meet the transaction requirements
    b. To earn the highest return possible
    c. To satisfy emergency needs for funds
    d. To provide a compensating balance for a bank
    b To earn the highest return possible
  53. Eurodollar certificates of deposits
    a. Are not marketable investments
    b. Are U.S. dollars held on deposit by foreign banks and loaned out by those banks to anyone seeking dollars
    c. Pay interest rates usually lower than the rates on U.S. treasury bills
    d. Are European currencies deposited into international U.S. branch banks.
    b Are U.S. dollars held on deposit by foreign banks and loaned out by those banks to anyone seeking dollars

What would you like to do?

Home > Flashcards > Print Preview