Q&A Hero

Q: Customers purchasing nondeposit investment accounts sold by a bank operating in the United States must be told in writing: A) Investment accounts are not federally insured B) Investment accounts are not deposits in nor guaranteed by a depository institution C) Investment accounts could suffer loss of principal D) All of the above. E) None of the above.

Q: How do firms finance investments in current assets?

Q: The growth rate that a company can achieve using external funds is called the internal growth rate.

Q: ______________ are private investment partnerships whose shares are offered primarily to wealthy individuals and major institutions that often use high stakes bets on the direction the market will take.

Q: The percentage of sales method is the simplest of the financial planning models.

Q: A(n) behaves like an index tracking mutual fund but unlike traditional mutual funds trade all day long on stock exchanges. This allows mutual fund oriented investors to play the market.

Q: Financial planning models are generated using spreadsheet programs.

Q: ________________ is the value of a share in a mutual fund . It is the value of the assets held by the mutual fund less any liabilities divided by the number of mutual fund shares outstanding.

Q: Sales forecasts are the starting point for financial planning.

Q: Syndicated loans are subsequently resold to other institutions.

Q: Two common sources of short-term financing are borrowing from a bank and stretching payables.

Q: Depreciation is not included in sources of cash because it is an expense.

Q: _________________ is the purchase for resale of new stocks, bonds and other financial instruments in the money and capital markets on behalf of clients who need to raise new money.

Q: The main source of cash in a cash budget is collection on accounts receivable.

Q: A firm with excess cash can at best generate zero NPV by investing in marketable securities.

Q: _______________ are financial advisors to corporations, governments and other large institutions and their clients raise new capital, enter new markets, merger or acquire other firms and sell their firm to other firms.

Q: The trust department can be a significant source of ____________ for a bank or financial holding company.

Q: Most firms make a permanent investment in net working capital.

Q: Trust department activities usually center upon establishing a ____________ relationship with a customer.

Q: Strategy B implies that the firm is a short-term lender during a part of the year and a borrower during the rest.

Q: Strategy C implies a short-term cash surplus.

Q: __________________ are one of the earliest services provided by banks and involves the management of customers property and other assets.

Q: The most rapidly growing source of income for banks is ________ income.

Q: Strategy A implies a permanent need for short-term borrowing.

Q: Short-term financial decisions are conceptually easier to make than long-term decisions.

Q: A(n) _________________________ _________________________ is a contract that promises to reimburse policy holders for personal injury, property damage and other losses in exchange for the policy holder's premium payments.

Q: A(n) _________________________ is a contract that promises to pay a cash payment to the beneficiary in the event of the death of the policy holder.

Q: Last year Foley Inc. reported total assets of $500, equity of $200, net income of $120, dividends of $70 and earnings retained in the period of $50. What is Foley Inc.'s internal growth rate? A. 17.5% B. 30.0% C. 10.0% D. 12.5%

Q: _________________________ are the potential cost savings that result from being able to use the same management, employees and physical resources to offer multiple products.

Q: Last year Foley Inc. reported total assets of $500, equity of $400, net income of $100, dividends of $50 and earnings retained in the period of $50. What is Foley Inc.'s sustainable growth rate? A. 17.5% B. 30.0% C. 10.0% D. 12.5%

Q: Last year Axle Inc. reported total assets of $400, equity of $200, net income of $50, dividends of $10 and earnings retained in the period of $40. What is Axle Inc.'s sustainable growth rate? A. 25.0% B. 57.1% C. 20.0% D. 71.4%

Q: _______________________ emerge when financial organization grows in size and is able to reduce its cost of production per unit of output.

Q: Last year Axle Inc. reported net assets of 400, equity of $200, net income of $50, dividends of $10 and earnings retained in the period of $40. What is Axle Inc.'s internal growth rate? A. 10.0% B. 57.1% C. 20.0% D. 71.4%

Q: The _________________________ _________________________brings more than one product or service together to reduce the overall risk of the revenue flows through the company.

Q: The sustainable growth rate is equal to: A. plowback ratio return on equity B. return on equity/plowback ratio C. return on assets plowback ratio D. plowback ratio return on equity (equity/net assets)

Q: _________________________ is the bringing together of two or more firms from different industries in order to create a conglomerate offering multiple services.

Q: A firm can achieve a higher growth rate without raising external capital by: (within limits) A. Increasing the proportion of debt in its capital structure B. Increasing its current ratio C. Decreasing its inventory turnover D. Increasing its plowback ratio

Q: A(n) _________________________ is a savings instrument in which the customer makes cash payments to an investment manager who invests them in an earning asset. Later the purchaser receives a stream of income from those assets.

Q: Given the following data: plow back ratio = 50%; return on equity = 20%; equity to net assets ratio = 60%. Calculate the internal growth rate for the firm: A. 6% B. 10% C. 12% D. none of the above

Q: A(n) _________________________ gives the bank the right to manage the estate of a living person without a court order. This can be amended by the customer as desired.

Q: Internal growth rate is calculated as: A. Internal growth rate = plowback ratio profit margin B. Internal growth rate = plowback ratio return on equity C. Internal growth rate = plowback ratio return on equity [equity/net assets] D. None of the above

Q: A(n) _________________________ promises a customer who deposits a lump sum a guaranteed rate of return over the life of the contract. This type of investment generates a continuous, level income stream over the life of the contract.

Q: The firm's internal growth rate is defined as: A. retained earnings/net income B. retained earnings/net assets C. retained earnings/total assets D. none of the above

Q: When a financial institution offers a(n) __________________ mutual fund, it acts as broker for an unaffiliated mutual fund or group of funds and does not act as an investment advisor.

Q: Among the models followed to develop a financial plan, the following is the simplest: A. Percentage of sales model B. Regression model C. Computer simulation model D. None of the above

Q: A(n) __________________ mutual fund is a mutual fund offered through a bank's affiliated company. The bank acts as a transfer agent, custodian and offers investment advise in this type of mutual fund.

Q: When bank customers purchase stocks, bonds, mutual funds, and annuities through the bank, these products are referred to as ________________________.

Q: The basic relationship for determining external capital required is: A. External capital required = operating cash flow - investment in net working capital B. External capital required = operating cash flow - investment in net working capital - investment in fixed assets C. External capital required = operating cash flow - investment in net working capital - investment in fixed assets - dividends D. None of the above

Q: In recent years financial institutions have gotten better at managing interest rate risk.

Q: When firms prepare a financial plan they use the following: I) develop several financial plans using most likely outcomes and also unexpected outcomes. II) sensitivity analysis. III) scenario analysis. A. I only B. I and II only C. I, II, and III D. II and III only

Q: Short-term financial plans are developed using the following methods: I) Trial and error II) Simulation programs III) Optimization models A. I only B. I and II only C. II and III only D. I, II and III

Q: Short-term financial plan models are offered by: I) banks II) accounting firms III) management consultants IV) specialized computer software firms A. I only B. I and II only C. I, II and III only D. I, II III and IV

Q: CDs must be issued with maturities of at least 7 days.

Q: The most important function of a short-term financial plan is: A. to develop cash budget B. to cover the forecasted requirements in the most economical way possible C. to help develop the long-term financial plan D. none of the above

Q: There are no restrictions on getting a Federal Reserve loan and because it is the cheapest source of short-term funds most banks will use this source of funds exclusively.

Q: A large part of cash outflow in cash budgeting is due to: A. Capital expenditures B. Labor costs and other expenditures C. Payments on accounts payable D. Taxes, interest payments and dividend payments

Q: One of the factors to consider when a bank chooses among nondeposit funding sources is the relative cost. In general, the cheapest source of short-term funds is the Fed Funds market.

Q: Cash inflow in cash budgeting comes mainly from: A. Collection on accounts receivable B. Short-term debt C. Issue of securities D. None of the above

Q: The main use of federal funds today is still the traditional one. Federal funds provide a mechanism that allows banks short of legal reserves to tap into immediately available funds from other institutions possessing temporarily idle funds.

Q: The first step in the preparation of cash budget is: A. preparing the sources and uses of funds statement B. sales forecast C. estimating cash inflows D. estimating cash outflows

Q: Longer-term federal funds contracts which are automatically renewed each day unless either the borrower or the lender decides to end the agreement are called term loans,

Q: A company has forecast sales in the first 3 months of the year as follows (figures in millions): January, $200; February, $140; March, $100. 50% of sales are usually paid for in the month that they take place, 30% in the following month, and the final 20% in the next month. Receivables at the end of December were $100 million. What are the forecasted collections on accounts receivable in March? A. $132 million B. $100 million C. $240 million D. $92 million

Q: Nondeposit funds do have the advantage of quick availability compared to most types of deposits, but are not as stable a funding source for banks as are time and savings deposits.

Q: A company has forecast sales in the first 3 months of the year as follows (figures in millions): January, $80; February, $60; March, $40. 70% of sales are usually paid for in the month that they take place, 20% in the following month, and the final 10% in the next month. Receivables at the end of December were $23 million. What are the forecasted collections on accounts receivable in March? A. $180 million B. $13 million C. $40 million D. $48 million

Q: Under current federal law commercial banks in the United States can issue commercial paper as direct obligations of the banks.

Q: The following is the general formula for calculating the "Ending accounts receivable (AR):" A. Ending (AR) = beginning (AR) - sales + collections B. Ending (AR) = beginning (AR) + sales - collections C. Ending (AR) = beginning (AR) + sales + collections D. none of the above

Q: The largest foreign banks active in the United States sell CDs through their U.S. branches called Yankee CDs.

Q: A company has forecast sales in the first 3 months of the year as follows (figures in millions): January, $90; February, $20; March, $30. 70% of sales are usually paid for in the month that they take place and 30% in the following month. Receivables at the end of December were $20 million. What are the forecasted collections on accounts receivable in March? A. $27 million B. $50 million C. $23 million D. $35 million

Q: According to the FDIC Improvement Act undercapitalized U.S. banks cannot be granted discount window loans for more than 60 days in each 120-day period.

Q: A company has forecast sales in the first 3 months of the year as follows (figures in millions): January, $60; February, $80; March, $100. 60% of sales are usually paid for in the month that they take place and 40% in the following month. Receivables at the end of December were $24 million. What are the forecasted collections on accounts receivable in March? A. $88 million B. $92 million C. $100 million D. $140 million

Q: Longer-term federal funds contracts lasting several days, weeks, or months, often accompanied by a written contract, are called continuing contracts.

Q: Cash budget may be prepared on a A. monthly basis B. weekly basis C. daily basis D. all of the above

Q: The cash budget is the primary short-term financial planning tool. The key reasons a cash budget is created are: I) To estimate your investment in assets II) To estimate the size and timing of your new cash flows III) To prepare for potential financing needs A. I only B. II and III only C. II only D. III only

Q: Liability management banking calls for using price (the interest rate offered) as the control lever to regulate incoming funds.

Q: The cash cycle is represented by the following sequence: A. Cash, raw materials, finished goods, and receivables, cash B. Cash, receivables, finished goods, and raw materials, cash C. Cash, raw material, receivables, finished goods, cash D. None of the above

Q: Funds raised by the use of liability management techniques are considered to be flexible.

Q: Net working capital is defined as: A. The current assets in a business B. The difference between current assets and current liabilities C. The present value of all short-term cash flows D. The difference between all assets and liabilities

Q: Liability management is considered to be an interest-sensitive approach to raising bank funds.

Q: Given the following data: Total current assets = $852; Total current liabilities = $406; Long-term debt = $442, calculate the net working capital. A. $446 B. $852 C. $410 D. None of the above

Q: The volume of variable-rate CDs exceeds the volume of fixed-rate CDs among U.S. banks.