Accounting
Anthropology
Archaeology
Art History
Banking
Biology & Life Science
Business
Business Communication
Business Development
Business Ethics
Business Law
Chemistry
Communication
Computer Science
Counseling
Criminal Law
Curriculum & Instruction
Design
Earth Science
Economic
Education
Engineering
Finance
History & Theory
Humanities
Human Resource
International Business
Investments & Securities
Journalism
Law
Management
Marketing
Medicine
Medicine & Health Science
Nursing
Philosophy
Physic
Psychology
Real Estate
Science
Social Science
Sociology
Special Education
Speech
Visual Arts
Finance
Q:
An option that can be exercised any time before expiration date is called:
A. an European option
B. an American option
C. a call option
D. a put option
Q:
A bank expects in the week to come $55 million in incoming deposits, $75 million in acceptable loan requests, $35 million in money market borrowings, $10 million in deposit withdrawals and $30 million in loan repayments. This bank is expecting a:
A) Liquidity deficit
B) Liquidity surplus
C) Balanced liquidity position
D) None of the above
Q:
An investor, in practice, can buy:
I) an option on a single share of stock
II) options that are in multiples of 100
III) a minimum order of 100 options on a share of stock
A. I only
B. II and III only
C. II only
D. III only
Q:
A bank money manager estimates that the bank will experience a liquidity deficit of $400 million with a probability of 10 percent, a liquidity deficit of $900 million with a probability of 20 percent, a liquidity surplus of $600 million with a probability of 30 percent and a liquidity surplus of $1200 with a probability of 40 percent over the next month. What is this bank's expected liquidity deficit or surplus over this next month?
A) $880 liquidity surplus
B) $440 liquidity deficit
C) $440 liquidity surplus
D) $880 liquidity deficit
E) None of the above
Q:
The following are examples of disguised options for firms:
I) acquiring growth opportunities
II) ability of the firm to terminate a project when it is no longer profitable
III) options that are associated with corporate securities that provide flexibility to change the terms of the issues
A. I only
B. II only
C. I and III only
D. I, II, and III
Q:
A bank currently holds $105 million in transaction deposits subject to legal reserves but has managed to enter into sweep account arrangements affecting $55 million of these accounts. Given that the bank must hold 3 percent legal reserves up to $47.8 million of transaction deposits and 10 percent legal reserves on any amount above that, how much has this bank reduced its total legal reserves as a result of these sweep arrangements?
A) $5.500 million
B) $1.449 million
C) $7.119 million
D) $1.619 million
E) None of the above
Q:
Firms regularly use the following to reduce risk:
I) Currency options
II) Interest-rate options
III) Commodity options
A. I only
B. II only
C. III only
D. I, II, and III
Q:
A bank maintains a clearing balance of $1,000,000 with the Federal Reserve. The Federal funds rate is currently 4.5 percent. What credit will this bank earn over the reserve maintenance period to offset any fees charged this bank by the Federal Reserve?
A) $17,500
B) $1,750
C) $45,000
D) $12,500
E) None of the above
Q:
85. "Urban renewal can be accomplished by the provision of government tax and loan incentives to business, despite the existence of negative NPV projects." Explain why this is true.
Q:
A bank maintains a clearing balance of $5,000,000 with the Federal Reserve. The Federal funds rate is currently 6.5 percent. What credit will this bank earn over the reserve maintenance period to offset any fees charged this bank by the Federal Reserve?
A) $325,000
B) $8,357,143
C) $194,444
D) $12,639
E) None of the above
Q:
What are some of the additional factors that have to be considered when analyzing an international project? Briefly explain.
Q:
A bank currently has $150 million in "hot money" deposits against which they want to hold an 80 percent reserve. This bank has $90 million in vulnerable deposits against which they want to hold a 30 percent reserve and this bank has $45 million in stable deposits against which they want to hold a 5 percent reserve. The legal reserves for this bank are 5 percent of all deposits. What is this bank's liability liquidity reserve?
A) $149.25 million
B) $285 million
C) $141.7875 million
D) $216.60 million
E) None of the above
Q:
Which of the following is an example of a source of funds?
A) A customer withdraws $1000 from their account
B) A borrower repays $1500 of a loan they have received
C) A bank increases its Fed funds sold by $1,000,000
D) The bank purchases $5,000,000 in T-Bills
E) None of the above are uses of funds
Q:
What method would you use for evaluating international projects?
Q:
Which of the following is an example of a use of funds for the bank?
A) A customer withdraws $1000 from their account
B) A borrower repays $1500 of a loan they have received
C) The bank issues a $1,000,000 CD
D) The bank sells $5,000,000 of T-Bills
E) None of the above are uses of funds
Q:
What discount rate should be used for calculating the present value of safe, nominal cash flows?
Q:
Briefly explain how APV can be used for valuing a business.
Q:
If a bank's management uses "the discipline of the financial marketplace" to gauge its liquidity position one indicator of this market test of the adequacy of a bank's liquidity position is:
A) The bank's return on equity capital
B) The volume of bank stock outstanding
C) The bank's return on assets
D) The size of risk premiums on CDs the bank issues
E) None of the above
Q:
Under what circumstances would it be better to use the Adjusted Present Value approach?
Q:
A bank manager responsible for overseeing the institutions legal reserve account is called:
A) Reserve manager
B) Money market manager
C) Money position manager
D) Legal counselor
E) None of the above
Q:
Briefly explain how the rate of return on equity of a firm changes with changes in debt-equity ratio when taxes are considered.
Q:
The notion that bank management should strive to meet all good loans that walk in the door in order to build lasting customer relationships is referred to as the:
A) Asset conversion liquidity strategy
B) Customer relationship doctrine
C) Loan accommodation doctrine
D) Balanced funds management doctrine
E) None of the above
Q:
Briefly explain how the beta of equity of a firm changes with changes in debt-equity ratio when taxes are considered.
Q:
When some of a bank's expected demand for liquidity are stored in its assets, while other unexpected cash needs are met from near-term borrowings this approach to liquidity management is described by which of the terms listed below?
A) Liability management
B) Asset conversion
C) Borrowed liquidity management
D) Balanced liquidity management
E) None of the above
Q:
Briefly explain how WACC can be used for valuing a business.
Q:
A bank following an _________________________ liquidity management strategy must take care that those assets with the least profit potential are sold first. The strategy that correctly fills in the blank in the foregoing sentence is:
A) Asset conversion
B) Liability management
C) Availability
D) Funds source
E) None of the above
Q:
Which is the most often used method by managers to make decisions?
Q:
Discuss the advantages and limitations of using the weighted average cost of capital as a discount rate to evaluate capital budgeting projects.
Q:
The risk that liquid funds will not be available in the volume needed by a bank is often called:
A) Market risk
B) Price risk
C) Availability risk
D) Interest-rate risk
E) None of the above
Q:
Government loan guarantees for firms may increase APV by reducing bankruptcy risk.
Q:
Factors that influence a bank's choice among the various sources of reserves include which of the following?
A) Immediacy of the need
B) Duration of the need
C) Interest rate outlook
D) Regulations
E) All of the above
Q:
Enterprise zones, a government program that provides financial incentives to make negative NPV investments, increases APV.
Q:
"Core deposits", "hot money", and "vulnerable money" are categories of funds under which of the following methods of estimating a bank's liquidity needs?
A) Sources and Uses of Funds Approach
B) Structure of Funds Approach
C) Liquidity Indicator Approach
D) None of the above
E) A and C
Q:
Generally, the imposition of government restrictions increases the APV of a project.
Q:
When a bank's sources of liquidity exceed it uses of liquidity, the bank will have a _______________ liquidity gap.
A) Positive
B) Negative
C) Cyclical
D) Seasonal
E) None of the above
Q:
Generally, APV is not suitable for international projects.
Q:
Which of the following liquidity strategies is the most effective for banks today?
A) Asset Management
B) Liability Management
C) Balanced Liquidity Management
D) All of the above
E) A and B above
Q:
Generally, subsidized loan decreases the APV of a project.
Q:
Which of the following is not a source of liquidity for financial institutions?
A) Deposits
B) Money market borrowings
C) Sales of marketable securities
D) Dividend payments to stockholders
E) All of the above
Q:
APV method can be used for valuing businesses.
Q:
Sources of liquidity for banks include:
A) Deposit inflows
B) Money market borrowings
C) Sales of marketable securities
D) Loan repayments
E) All of the above
Q:
Adjusted present value is equal to base-case NPV plus the sum of the present values of any financing side effects.
Q:
Financial institutions face significant liquidity problems because of:
A) Imbalances between the maturities of their assets and their principal liabilities.
B) Their high proportion of liabilities subject to immediate withdrawal.
C) Their sensitivity to changes in interest rates.
D) Both A and B
E) All of the above.
Q:
The market value of debt is very close to the book value of debt for healthy firms.
Q:
There is a trade-off problem between liquidity and:
A) Risk exposure
B) Safety.
C) Profitability
D) Efficiency
E) None of the above
Q:
The WACC formula does not change when preferred stock is included.
Q:
A bank expects in the week about to begin $30 million in incoming deposits, $20 million in deposit withdrawals, $15 million in revenues from the sale of nondeposit services, $25 million in customer loan repayments, $5 million in sales of bank assets, $45 million in money market borrowings, $60 million in acceptable loan requests, $10 million in repayments of bank borrowings, $5 million in cash outflows to cover other operating expenses, and $10 million in dividend payments to its stockholders. This bank's net liquidity position for the week is:
A) $30 million
B) $20 million
C) $10 million
D) $15 million
E) None of the above
Q:
65. PVH = (FCFH + 1)/(WACC - g)
Q:
The two most pressing demands for liquidity from a bank come from, first, customers withdrawing their deposits and, second, from:
A) Credit requests from those customers the bank wishes to keep
B) Checks being cashed at local stores and directly from the bank
C) Demands for wired funds from correspondent banks.
D) Legal reserve requirements set by the Federal Reserve Board.
E) None of the above.
Q:
Value of a firm is estimated by calculating the present value of free cash flows using WACC (weighted average cost of capital) for discount rate.
Q:
Which of the following is not a reason that banks to hold liquid assets?
A) To meet customer's needs for currency.
B) To meet capital requirements.
C) To meet required reserves.
D) To compensate for correspondent bank services.
E) To assist in the check clearing process.
Q:
A financial institution that has ready access to immediately spendable funds at reasonable cost at precisely the time those funds are needed is:
A) Risk free
B) Liquid
C) Efficient
D) Profitable
E) None of the above
Q:
Discounting at the WACC assumes that debt is rebalanced every period to maintain a constant ratio of debt to market value of the firm.
Q:
When calculating the WACC for a firm, one should only use the book values of debt and equity.
Q:
If total legal reserves held are less than required reserves the bank has .
Q:
The WACC formula works for the "average risk" project.
Q:
If total legal reserves held are greater than required reserves the bank has .
Q:
The MM formula for adjusted cost of capital takes into consideration only the effect of interest tax shield on debt.
Q:
APV = NPV(base-case assuming all equity financing) - NPV(financing decisions caused by project financing).
Q:
The for deposits and other reservable liabilities and for vault cash holdings is a two week period extending from Tuesday to a Monday two weeks later.
Q:
A firm has a project with a NPV of -$52 million. If they have access to risk free government financing that can create an annual tax shield of $5 mil, what is the APV of the project assuming the risk free interest rate is 6%?
A. -$52 mil
B. $5 mil
C. $31 mil
D. $83 mil
Q:
Many analysts believe there is only one sound method for assessing a financial institutions liquidity needs. This method centers on .
Q:
A firm has issued $5 par value preferred stock that pays a $0.80 annual dividend. The stock currently sells for $9.50. In calculating a WACC, what would be the value of the firm's preferred stock?
A. $0.80
B. $4.50
C. $5.00
D. $9.50
Q:
Many financial service institutions estimate their liquidity needs based upon experience and industry averages. This approach to managing liquidity is called the approach.
Q:
Which of the following statements regarding guarantees and government restrictions on international projects is (are) true?
I) The value of the guarantees is added to the APV
II) The value of the guarantees is subtracted from the APV
III) The value of the government restrictions is added to the APV
IV) The value of the government restrictions is subtracted from the APV
A. I and III only
B. II and III only
C. II and IV only
D. I and IV only
Q:
In the case of large international investments, the project might include:
I) custom-tailored project financing
II) special contracts with suppliers
III) special contracts with customers
IV) special arrangements with governments
A. I and II only
B. I, II and III only
C. I, II, III and IV
D. IV only
Q:
The APV method to value a project should be used:
A. When the project's level of debt is known over the life of the project
B. When the project's target debt to value ratio is constant over the life of the project
C. When the project's debt financing is unknown over the life of the project
D. None of the above
Q:
APV method is most useful in analyzing:
A. large international projects
B. domestic projects
C. small projects
D. none of the above
Q:
Many depository institutions hold __________ balances (extra reserves) to help prevent overdraft penalties.
Q:
The APV method includes all equity NPV of a project and the NPV of financing effects. The financing effects are:
A. Tax subsidy of dividends, cost of issuing new securities, subsidy of financial distress and cost of debt financing
B. Cost of issuing new securities, cost of financial distress, tax subsidy of debt and other subsidies
C. Cost of issuing new securities, cost of financial distress, tax subsidy of dividends and cost of debt financing
D. Subsidy of financial distress, tax subsidy of debt, cost of other debt financing and cost of issuing new securities
Q:
The fed funds rate is generally most volatile on bank __________ day.
Q:
The BSC Co. is planning to raise $2.5 million in perpetual debt at 11%. They have just received an offer from the governor to raise the financing for them at 8%, if they locate themselves in the state. What is the total value added from debt financing if the tax rate is 34% and the state raises the loan for the company?
A. $2.5 million
B. $1.2 million
C. $1.3 million
D. None of the above
Q:
The method used in the U.S. to determine a bank's legal reserve requirement in which the period for holding legal reserves follows the period used to calculate the required amount of legal reserves is called _________________________.
Q:
A project costs $14 million and is expected to produce cash flows of $4 million a year for 15 years. The opportunity cost of capital is 20%. If the firm has to issue stock to undertake the project and issue costs are $1 million, what is the project's APV?
A. $3.7 million
B. $4.5 million
C. $4.7 million
D. $3.0 million
Q:
A(n) _________________________ is the person in the bank responsible for the bank's cash position and meeting legal reserve requirements.
Q:
A project costs $7 million and is expected to produce cash flows if $2 million a year for 10 years. The opportunity cost of capital is 16%. If the firm has to issue stock to undertake the project and issue costs are $0.5 million, what is the project's APV?
A. $9.67 million
B. $2.17 million
C. $1.67 million
D. $0.67 million
Q:
Under a _________________________ strategy some of the expected demands for liquidity are stored in assets, while others are backstopped by arrangements for lines of credit from banks or other suppliers of funds.
Q:
A project costs $15 million and is expected to produce cash flows of $3 million a year for 10 years. The opportunity cost of capital is 14%. If the firm has to issue stock to undertake the project and issue costs are $500,000, what is the project's APV (approximately)?
A. -$352,000
B. $148,350
C. $648,350
D. $952,000
Q:
The oldest approach to meeting liquidity needs which relies on the sale of liquid assets to meet liquidity demands is called _________________________.
Q:
_________________________ is the availability of cash in the amount needed at a reasonable cost.