QUESTION Aardvark needs some quickly obtainable funds to pay some overdue bills. It is considering using factoring–obtaining cash in exchange for outstanding accounts receivable funds. Which of the following, if true, strengthens the case for using factoring? A) Factoring can be a costly way to obtain ready cash. B) Aardvark would not have to liquidate […]
QUESTION The issuer of callable bonds may call in the bonds at any time during their lifespan, usually when market conditions are favorable for the issuer. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: Call provisions for callable bonds must be specified when the bonds are issued.
QUESTION The statements above most strongly suggest that if all subprime loan borrowers had taken out the loan that was most appropriate for their needs, then what would follow? A) None of them would have taken out an adjustable loan. B) None of them would have taken out a subprime loan. C) Most of them […]
QUESTION The NASDAQ Composite Index only tracks the stocks of U.S. technology companies. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: The NASDAQ Composite Index tracks domestic and foreign stocks listed on the NASDAQ exchange. Many companies on the NASDAQ are in the high-technology sector.
QUESTION Why is it sometimes cheaper for firms to sell stock privately than publicly? What will be an ideal response? ANSWER Answer: Firms may find they can sell stock more cheaply when they sell it privately because there is less government regulation involved. Explanation: As there is more government regulation involved in selling stock […]
QUESTION How do commercial banks make money? What will be an ideal response? ANSWER Answer: Commercial banks make money in three ways: (1) by charging interest on loans, (2) by charging fees for other services, and (3) by offering other financial products. Explanation: Commercial banks make money in three ways: (1) by charging interest […]
QUESTION Why do you think it is important that we have a Federal Reserve Board? What will be an ideal response? ANSWER Answer: The Federal Reserve Board of Governors works with the president’s administration to formulate economic policy. Chief among their responsibilities is to set monetary policy, using interest rates and other tools to […]
QUESTION What is the reserve requirement? What will be an ideal response? ANSWER Answer: The reserve requirement says that a bank must reserve as cash (as vault cash or in a Federal Reserve bank account) 3% to 10% of whatever funds it has in ordinary checking or savings accounts, called transaction accounts. Explanation: The […]
QUESTION How do you think derivatives helped cause the 2008 financial meltdown? What will be an ideal response? ANSWER Answer: Derivatives required the use of computers, which led to financial products that were far too complex, making it difficult to properly value them. These complex, difficult-to-value products were then sold to others, and yet […]
QUESTION Which of the following, if true, undermines Groh’s point about diversification? A) Not every investor can afford every stock. B) The value of some stocks drop and never recover. C) When one stock value drops, others tend to also drop. D) Some investors prefer as little risk as possible when investing. E) The value […]
