1. For most firms, the main source of funds is:
   1. debt.
   2. equity.
   3. cash generated by operations.
   4. government.

1. Which equation expresses the external funds need?
   1. External funds need = [ Cash + WCR + Fixed assets] [Retained earnings + Depreciation expense]
   2. External funds need = [ Cash + WCR + Fixed assets] + [Retained earnings + Depreciation expense]
   3. External funds need = [ Cash + WCR + Fixed assets] + [Retained earnings Depreciation expense]
   4. External funds need = [ Cash + WCR + Fixed assets] [Retained earnings Depreciation expense]

1. Research conducted with nonfinancial US corporations, showed that:
   1. most of the total funds available are used to finance WCR, with the balance going to finance capital expenditures and cash holdings.
   2. most of the total funds available are used to finance capital expenditures, with the balance going to finance WCR and cash holdings.
   3. most of the total funds available are used to finance cash holdings, with the balance going to finance WCR and capital expenditures.
   4. the distribution of the funds available into capital expenditures, WCR and cash holdings varies over time, none of them are consistently predominant.

1. The main supplier of capital is:
   1. the government.
   2. firms with temporary excess cash.
   3. household savings.
   4. venture capital firms.

1. Which of the following statements is true for indirect financing?
   1. Commercial banks typically offer short- to medium-term loans with maturities of one day to five years.
   2. Commercial banks typically offer medium- to long-term loans with maturities from five to ten years.
   3. Commercial banks typically offer short- to medium-term loans with maturities of one day to ten years.
   4. Commercial banks typically offer medium- to long-term loans with maturities from 10 to 20 years.

1. Which of the following institutions is specialized in supplying equity to recently established firms with limited track records?
   1. Insurance companies
   2. Venture capital firms
   3. Commercial banks
   4. Pension funds

1. Which of the following is NOT true for the relative share of assets held by financial institutions?
   1. Decline in the share of financial assets held by banks
   2. Decline in the share of financial assets held by pension funds
   3. Increase in the share of financial assets held by investment funds
   4. Increase in the share of financial assets held by nonbanking institutions

1. Which of the following is NOT an example of a covenant?
   1. Maintain a minimum amount of working capital
   2. Restrict the ability to sell assets
   3. Distribute dividends
   4. Issue new debt

1. When a firm returns to the market for another public issue of equity, it is called:
   1. IPO.
   2. seasoned issue.
   3. secondary public offering.
   4. secondary distribution.
2. Empirical studies show that IPOs are often:
   1. underpriced.
   2. overpriced.
   3. priced correctly.
   4. There is not a clear path.

1. Which of the following statements is correct for the difference between dealers and brokers?
   1. Dealers trade shares that they own; brokers trade on behalf of a third party and do not own the traded shares.
   2. Dealers trade on behalf of a third party and do not own the traded shares; brokers trade shares that they own.
   3. Dealers and brokers are the same. Dealers as well as brokers trade shares that they own.
   4. Dealers and brokers are the same. Dealers as well as brokers trade on behalf of a third party and do not own the traded shares.

1. Which of the following statements is correct for equity markets?
   1. Unlisted securities are shares of larger companies, traded in OTC markets.
   2. Unlisted securities are shares of larger companies, traded in organized stock exchanges.
   3. Unlisted securities are shares of smaller companies, traded in OTC markets.
   4. Unlisted securities are shares of smaller companies, traded in organized stock exchanges.

1. For a firm to be listed at an organized stock exchange, the firm does NOT have to comply with which of the following requirements?
   1. Have a minimum acceptable number of publicly held shares
   2. A minimum ratio of EBT in relation to sales
   3. Have a minimum asset size
   4. Must publish financial reports

1. Which of the following statements is correct for money market instruments?
   1. Certificates of deposits are issued by firms; commercial papers are issued by banks to raise short-term debt.
   2. Certificates of deposits are issued by firms; commercial papers are issued by banks to raise long-term debt.
   3. Certificates of deposits are issued by banks; commercial papers are issued by firms to raise long-term debt.
   4. Certificates of deposits are issued by banks; commercial papers are issued by firms to raise short-term debt.

1. Most of securities issued in the US more recently are predominantly:
   1. common stocks.
   2. preferred stocks.
   3. debt instruments.
   4. convertible securities.

1. Which of the following statements is correct for financial and capital markets?
   1. Financial markets can be divided into capital and bond markets, and capital markets can be divided into equity and money markets.
   2. Financial markets can be divided into capital and money markets, and capital markets can be divided into equity and bond markets.
   3. Financial markets can be divided into equity and money markets, and capital markets can be divided into capital and bond markets.
   4. Financial markets can be divided into equity and bond markets, and capital markets can be divided into capital and money markets.

1. Which of the following statements is correct?
   1. Bonds denominated in yen are called Yankee bonds; bonds denominated in US dollars sold in the Japanese bond market are called Shogun bonds, and bonds issued by foreign firms in the United States are called Samurai bonds.
   2. Bonds denominated in yen are called Shogun bonds; bonds denominated in US dollars sold in the Japanese bond market are called Samurai bonds, and bonds issued by foreign firms in the United States are called Yankee bonds.
   3. Bonds denominated in yen are called Samurai bonds; bonds denominated in US dollars sold in the Japanese bond market are called Shogun bonds, and bonds issued by foreign firms in the United States are called Yankee bonds.
   4. Bonds denominated in yen are called Samurai bonds; bonds denominated in US dollars sold in the Japanese bond market are called Yankee bonds, and bonds issued by foreign firms in the United States are called Shogun bonds.

1. Which of the following is NOT a feature of private placement for securities?
   1. The issue is tailored to meet specific needs.
   2. It needs to be registered with a government agency.
   3. It is a flexible and speedy method to raise funds.
   4. It is difficult for investors to resell the securities.

1. If a firm wants to offer its share exclusively to its existing shareholders, this is called:
   1. private placement.
   2. general cash offering.
   3. rights offering.
   4. public offering.

1. Which of the following is the most important function of an investment bank in a public offering?
   1. Advise on type and amount of security to issue
   2. Approval from supervising government agencies
   3. Determination of appropriate selling price
   4. Marketing and distribution of securities to the public

1. Which of the following alternatives best represents how the spread is shared among the various intermediaries in selling securities?
   1. The originating house receives 15 to 20% of the spread; the members of the underwriting syndicate receive 20 to 30% and the balance is paid to members of the selling group.
   2. The originating house receives 20 to 30% of the spread; the members of the underwriting syndicate receive 10 to 20% and the balance is paid to members of the selling group.
   3. The originating house receives 15 to 20% of the spread; the members of the underwriting syndicate receive 10 to 20% and the balance is paid to members of the selling group.
   4. The originating house receives 20 to 30% of the spread; the members of the underwriting syndicate receive 15 to 20% and the balance is paid to members of the selling group.

1. In a rights issue, shareholders do NOT have which of these possibilities?
   1. They can exercise their rights and subscribe the issue.
   2. They can sell their rights to interested investors.
   3. They can wait for a better time to sell their rights.
   4. They can do nothing and let the right expire.

1. Which of the following equations represents the value of one right?
   1. Value of one right = (Subscription price Rights-on price)/(N1)
   2. Value of one right = (Rights-on price Subscription price)/(N 1)
   3. Value of one right = (Rights-on price Subscription price)/ (N1)
   4. Value of one right = (Subscription price Rights-on price)/ (N 1)

1. Which of the following is NOT an example of unsecured loans?
   1. Transaction loan
   2. Medium-term loan
   3. Line of credit
   4. Revolving credit agreement

1. Which of the following is NOT a feature of an operating lease?
   1. It is a short-term lease.
   2. The contract is shorter than the useful life of the asset.
   3. The lessor is responsible for the maintenance and insurance cost of the asset.
   4. The lessor has the right to cancel the contract before it expires.

1. Which of the following is NOT a feature of a financial lease?
   1. It is a long-term lease.
   2. The lessor pays for the maintenance and insurance cost of the asset.
   3. It cannot be cancelled.
   4. It usually extends over most of the useful life of the asset.

1. Which of the following is NOT true for firms issuing CP (commercial paper)?
   1. Issued by large firms with high-credit standings
   2. Short-term funds
   3. Usually unsecured
   4. It can only be issued in the domestic money market.

1. Which of the following statements is NOT true for corporate bonds?
   1. Corporate bonds can be issued over periods from 5 to 100 years.
   2. Corporate bonds denominated in US dollars are usually issued at a par value of $100.
   3. Flotation costs are the cost of issuing the bonds.
   4. Corporate bonds pay a fixed annual or semi-annually coupon payment over the bonds life.

1. Which of the following is a NOT a feature of preferred stocks?
   1. They may have contingent voting rights.
   2. They cannot have sinking funds.
   3. They are priced as perpetual bonds.
   4. They can be callable.

1. Which of the following is NOT a feature of common stocks?
   1. Dividends are paid only after payment of preferred stockholders.
   2. They are cumulative.
   3. They cannot be called.
   4. They cannot be converted.

1. Which of the following statements is true for dividend payout ratios?
   1. Firms operating in sectors with stable and more predictable cash flow have average payout ratios exceeding 50%, whereas firms operating in unstable and less predictable cash flow sectors have average payout ratios not exceeding 10%.
   2. Firms operating in sectors with stable and more predictable cash flow have average payout ratios exceeding 40%, whereas firms operating in unstable and less predictable cash flow sectors have average payout ratios not exceeding 10%.
   3. Firms operating in sectors with stable and more predictable cash flow have average payout ratios exceeding 30%, whereas firms operating in unstable and less predictable cash flow sectors have average payout ratios not exceeding 5%.
   4. Firms operating in sectors with stable and more predictable cash flow have average payout ratios exceeding 20%, whereas firms operating in unstable and less predictable cash flow sectors have average payout ratios not exceeding 5%.

1. Which of the following dates follows the right timeline when declaring and paying dividends?
   1. Declaration date, Record date, Ex-dividend date, and Payment date
   2. Declaration date, Ex-dividend date, Record date, and Payment date
   3. Record date, Declaration date, Ex- dividend date, and Payment date
   4. Record date, Declaration date, Payment date and Ex-dividend date

1. Which of the following statements is NOT true for share repurchase and dividend payment?
   1. Share repurchases do not send as strong a signal as dividend payments.
   2. Share repurchases are more flexible than dividend payments.
   3. Share repurchases do not allow firms to neutralize the impact of dilution from granting stocks to employees.
   4. Share repurchases allow the firm to support its share price when shares are temporary undervalued.

1. Considering an imperfect market, under which circumstances is a firm indifferent between paying of dividends or buying back shares?
   1. When capital gains and income are taxed.
   2. Investor preference
   3. Flotation costs
   4. Transaction costs

1. Considering an imperfect market, under which circumstances would a firm pay dividends instead of buying back shares?
   1. Transaction costs
   2. Agency costs
   3. Taxation if some institutional investors are tax-exempt
   4. Taxation when capital gains are taxed at a lower rate than income