QUESTION 22

1. When GDP grows faster than its Potential for a number of quarters, the Federal Reserve usually increasesits target federal funds rate.

True

False

1 points

QUESTION 23

1. The higher a company's coverage ratio, the more risk faced by lenders to the company.

True

False

1 points

QUESTION 24

1. You can buy a company's stock when the company issues shares in the primary market or when an existing investor sells his/her shares in the secondarymarket.

True

False

1 points

QUESTION 25

1. You can only purchase shares in an open-end mutual fund from existing shareholders.

True

False

1 points

QUESTION 26

1. The purpose of capital requirements is to make sure that banks are earning no more than a maximum return on equity capital.

True

False

1 points

QUESTION 27

When the central bank purchases assets, it adds liquidity to the economy in the form of cash/reserves.

True

False

1 points

QUESTION 28

1. The federal funds rate is the interest rate the Fed charges on lending to banks.

True

False

1 points

QUESTION 29

When you deposit your salary into your checking account, you are lending money to the bank.

True

False

1 points

QUESTION 30

1. When a company borrows at LIBOR plus a spread, LIBOR is fixed until the loan's maturity while the spread changed periodically.

True

False

1 points

QUESTION 31

An underwriter is the corporation's secretary.He/she signs his/her name on all corporate documents directly under the president's signature.

True

False

1 points

QUESTION 32

1. The S.E.C. sets minimum capital requirements for all public corporations.

True

False

1 points

QUESTION 33

1. The extra amount, on top of the risk-free interest rate, used to discount expected future cash flows from a company or security is known as the "risk premium."

True

False

1 points

QUESTION 34

1. Banks only make loans; they do not purchase securities.

True

False

1 points

QUESTION 35

1. If a company's price-per-share increases, its book value goes up as well.

True

False

QUESTION 36

1. "Double taxation" refers to the I.R.S. first taxing a corporation's revenue and then its profits.

True

False

QUESTION 37

1. A bank is deficient in capital by $25 MM.It can help cure the deficiency by borrowing$25 million in the inter-bank market and holding the funds in cash.

True

False

QUESTION 38

1. A trucking company plans to buy 100,000 gallons of diesel fuel in January.The spot market price is $2.40/gallon.The company can remove its risk byentering today into a (physical delivery) forward contract with a counterparty to buy the fuel at $2.50/gallon.

True

False

QUESTION 39

1. A trucking company plans to buy 100,000 gallons of diesel fuel in January.The spot market price is $2.40/gallon.The company can remove its risk by entering today into a (cash settled) forward contract at $2.50/gallon, whereby it receives from the counterparty the difference between $2.50 and the spot price in January (x100,000) if the spot price is above $2.50, and pays the difference if it is below $2.50.

True

False

QUESTION 40

1. Analytical Associates (AA) is a mutual fund.It owns shares in Delta Airlines, Starbucks, Facebook and other stocks.When you invest in AA mutual fund, you are purchasing shares in Delta Airlines, etc.

True

False