Ch8

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(No Transcript)
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Ch8 - 1

• The fact that common stockholders are residual
  claimants means that
• A. The stockholders have a claim against the
  revenue that remains after everyone else is paid
• B. The stockholders receive their dividends
  before any other residuals are paid
• C. The stockholders are paid any past due
  dividends before other claims are paid
• D. The stockholders are paid before the
  bondholders but after any taxes are paid

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Ch8 - 2
Stock price
Stock prices over time
time
Public annc 1
Public annc 2

• True
• False

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Ch8 - 3

• The Standard Poor's 500 Index differs from the
  Dow Jones Industrial Index because it is a
  price-weighted index, where the DJIA is a
  value-weighted index.
• A. TRUE
• B. FALSE

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Ch8 - 4

• The dividend-discount model predicts that stock
  prices
• A. Should be high when dividends are high
• B. Will be high when interest rates are high
• C. Will be higher when the growth rate of
  dividends is low
• D. Should be high when dividends are low

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Ch8 - 5

• The theory of efficient markets implies
• A. Stock prices should be highly unpredictable.
• B. The price at which stocks currently trade only
  reflect past information.
• C. Expectations do not play a role in stock
  prices because this isn't real information.
• D. The chartists are in fact correct that there
  are patterns in stock prices.

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Ch9 - 1

• The starting point for understanding how exchange
  rates are determined is a simple idea called
  _________, which states that if two countries
  produce an identical good, the price of the good
  should be the same throughout the world no matter
  which country produces it.
• A. Greshams law
• B. the law of one price
• C. interest rate parity
• asymmetric
• Information
• Takes short position on a put option TRUE or
  FALSE

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Ch9 - 2

• If an investor takes long position on a call
  option, he/she has an incentive to exercise
  his/her option when the strike price is greater
  than the market price.
• A.TRUE
• B. FALSE

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Ch9 - 3

• A put option described as out of the money would
  find the strike price is below the market price
  of the stock.
• A.TRUE
• B. FALSE

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Ch9 - 4

• One key difference between options contracts and
  futures contracts is
• A. In a futures contract, one part has more
  rights than the other.
• B. With an options contract both parties have
  equal rights.
• C. In an options contract, the rights belong to
  one party.
• D. In a futures contract all rights are held by
  just one party.

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Ch9 - 5

• Derivatives are financial instruments that
• A. Present high levels of risk and should only be
  used by the wealthy.
• B. When used correctly can actually lower risk.
• C. Should only be used by people seeking high
  returns from low risk.
• D. Represents the outright purchase of a bond.

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Ch10 - 1

• The starting point for understanding how exchange
  rates are determined is a simple idea called
  _________, which states that if two countries
  produce an identical good, the price of the good
  should be the same throughout the world no matter
  which country produces it.
• A. Real exchange rate
• B. the law of one price
• C. interest rate parity
• D. asymmetric information

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Ch10 - 2

• If the U.S. dollar depreciates against the
  Japanese yen, Americans should find Japanese
  goods are now less expensive.
• A. TRUE
• B. FALSE

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Ch10 - 3

• The price of a cup of espresso in U.S. is 1.80
  while the price of it in Italy is 1.20. The
  dollar-euro exchange rate is 1.31 /. If the
  theory of the purchasing power parity works, the
  value of dollar should ___________ relative to
  euro, and thus the dollar will _____________.
• A. increase, appreciate
• B. decrease, appreciate
• C. decrease, depreciate
• D. increase, depreciate

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Ch10 - 4

• In the foreign exchange market, the demand for
  U.S. dollars is made up from
• A. Foreigners desiring to purchase U.S. goods,
  services, and assets
• B. Americans who want to hold more currency
• C. Americans wishing to purchase foreign goods,
  services, and assets
• D. Americans who want to invest in foreign assets

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Ch10 - 5
The graph indicates that the dollar
depreciates. TRUE or FALSE
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Ch11 12 - 1

• Financial institutions, acting as financial
  intermediaries, perform all of the following,
  except
• A. Provide ways to diversify risk
  
  
• B. Pooling resources of small savers
  
  
• C. Increase transactions costs
  
  
• D. Provide safekeeping and accounting services

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Ch11 12 - 2

• Tom borrows 100,000 from his local bank to
  purchase inventory for his store for the upcoming
  holiday season. Tom's neighbor tells him about a
  get-rich-quick scheme that can take this 100,000
  and triple it in a month. Tom decides to buy into
  this scheme figuring he can repay the bank and
  still have plenty left for inventory. This is an
  example of
• A. Adverse selection
  
  
  
  
  
  
  
• B. Sound risk analysis on Tom's part
  
  
  
  
  
  
  
• C. Diversification
  
  
  
  
  
  
  
• D. Moral hazard

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Ch11 12 - 3

• If Bank A sells some its loans to Bank B for
  cash, everything else equal
• A. Bank A's assets decrease and Bank B's assets
  increase
• B. Bank A becomes less liquid while Bank B
  becomes more liquid
• C. Bank A's total assets do not change, but Bank
  A is more liquid
• D. Bank A's liabilities decrease by the amount of
  the loans that are sold

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Ch11 12 - 4

• An asset side of bank's balance sheets does not
  include
• A. reserves
• B. loans.
• C. common stocks
• D. deposits at the Fed.

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Ch11 12 - 5

• A late-night news report says the president of a
  local bank is about to be arrested for embezzling
  money from the bank at which he works. This
  causes most of the depositors to line up in front
  of the bank the next morning wanting to withdraw
  their deposits. This is an example of
• A. Liquidity risk
• B. Operational risk
• C. Interest rate risk
• D. Credit risk

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Ch13 14 - 1

• You have savings accounts at two separately FDIC
  insured banks. At one of the banks your account
  has a balance of 100,000. At the other bank the
  account balance is 65,000. If both banks fail
  you will receive
• A. 100,000.00
• B. 135,000.00
• C. 165,000.00
• D. 67,500.00

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Ch13 14 - 2

• The Gramm-Leach-Bliley Act
• A. Repealed the Reigle-Neal Interstate Banking
  and Branching Efficiency Act
• B. Repealed the Glass-Steagall Act's prohibition
  of mergers between commercial banks and insurance
  or securities firms
• C. Repealed the McFadden Act's restriction on
  bank branching
• D. Reinforced the Glass-Steagall Act's limitation
  on commercial banks' availability to merge with
  insurance or securities firms by increasing the
  penalties for doing so

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Ch13 14 - 3

• The bank failures that occurred during the early
  years of the Great Depression hurt the government
  insurance funds since FDIC covered most of the
  losses of depositors.
• A. TRUE
• B. FALSE

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Ch13 14 - 4

• When the Federal Reserve was unable to stem the
  bank panics of the 1930s, Congress responded by
• A. Taking over the lender of last resort function
  and assigning this function to the U.S. Treasury
• B. Ordering the printing of tens of billions of
  dollars of additional currency
• C. Creating the FDIC and offering deposit
  insurance
• D. Declaring a bank holiday and closing banks for
  30 days

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Ch13 14 - 5

• Commercial banks are regulated by a combination
  of agencies including each of the following,
  except
• A. The Federal Reserve
• B. The Office of Thrift Supervision
• C. State authorities
• D. The Federal Deposit Insurance Corporation

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Password Game 1

• euro
• adverse selection
• settlement date
• weak-form efficiency
• lender of last resort
• appreciation
• Dividends

• Timothy Geithner
• liquidity risk
• at-the-money
• TARP (Trouble Asset Relief Program)
• Lehman Brothers
• FDIC

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Password Game 2

• strike price
• Net worth
• limited liablities
• Alan Greenspan
• General Motors
• semi-strong efficiency
• Japan

• nomial exchange rate
• the Fed (FRB)
• Bear Stern
• credit risk
• options
• Insolvency

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Password Game 3

• futures
• Black Swan
• bank capital
• moral harzard
• CAMELS
• Ben Bernanke
• residual claimants

• Purchasing Power Parity (PPP)
• central bank
• depreciation
• risk premium
• Credit Default Swap (CDS)
• short position

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Password Game 4

• real exchange rate
• too-big-to-fail policy
• Henry Paulson
• SP 500 index
• symmetric information
• in-the-money
• AIG

• long position
• off-balance sheet activities
• currency
• Hedge Funds
• common stock
• Deposit insurance