1) When the yield curve is downward sloping, generally a ...



1) When the yield curve is downward sloping, generally a financial manager should | |

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|[pic]A. |

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|utilize long-term financing |

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|[pic]B. |

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|expect an economic boom |

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|[pic]C. |

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|increase investment and level of financing overall |

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|[pic]D. |

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|utilize short-term financing |

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|2) Permanent current assets are not a factor in a manager's decision making process when all current assets will be |

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|[pic]A. |

|[pic] |

|long-term in nature. |

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|[pic]B. |

|[pic] |

|financed by short-term debt. |

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|[pic]C. |

|[pic] |

|self-liquidating. |

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|[pic]D. |

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|internally financed. |

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|3) The theory of the term structure of interest rates which suggests that long-term rates are determined by the average of |

|short-term rates expected over the time that a long-term bond is outstanding is the |

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|[pic]A. |

|[pic] |

|segmentation theory. |

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|[pic]B. |

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|expectations hypothesis. |

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|[pic]C. |

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|liquidity premium theory. |

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|[pic]D. |

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|market average rate theory. |

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|4) Some analysts believe that the term structure of interest rates is determined by the behavior of various types of financial |

|institutions. This theory is called the |

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|[pic]A. |

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|market segmentation theory. |

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|[pic]B. |

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|expectations hypothesis. |

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|[pic]C. |

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|liquidity premium theory. |

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|[pic]D. |

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|theory of industry supply and demand for bonds. |

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|5) One of the first considerations in cash management is |

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|[pic]A. |

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|synchronization of cash inflows and cash outflows. |

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|[pic]B. |

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|to have as much cash as possible on hand. |

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|[pic]C. |

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|profitability. |

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|[pic]D. |

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|to put any excess cash into accounts receivable. |

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|6) Cash flow does not rely on which of the following? |

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|[pic]A. |

|[pic] |

|the monetary policy of the Federal Reserve |

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|[pic]B. |

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|the payment patterns of customers |

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|[pic]C. |

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|the speed at which suppliers and creditors process checks |

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|[pic]D. |

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|the efficiency of the banking system |

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|7) Assuming that we can earn a 13.5% return on accounts receivable, which of the following actions to finance an increase in our |

|accounts receivable balance would be optimal? |

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|[pic]A. |

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|a decrease in inventories which are earning a 17.6% return. |

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|[pic]B. |

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|an increase in bank loans that would cost us 11.5%. |

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|[pic]C. |

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|a reduction in marketable securities which are earning a return of 14.2%. |

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|[pic]D. |

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|an increase in accounts payable that would cost our firm 15%. |

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|8) The problem in stretching out the maturity of marketable securities is that |

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|[pic]A. |

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|long-term rates higher than short-term rates. |

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|[pic]B. |

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|there is greater possibility of loss. |

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|[pic]C. |

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|you are legally locked in until the maturity date. |

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|[pic]D. |

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|interest rates are generally lower. |

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