GBG 333 – Chapters 6 and 7 – Review
Questions
(1)
Working capital
management can be best described by which statement?
(a)
It involves the
planning and execution of strategies for plant and equipment
purchases.
(b)
In its simplest
form, It can involve self-liquidating
assets.
(c)
It involves the
financing and management of the long term, capital assets of the
firm.
(d)
None of the above
is true.
(2)
An example of “Permanent Current Assets” is one of the
following.
(a)
Ice cream that is
purchased at the beginning of the week for sales during that
week.
(b)
Wire purchased by
an automotive cable manufacturing company that will be used for the next four
months.
(c)
Furniture purchased
by an expanding store for showroom purposes.
(d)
None of the above
is true.
(3)
Level production has the following advantages:
(a)
uses manpower and equipment more efficiently at
a lower cost.
(b)
it requires lower levels of inventory investment
compared to seasonal production.
(c)
it matches production to sales more precisely
than seasonal production.
(d)
it requires less attention to cash flow
management than seasonal production.
(4)
Which of the following statements about the yield curve is not
correct?
(a)
It describes the term structure of interest rates.
(b)
It is always upward sloping.
(c)
The liquidity premium theory is one the theories that describe the shape
of the yield
curve.
(e)
Provides important
information for financial management in making choices between short and long
term interest rates.
(5)
Basis points can best be described as:
(a)
a means to develop trucking charges for motor
freight from some agreed geographical base.
(b)
a reason the long term interest rates are more
volatile than short term interest rates.
(c)
a shorthand method in describing interest rate
spreads in terms of 1/100 of 1 percent.
(d)
a means to describe the permanent difference
between short term and long term interest rates.
(6)
Tight money can best be described as:
(a)
conversation about money at parties when
everyone has had too much to drink.
(b)
the situation in an economic boom when loanable funds from banks are freely
available.
(c)
when the gap between short and long term
interest rates is small.
(d)
periods during which financial capital available
from lending institutions is scarce and expensive in terms of interest
cost.
(7)
The cash flow cycle:
(a)
is similar to the rinse cycle on your washer.
(b)
always begins in January and ends in
December.
(c)
needs to be managed such that inflows and
outflows of cash are properly synchronized.
(d)
relies only on the payment patterns of
customers.
(8)
Treasury bills are:
(a)
short term obligations of state and local
governments.
(b)
offer a cash payment for interest at given dates
before maturity.
(c)
short term obligations that trade on a discount
basis.
(d)
popular places to park excess cash for long
periods of time (eg. 5 to 10
years).
(9)
Treasury notes are:
(a)
originally
issued with maturities of 91 days and 182 days.
(b)
short term
obligations that trade on a discount basis.
(c)
popular
places to park excess cash for short periods of time.
(d)
federal
government obligations with maturity of 1 to 10 years.
(10)
Treasury Inflation Protection Securities (TIPS)
are:
(a)
federal government securities that incorporate
an inflation adjustment to principal paid at maturity.
(b)
useful for investors if interest rates should
rise quickly due to inflation.
(c)
federal securities that have relatively stable
principal values since they are adjusted for inflation each
year.
(d)
All of the above are true.
(11)
Commercial paper represents:
(a)
unsecured
promissory notes issued to the public by large
corporations.
(b)
promissory notes as
in (a) issued in small denominations ($100) for long terms (5 to 10
years)
(c)
promissory
notes as in (a) that are not usually held to maturity by the
investor.
(d)
a security
with a very active secondary market.
(12)
The Eurodollar certificate of deposit is:
(a)
a deposit of
US dollars held at a foreign bank and in turn lent out by those
banks.
(b)
available to
US investors at US-based banks.
(c)
a deposit of
Euros held by US citizens at a foreign bank.
(d)
a deposit of
US dollars held at a foreign bank that usually yields less than the rate of
return on certificates of deposits in US banks.
(13)
The “5 C’s” of credit refers to:
(a)
a framework
to assess credit risk by the lender.
(b)
in part to
the capacity of the firm or individual (cash flow) to pay off a
loan.
(c)
in part to
the character of the firm’s management who will be responsible in paying off a
loan.
(d)
All of the above
are true.
(14)
Safety stock refers to:
(a)
the economic ordering quantity (EOQ), the most
advantageous amount of inventory that the firm should order each
time.
(b)
the answer to (a), plus an extra margin of
inventory to guard against being out of stock when a customer
calls.
(c)
a guard against late deliveries under an EOQ
system of inventory management.
(d)
Both (b) and (c) are true.
(15)
Just-in-time (JIT) inventory
management:
(a)
often
involves the shifting of the burden of inventory from manufacturers to
suppliers.
(b)
involves
suppliers often re-locating to be nearer to manufacturers.
(c)
minimizes
the cost of inventory held by manufacturers.
(d)
All the
above are true.