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The date on which a cash dividend becomes a binding legal obligation is on the
declaration date. Once that declaration date hits, the dividend is bound and cannot be reversed.
Which statement best describes how the Fed responds to recessions?
It provides liquidity to banks and financial institutions to lend out and unlock credit. Recessions can happen because of many reasons, but economic growth always comes out of and excess of cheap credit.
Which statement describes how borrowers will most likely benefit when the Fed reduces reserve requirements?
Interest rates decrease and the borrow becomes cheaper and easier. More people have access to cheaper money in easier ways. This starts a trickle down effect from the big banks all the way down to small businesses.
Which best describes a Central Bank’s primary role?
Creating monetary policy. They set it. We follow it.
Which best describes a central bank’s primary goals?
Reducing unemployment and maintaining inflation. Central banks feel we can have sustained economic growth with full employment and prices will gradually rise over time.
Which of these is a banking activity of the Fed?
Storing money for other banks and institutions in overnight reserves. They make money by charging interest for doing so. That interest rate is known as the Fed Funds Rate.
Which best describes what a central bank uses monetary policy to do?
Control inflation and slow down/speed up the economy and money supply when it deems fit.
What is the full name of the US central bank, known as the Fed?
Federal Reserve Bank.
What is a potential negative effect of an expansionary policy?
Inflation and devaluing of the nation’s currency. The purchasing power of the nation’s currency will be much lower compared to the purchasing power of other currencies all over the world.
Economists studying the money supply categorize the status of the money based on…
Which statement best describes how the Fed’s use of open market operations affects banks?
By affecting the money supply and thus the liquidity and credit available.
Stockholders of a corporation directly elect
Their board of directors, those who have ultimate decision-making privileges over the company. They are the ones who place executive in the company, such as the CEO.
Those most responsible for the major policy decisions of a corporation are the
The board of directors, even more so than the CEO. Again, they are the ones that put the CEO in there in the first place.
The chief accounting officer in a company is known as the
Controller. They are the ones who sign off on all of the documents that are publically reported and available.
Which one of the following would not be considered an advantage of the corporate form of organization?
The two ways that a corporation can be classified by ownership are
Public and private.
Which of the following would not be true of a privately held corporation?
Its shares are regularly traded by the public on an exchange such as the Nasdaq. Since they are private their numbers and stock are not available to the public.
Which of the following statements reflects the transferability of ownership rights in a corporation?
A stockholder may dispose of part or all of his shares. Remember, owning shares in a stock is holding equity and ownership in the company (although typically very small amounts of ownership).
The officer that is generally responsible for maintaining the cash position of the corporation is the
The Treasurer. They are typically the ones wearing the nice navy pinstripe suit.
A disadvantage of the corporate form of organization is
Their ridiculous tax structure. Absolutely ridiculous. And there are also way too many regulations. The government, please remove thyself.
Which of the following factors does not affect the initial market price of a stock?
The number of employees. Doesn’t matter.
The term legal capital is a descriptive term for
The legal term is called par value.
The amount of stock that may be issued according to the corporation’s charter is referred to as the
The authorized stock amount.
If common stock is issued for an amount greater than par value, the excess should be credited to
Paid in capital in excess of par value or fair market value.
Which of the following represents the largest number of common shares?
Authorized shares. Those are the ones that are publically traded daily on one of the world’s many stock exchanges.
The acquisition of treasury stock by a corporation
decreases its total assets and total stockholders equity.
The number of shares of issued stock equals
Shares outstanding plus treasury shares plus non-public shares. There are more than just publically traded shares that you and I are able to buy each day.
Which of the following is not a right or preference associated with preferred stock?
The right to vote.
Dividends in arrears on cumulative preferred stock
must be paid before common stockholders can receive a dividend. This is a rule.
The cumulative effect of the declaration and payment of a cash dividend on a company’s financial statements is to
decrease total assets and stockholders equity
Which of the following is the appropriate general journal entry to record the declaration of cash dividends?
Retained Earnings Dividends Payable
A corporation records a dividend-related liability
on the declaration date. Once the declaration date happens, everything is set in stone.
The effect of a stock dividend is to
change the composition of stockholders’ equity. In effect, it is to pay them to hold the stock.
All of the following are true about a corporation except:
They have a right to vote. They don’t. The shareholders do.
Proof of stock ownership is evidenced by a printed or engraved form known as a:
A stock certificate! Except you rarely see those anymore since almost everything is transacted through an online brokerage account.
All of the following statements are true concerning treasury stock except:
It does not change the number of shares outstanding.
In order to pay a cash dividend:
The corporation must have adequate retained earnings, the board of directors must declare a dividend, and the corporation must have adequate cash. In short, they must have the money!
Dividends can take the following forms:
Cash or property. Crazy, right?
A stock dividend results in:
A decrease in retained earnings or an increase in paid in capital. The shares are reduced by the amount of the dividend in order to pay it out in cash to the shareholders.
Upon receiving a stock dividend:
Equity in the company is maintained and unchanged.
Which payment method typically charges the highest interest rates?
Payday loans. So nasty.
Which of the following statements comparing debit cards to credit cards is true?
Debit cards allow you to draw funds directly from your checking account.
Which of the following is a type of savings vehicle?
A certificate of deposit and a money market account are examples of savings vehicles.
Which of the following accounts would give you the LEAST access to your money?
CD. Your money is locked up for the maturity of that certificate.
The three parts of the Federal Reserve System are the Reserve Banks, the Federal Open Market Committee, and the:
Board of Governors.
Which type of account is typically the MOST liquid?
Checking account. You can take money out of your checking account whenever you like.
Which of the following payment types require you to pay upfront?
Money orders, cashier’s checks, and pre-paid cards.
Which of the following will increase your credit card’s APR?
Missing a credit card payment. It will also hurt your credit score.
What is a credit card balance?
The amount of money you still owe to the credit card company at any given time.
Which of the following statements about credit scores is TRUE?
Credit scores reflect how likely individuals are to repay their debts, credit scores range from the 300’s to the 800’s, and each person has three credit scores. Thus when you apply for a credit card or a mortgage, the bank looks as your credit and determines the risk of not being able to pay back the loan.
Having a good credit score is important because:
It can impact your ability to be approved for a loan, which will impact your ability to buy a home or have a credit card.
Which of the following actions can NEGATIVELY impact your credit score?
You forgot to pay the cable bill.
Which of the following actions has NO impact on your credit score?
You inquire about a credit card charge.
Which of the following MOST influences your credit score?
Payment history. Missing a payment has the ability to seriously hurt your credit score.
The amount owed for borrowing money.
If you are planning to carry a large balance on your credit card, which of the following credit card features should you look for?
The annual percentage rate on a credit card determines:
The amount of interest you are charged on credit card purchases.
Which of the following would IMPROVE your credit score?
Paying off your credit card bill on time or your mortgage.
Having a low credit score can make it more difficult to:
Obtain a loan, open a new credit card, or buy a house.
The return on investment (ROI) from education is typically the highest for:
Someone with a Bachelor’s degree (4 year). However, this is unlikely to be true in the future as the cost of college is too high.
Which of the following loans will typically offer the lowest interest rate?
Federal Student Loan. Even though with rising interest rates they may not be so low forever.
Which of the following statements about federal student loans is TRUE?
The interest rate on your loan will be fixed over time. If it is 6%, each year you pay 6% interest on the oustanding balance of the original loan.
Using the FAFSA form, you can apply for:
Federal student loans and federal work-study programs.
Which of the following statements about renting and owning is CORRECT?
An owner has complete responsibility and control over the property. Renters just rent.
One reason to buy a home instead of rent a home is:
Homes have the potential to appreciate over time.
What is a mortgage?
A type of loan used to buy property or home.
Someone may choose to own a car instead of leasing because:
The car can be resold later to make some money back. Owning a car provides you liquidity in times when you may need to sell that car. When you lease a car, it does not belong to you so there is no intrinsic value.
In which of these following scenarios will you be entitled to pay the least amount of money out-of-pocket for medical expenses?
You have health insurance with a $500 deductible.
Which of the following typically have the highest insurance premiums?
Young, inexperienced drivers that are most at risk of getting a moving violation or into an accident.
Which of the following is not deducted on a typical pay stub?
Which best describes the difference between stocks and bonds?
Stocks allow investors to own a portion of the company; bonds are loans to the company and are debt.
What is the primary reason to issue stock?
To raise money to grow the company.
When it comes to investing, what is the typical relationship between risk and return?
The greater the potential risk, the greater the potential return.
Which of the following investment has the greatest risk?
Every type of investment! Not just stock, but bonds too. Issuers of bonds can default just as easily as a stock can go down.
The primary goal of the federal reserve system is to:
Provide liquidity when credit is frozen or hard to come by.
Which of the following savings vehicles usually requires a high minimum balance?
Certificate of deposit
Which of the following payment types requires you to pay upfront?
Money orders, cashier’s checks, and pre-paid cards.
What’s the purpose of balancing or monitoring your checking account?
To stop theft from occurring.
What’s the best strategy for avoiding ATM fees?
Only use ATMs in your bank’s network.
Which of the following is a unique feature of credit unions?
Credit unions are typically owned and run by their members and offer a wide variety of banking services. However, they are shady.
Which of the following is NOT one of the responsibilities of the Federal Reserve
Maintaining high asset prices. This is not one of their responsibilities, but they sure do spend a lot of time doing so.
When it comes to saving money, what is a good rule of thumb?
Put aside money for saving each month.
Which of the following is not an advantage of issuing bonds instead of common stock?
Earnings per share on common stock may be lower that the earnings per share on the bonds.
Which of these factors helped hide economic problems in the 1920s
Excessive leverage and margin balances.
When the maturities of a bond issue are spread over several dates, the bonds are called
They are known as serial bonds.
Sinking fund investments would be classified on the balance sheet as
When a corporation issues bonds, the price that buyers are willing to pay for the bonds does not depend on which of the following below
The price a buyer is willing to pay for the bond does not depend on the denominations the bonds are sold.
Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called
Bonds that are subject to early retirement are known as callable bonds. However, these type of bonds typically pays out greater than average interest rates.
One potential advantage of financing corporations through the use of bonds rather than common stock is
The interest expense is tax deductible. The interest payments one makes towards the bond can be written off as an expense come tax time.
If bonds are issued at a discount, it means that the
The market interest rate is higher than the contractual interest rate, thus, the bond is issued and sold at a discount to par.
An unsecured bond is the same as a
An unsecured bond is the same as a debenture bond.
If the market rate of interest is greater than the contractual rate of interest, bonds will sell
At a discount to their par value.
Debtors are interested in the time-interest-earned ratio because they want to
Have adequate protection in the case of a drawdown in prices.
Selling the bonds at a premium has the effect of
Causing the cost of borrowing to be lower than the interest.
If bonds are issued at a premium, the stated interest rate is
The stated interest rate is higher than the market rate of interest. Crazy.
A corporation would not be successfully trading on equity if it gathered funds by
Issuing common stock.
When the market rate of interest on bonds is higher than the contract rate, the bonds will sell at
The interest rate specified in the bond indenture is called the
When the corporation issuing the bonds has the right to repurchase the bonds prior to the maturity date for a specific price, the bonds are
These are known as callable bonds.
If bonds payable are not callable, the issuing corporation
Can purchase them on the public markets if they choose to do so.
The market interest rate related to a bond is also called the
effective interest rate.
Which of the following accounts will give you the least access to your money?
Certificate of deposit. That money is locked up until the CD matures.
The fed’s aim in responding to a recession is to decrease
interest rates. And they have been doing that for the last 9 years flawlessly.
Once stocks are on the market, which best explains how their prices are set?
Supply and demand baby.
Federal reserve banks directly affect the national economy by
controlling the money supply which can expand or retract economic growth.
Which of the following fed actions will increase bank lending?
Low interest rates.
Which of the following is generally true about 401(k) and 403(b) retirement plans?
Both 401(k) and 403(b) plans allow individuals to save money for retirement. The funds in both accounts are able to grow tax-free as well.
Which payment type can help you stick to a budget?
Paying with cash and NOT with credit.
When referring to student loans, what is a grace period?
The grace period is the time after graduation and before you receive full time employment and have to start paying back your loans.
Which of the following statements about fdic-insured accounts is correct?
They are insurable by the government up to $250,000.
What does roi stand for?
Return on investment
When looking to finance higher education, what is the best order to look for funding sources?
Family, friends, then government.
How many free credit reports are you legally entitled to each year?
What is the main goal in creating the federal budget?
To make an attempt in having the federal government run at a surplus and not a deficit.
What part of a check is the least important?
None of it.
What might cause a change in the value of fiat money?
Additional money being created.
Which of the following is not a goal of federal economic policy
The money supply includes all of the following except
Which statement best describes how the fed responds to high inflation?
They raise interest rates which increase the value of the currency to combat inflation.
Which of the following assets is the most liquid?
Anything with participation
Which of the following is a primary responsibility of the federal reserve bank?
Maintain full employment
Which type of account typically has low liquidity?
30 Year US Treasury Bonds…your money is locked up for 30 years in this account.
Are dividends an asset?
No, not until the company pays them.
Which of the following actions by the federal reserve would reduce the money supply?
Raising interest rates.
Which best describes how expansionary policies can facilitate economic growth?
There is more money in the system. Thus, it moves around quicker and gets spent at a higher rate. This creates economic growth and moderate inflation.
In which situation would a savings bond be the best investment to earn interest?
When economic growth looks dull and asset returns (equities) are less likely.
With a traditional savings account, you could be charged a fee if:
You over withdraw
Why is a certificate of deposit considered such a safe investment
Because it is a short term duration loan and is FDIC insured up to $250,000 and is guaranteed by the government most of the time
Which of the following is not something that you could do with a normal checking account?
Overwithdraw without receiving a penalty
How is a savings account most useful?
It is more useful because it earns more money than a normal checking account.
The rate of return on a savings account is also referred to as: