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Questions
Q:
Harold has just taken his company public and owns a large quantity of restricted stock. For purposes of diversification, what fund might he help create in order to diversify his holdings?
A. commingled funds
B. hedge funds
C. ETF
D. REITs
Q:
On November 1, 2011, Moddel Company (a U.S. corporation) entered into a 90-day forward contract to purchase 200,000 British pounds. The purpose of the forward contract is to hedge a commitment to purchase special equipment on January 30, 2012 from a British firm Jeckyl Inc. The invoice price on the purchase commitment is denominated in British pounds. The forward contract is not settled net. Assume Moddel uses a 12% interest rate. Use a fair value hedge.
The relevant exchange rates are stated in dollars per pound:
Forward Rate
Spot Rate to Jan. 30, 2012
November 1, 2011 $1.32 $1.35
December 31, 2011 $1.47 $1.50
January 30, 2012 $1.55 -
Required:
1.What journal entry did Moddel record on November 1, 2011?
2.What journal entries did Moddel record on December 31, 2011?
3.What journal entries did Moddel record on January 30, 2012 if the purchase was made?
Q:
Advantages of ETFs over mutual funds include all but which one of the following?
A. ETFs trade continuously, so investors can trade throughout the day.
B. ETFs can be sold short or purchased on margin, unlike fund shares.
C. ETF providers do not have to sell holdings to fund redemptions.
D. ETF values can diverge from NAV.
Q:
Bill ate four hot dogs at the baseball game. The first one tasted best, but he found that as he ate more hot dogs the amount of extra satisfaction he was receiving was beginning to fall. This would demonstrateA) the law of total utility maximization. B) the law of zero utility.C) the law of diminishing marginal utility. D) the law of diminishing costs.
Q:
On June 1, 2011, Dapple Industries purchases an option contract for $5,000 on 10,000 gallons of aviation gas to minimize its purchasing cost price exposure. At the time, the market price is $2.50 per gallon and the option price of $2 per gallon will expire 6 months later. Dapple can exercise the option at its discretion. When Dapple prepares quarterly reports on June 30, Dapple is still holding the option. On June 30, the market price of aviation gas is $4.50 per gallon. The option is to be settled net.
On August 1, Dapple exercises the option when the gas market price is $5.00 per gallon and purchases 40,000 gallons of gas. On August 15, Dapple uses all of the gas on a charter flight.
Required:
What are Dapple's journal entries with regard to the aviation gas option? Assume this is a cash flow hedge. Ignore the time value of money.
Q:
Which type of investment fund is commonly known to invest in options and futures in large scale?
A. commingled funds
B. hedge funds
C. ETFs
D. REITs
Q:
PxQxPyQyPzQz$10100$2050$25200109018602522510701590252751250151002529015251512025320Refer to the above table. Suppose the price of X increases from $10 to $12. What is the cross price elasticity of demand between X and Y?A) -1.833 B) +0.545 C) +0.579 D) +1.833
Q:
On November 1, 2011, Ross Corporation, a calendar-year U.S. corporation, invested in a purely speculative contract to purchase 1 million euros on January 30, 2012, from Trattoria Company, an Italian brokerage firm. Ross agreed to purchase 1,000,000 euros from Trattoria at a fixed price of $1.420 per euro. Trattoria agreed to transmit 1,000,000 euros to Ross on January 30, 2012. Net settlement is not permitted. The spot rates for euros are:
Nov 01, 2011 1 euro = $1.415
Dec 31, 2011 1 euro = $1.395
Jan 30, 2012 1 euro = $1.410
The 30-day futures rate for euros on December 31, 2011 was $1.405.
Required:
Prepare the General Journal entries that Ross would record on November 1, December 31, and January 30.
Q:
A mutual fund has total assets outstanding of $69 million. During the year the fund bought and sold assets equal to $17.25 million. This fund's turnover rate was _____.
A. 25%
B. 28.5%
C. 18.63%
D. 33.4%
Q:
The price elasticity of demand can be computed asA) change in total utility/change in quantity.B) change in price/change in quantity demanded.C) percentage change in quantity demanded/percentage change in price.D) change in quantity demanded/change in price.
Q:
On November 1, 2011, Portsmith Corporation, a calendar-year U.S. corporation, invested in a purely speculative contract to purchase 1 million yen on January 30, 2012, from the Karoke Trading Company, a Japanese brokerage firm. Portsmith agreed to purchase 1,000,000 yen from Karoke at a fixed price of $0.0100 per yen. Karoke agreed to transmit 1,000,000 yen to Portsmith on January 30. Net settlement is not permitted. The spot rates for yen are:
Nov 01, 2011 1 yen = $0.0097
Dec 31, 2011 1 yen = $0.0104
Jan 30, 2012 1 yen = $0.0106
The 30-day forward rate for yen on December 31, 2011 was $0.0104.
Required:
Prepare the General Journal entries that Portsmith would record on November 1, December 31, and January 30.
Q:
The Wildwood Fund sells Class A shares with a front-end load of 5% and Class B shares with a 12b-1 fee of 1% annually. If you plan to sell the fund after 4 years, are Class A or Class B shares the better choice? Assume a 10% annual return net of expenses before the 12b-1 fee is applied.
A. Class A.
B. Class B.
C. There is no difference.
D. The answer cannot be determined from the information given.
Q:
Why do economists believe that it is socially optimal to have some amount of pollution?
Q:
Use the following information to answer the question(s) below.On December 1, 2011, Thomas Company, a U.S. corporation, purchases inventory from a vendor in Italy for 400,000 euros. Payment is due in 90 days. To hedge the transaction, Thomas signs a forward contract to buy 400,000 euros in 90 days at $1.3670. Thomas uses a discount rate of 6% (present value factor for 30 days = .9950; 60 days = .9901; 90 days = .9851). Assume the forward contract will be settled net and this is a cash flow hedge. Currency exchange rates are shown below:DateSpot RateForward Rate to February 29December 1, 2011$1.3694$1.3670December 31, 2011$1.3642$1.3660January 30, 2012$1.3670$1.3690February 29, 2012$1.3712$1.3712What is the fair value of the forward contract at February 29?A) $-0-B) $1,654.97 assetC) $1,654.97 liabilityD) $1,680 asset
Q:
The difference between balanced funds and asset allocation funds is that _____.
A. balanced funds invest in bonds while asset allocation funds do not
B. asset allocation funds invest in bonds while balanced funds do not
C. balanced funds have relatively stable proportions of stocks and bonds while the proportions may vary dramatically for asset allocation funds
D. balanced funds make no capital gain distributions and asset allocation funds make both dividend and capital gain distributions
Q:
According to the text, government spending accounts for about percent of all U.S. health care expenditures.A) 70 B) 10 C) 30 D) 40
Q:
The Stone Harbor Fund is a closed-end investment company with a portfolio currently worth $300 million. It has liabilities of $5 million and 9 million shares outstanding. If the fund sells for $30 a share, what is its premium or discount as a percent of NAV?
A. 9.26% premium
B. 8.47% premium
C. 9.26% discount
D. 8.47% discount
Q:
Use the above table. The MFC of the 3rd worker isA) $5. B) $30. C) $20. D) $6.7.
Q:
Which of the following ETFs tracks the S&P 500 Index?
A. Qubes
B. Diamonds
C. Vipers
D. Spiders
Q:
The American Federation of State, County, Government and Municipal Employees is an example of a(n)A) guild. B) craft union.C) industrial union. D) public-sector union.
Q:
Use the following information to answer the question(s) below.On November 2, 2011, Bellamy Corporation sells product to their Danish customer. At the same time, Bellamy signed a forward contract to sell 200,000 Danish krone in ninety days to hedge the account receivable at $0.1905, the 90-day forward rate. The receivable is expected to be collected in ninety days. Assume the forward contract will be settled net and this is a fair value hedge. The related exchange rates are shown below:DateSpot RateForward Rate to January 31November 2, 2011$0.1910$0.1905December 31, 2011$0.1920$0.1912January 31, 2012$0.1915$0.1915Assuming a present value factor of 1 for simplicity, what is the fair value of this forward contract on January 31?A) $-0-B) $ 60 assetC) $160 liabilityD) $200 liability
Q:
The ratio of trading activity of a portfolio to the assets of the portfolio is called the ____________.
A. reinvestment ratio
B. trading rate
C. portfolio turnover
D. tax yield
Q:
If the price elasticity of demand is less than 1, then then consumer demand isA) unrelated to the elasticity of demand. B) inelastic.C) elastic. D) unitary elastic.
Q:
In a recent study, Malkiel found that evidence of persistence in the performance of mutual funds ________________ in the 1980s.
A. grew stronger
B. remained about the same
C. became slightly weaker
D. virtually disappeared
Q:
The Federal Trade Commission was established in 1914 toA) regulate trade of public goods.B) promote competition in interstate commerce.C) investigate unfair competitive practices.D) prevent non-price competition.
Q:
In his 1970 study, Malkiel found that mutual funds that do well in one period have an approximately ________ chance of doing well in the subsequent-year period.
A. 33%
B. 52%
C. 65%
D. 85%
Q:
On May 1, 2011, Listing Corporation receives inventory items from their Bulgarian supplier. At the same time, Listing signed a forward contract to purchase 75,000 Bulgarian lev in sixty days to hedge the inventory purchase at $0.738, the 60-day forward rate. Payment for the inventory will be due in sixty days in Bulgarian lev. Assume the forward contract will be settled net and this qualifies as a fair value hedge. The related exchange rates are shown below: Date
Spot Rate
Forward Rate to June 30 May 1, 2011
$0.7270
$0.7380 May 31, 2011
$0.7350
$0.7400 June 30, 2011
$0.7420
$0.7420 Assuming a present value factor of 1 for simplicity, what is the fair value of this forward contract on May 31?
A) $150 asset
B) $150 liability
C) $375 asset
D) $375 liability
Q:
Product differentiation exists in
A) oligopolies only.
B) monopolies only.
C) monopolistic competition only.
D) all market structures except perfect competition.
Q:
According to the 2014 Mutual Fund Fact Book, _______ of total assets were in taxable money market funds and _______ were tax-exempt money market funds.
A. 35%; 14%
B. 12.3%; 75%
C. 16.3%; 1.8%
D. 5%; 47%
Q:
Suppose a ten firm industry has total sales of $35 million per year. The largest firm have sales of $10 million, the third largest firm has sales of $4 million, and the fourth largest firm has sales of $2 million. If the rest of the industry has annual sales of $12 million, the second largest firm has sales ofA) $8 million. B) $7 million.C) $4 million. D) none fo the above.
Q:
International accounting standards differ from U.S. Generally Accepted Accounting Principles in that International standards
A) require that firm sale or purchase commitments are accounted for as fair value hedges.
B) require that firm sale or purchase commitments are accounted for as cash flow hedges.
C) state that firm sale or purchase commitments may not be treated as a hedged transaction.
D) permit firm sale or purchase commitments to be accounted for as either fair value hedges or cash flow hedges.
Q:
If you place an order to buy or sell a share of a mutual fund during the trading day, the order will be executed at _____.
A. the NAV calculated at the market close at 4 pm New York time
B. the real time NAV
C. the NAV delayed 15 minutes
D. the NAV calculated at the opening of the next day's trading
Q:
Which of the following is TRUE for a monopolistically competitive firm?A) MR = P B) MR > P C) MR < P D) MR = AFC
Q:
When preparing their year-end financial statements, the Warner Company includes a footnote regarding their hedging activities during the year. Which of the following is not required to be disclosed?
A) How hedge effectiveness is determined and assessed
B) The specific types of risks being hedged, and how they are being hedged
C) Alternative hedging options declined
D) The net gain or loss reported for the period for fair value hedges and where in the financial statements it is reported
Q:
_____ is an example of an exchange-traded fund.
A. An SPDR or spider
B. A samurai
C. A Vanguard
D. An open-end fund
Q:
Cirtus Corporation, a U.S. corporation, placed an order for inventory from a Mexican supplier on September 18 when the spot rate was $0.0840 = 1 peso. The invoice price will be denominated in pesos. At that time, they entered into a 30-day forward contract (designated as a fair value hedge of the firm commitment to purchase) to purchase 860,000 pesos at a forward rate of $0.0810. On October 18 when the inventory was received, the spot rate was $0.0890. At what amount should the inventory be carried on Cirtus' books?
A) $69,660
B) $72,240
C) $76,540
D) $860,000
Q:
Refer to the above figure. Profits for this firm areA) negative. B) zero.C) positive.D) undetermined without more information.
Q:
Mutual fund returns may be granted pass-through status if _________________.
A. virtually all income is distributed to shareholders
B. the fund qualifies for pass-through status according to the U.S. tax code
C. the fund is sufficiently diversified
D. All of these options (All of the answers must be true for pass-through status to be granted.)
Q:
Taydus Corporation, a U.S. corporation, sold goods on December 2 to a company overseas, and is now carrying a receivable denominated in euros. Taydus signed a 60-day forward contract on that same date to sell euros. The spot rate was $1.40 on the date they signed the contract and the 60-day forward rate was $1.36. At the end of that month when they closed the books at their fiscal year-end, the spot rate was $1.42 and the 30-day forward rate was $1.40. Assume this is a fair value hedge. The forward contract will not be settled net. What would be reported by Taydus for the year ending December 31?
A) Net exchange gain
B) Net exchange loss
C) Deferred exchange gain
D) Deferred exchange loss
Q:
In the long run, the perfectly competitive firmA) does not have a shut down price. B) earns only a normal profit.C) may produce even if it suffers a loss. D) earns an economic profit.
Q:
Consider a no-load mutual fund with $400 million in assets, 50 million in debt, and 15 million shares at the start of the year and with $500 million in assets, 40 million in debt, and 18 million shares at the end of the year. During the year investors have received income distributions of $.50 per share and capital gain distributions of $.30 per share. If the total expense ratio is .75%, what is the rate of return on the fund?
A. 12.09%
B. 12.99%
C. 8.25%
D. The answer cannot be determined from the information given.
Q:
The purchase price of an option contract is typically recorded as
A) an expense.
B) an asset.
C) an amortized cost.
D) a component of shareholders equity.
Q:
In a perfectly competitive industry, the firmʹs marginal revenue curve is A) downward sloping. B) upward sloping. C) vertical. D) horizontal.
Q:
Consider a no-load mutual fund with $200 million in assets and 10 million shares at the start of the year and with $250 million in assets and 11 million shares at the end of the year. During the year investors have received income distributions of $2 per share and capital gain distributions of $.25 per share. Assuming that the fund carries no debt, and that the total expense ratio is 1%, what is the rate of return on the fund?
A. 11.19%
B. 23.75%
C. 24.64%
D. The answer cannot be determined from the information given.
Q:
A fair value hedge differs from a cash flow hedge because a fair value hedge
A) cannot be used for firm purchase or sales commitments.
B) is not recorded unless it is a highly-effective hedge.
C) records gains or losses in the value of the derivative directly to earnings of the company.
D) defers the gains or losses in the value of the derivative using Other Comprehensive Income.
Q:
OutputFixed CostsVariable CostsTotal CostsAverage Total CostsAverage Marginal Variable Costs Costs0 $0$100 1 30 2 50 3 60 4 120 5 200 In the above table, what is the marginal cost to produce the 4th unit of output?A) $30 B) $60 C) $55 D) $20
Q:
Consider a mutual fund with $300 million in assets at the start of the year and 12 million shares outstanding. If the gross return on assets is 18% and the total expense ratio is 2% of the year-end value, what is the rate of return on the fund?
A. 15.64%
B. 16%
C. 17.25%
D. 17.5%
Q:
A forward contract used as a cash flow hedge will be recorded as an asset if
A) the holder is expecting to receive a payment as a result of the contract.
B) the holder is accounting for the hedged instrument as a fair value hedge.
C) the holder is hedging the net investment in a foreign entity.
D) the holder is using the alternate accounting method and deferring all gains or losses from the hedge.
Q:
The time period during which a firmʹs capital is fixed but its labor is variable is calledA) the planning horizon. B) the short run.C) the long run. D) the very long run.
Q:
SEC Rule 12b-1 allows managers of certain funds to deduct __________ expenses from fund assets; however, these expenses may not exceed
__________ of the fund's average net assets per year.
A. marketing; 1%
B. marketing; 5%
C. administrative; .5%
D. administrative; 2%
Q:
Barnes Company entered into a forward contract during the current year to hedge the risk of a material supply cost increase. Based on the current market, at year-end the present value of the estimated amount they will have to pay in ten months is $750,000. What entry would be recorded at year-end closing, assuming that no amount was recorded for this contract until this time?
A) Forward Contract (+A)
$750,000 Other Comprehensive Income (+SE)
$750,000 B) Forward Contract (+A)
$750,000 Earnings (+SE)
$750,000 C) Other Comprehensive Income (-SE)
$750,000 Earnings (+SE)
$750,000 D) Other Comprehensive Income (-SE)
$750,000 Forward Contract (+L)
$750,000
Q:
If the death of an owner causes the firm to dissolve, the firm must have beenA) a partnership only. B) a proprietorship only.C) a corporation only. D) either a proprietorship or a partnership.
Q:
The SEC requires funds to disclose:
I. After-tax returns for the past year
II. After-tax returns for the last 5-year period
III. The tax impact of portfolio turnover
A. I only
B. I and II only
C. I and III only
D. I, II, and III
Q:
An increase in consumer income willA) shift the budget constraint and increase its slope.B) reduce consumption of all normal goods.C) pivot the budget constraint on the axis with the good that has the higher price.D) shift out the budget constraint and increase the consumption of both goods, if they are normal goods.
Q:
When a cash flow hedge is appropriate, the effective portion of the gain or loss on the derivative is
A) deferred using other comprehensive income.
B) recognized immediately at the time the agreement is made.
C) recognized over time, amortized over the period of the agreement.
D) recognized over time, offset by the fluctuation in the value of the hedged asset or liability.
Q:
Under SEC rules, the managers of certain funds are allowed to deduct charges for advertising, brokerage commissions, and other sales expenses directly from the fund assets rather than billing investors. These fees are known as ____________.
A. direct operating expenses
B. back-end loads
C. 12b-1 charges
D. front-end loads
Q:
If a financial instrument is classified as a cash flow hedge, then
A) its gains or losses are reported in the income statement if a fiscal year-end occurs before the settlement date.
B) it is classified as a held-to-maturity asset.
C) it does not require a notional amount.
D) its gains or losses are reported in the balance sheet if a fiscal year-end occurs before the settlement date.
Q:
Carol is very hungry. She has just sat down to eat. Her first bite gives her a certain level of utility. Her second bite increases her utility by more than the first bite. Her third bite increases her utility by more than the second bite. Carol has 40 bites left before she finishes. Which of the following statements is true about Carol?A) Carol is being inconsistent with the law of diminishing marginal utility. B) Carolʹs total utility decreases with each bite.C) Carolʹs marginal utility will be negative when she takes her last bite.D) Carol will eventually experience diminishing marginal utility by the time she finishes eating, if her marginal utility begins to decline.
Q:
You are considering investing in one of several mutual funds. All the funds under consideration have various combinations of front-end and back-end loads and/or 12b-1 fees. The longer you plan on remaining in the fund you choose, the more likely you will prefer a fund with a
__________ rather than a __________, everything else equal.
A. 12b-1 fee; front-end load
B. front-end load; 12b-1 fee
C. back-end load; front-end load
D. 12b-1 fee; back-end load
Q:
Which of the following is not an approach appropriate for hedge accounting?
A) Cash Flow Hedge Accounting
B) Critical Term Hedge Accounting
C) Fair Value Hedge Accounting
D) Hedge of Net Investment in Foreign Subsidiary
Q:
PxQxPyQyPzQz$10100$2050$25200109018602522510701590252751250151002529015251512025320Refer to the above table. Suppose the price of X increases from $10 to $12. What is the cross price elasticity of demand between X and Z?A) +0.292 B) +7.06 C) -7.06 D) -0.292
Q:
The commission, or front-end load, paid when you purchase shares in mutual funds may not exceed __________.
A. 3.5%
B. 6%
C. 8.5%
D. 10%
Q:
The absolute price elasticity of demand for good X is 1.2 when price is measured in dollars. If price were measured in cents, the price elasticity elasticity of demand would equalA) 1200 B) 12 C) 1.2 D) 0.012
Q:
A highly-effective hedge of an existing asset or liability that is reported on the balance sheet would be recorded using
A) Modified Cash Basis Accounting.
B) Critical Term Hedge Analysis.
C) Fair Value Hedge Accounting.
D) Hedge of Net Investment in Foreign Subsidiary.
Q:
If a mutual fund has multiple-class shares, which class typically has a front-end load?
A. Class A
B. Class B
C. Class C
D. Class I
Q:
Which of the following hedging strategies would a business most likely use?
A) An importer will want to hedge his foreign denominated accounts receivable and will purchase forward contracts to hedge an exposed net asset position.
B) An importer will want to hedge his foreign denominated accounts payable and will purchase forward contracts to hedge an exposed net liability position.
C) An exporter will want to hedge his foreign denominated accounts receivable and will purchase forward contracts to hedge an exposed net liability position.
D) An exporter will want to hedge his foreign denominated accounts payable and will purchase forward contracts to hedge an exposed net liability position.
Q:
Suppose people value clean air more as their incomes increase. What would happen to the optimal amount of clean air as a country develops economically? Is there an economic prediction we can make from this?
Q:
Specialized-sector funds concentrate their investments in _________________.
A. bonds of a particular maturity
B. geographic segments of the real estate market
C. government securities
D. securities issued by firms in a particular industry
Q:
Which of the following is considered a ʺthird partyʺ within the medical services industry?A) The patient B) The private insurance companyC) The for-profit hospital D) The medical provider, i.e. physician
Q:
______ are mutual funds that vary the proportions of funds invested in particular market sectors according to the fund manager's forecast of the performance of that market sector.
A. Asset allocation funds
B. Balanced funds
C. Index funds
D. Income funds
Q:
Ulysses Company purchases goods from China amounting to 372,372 Yuan (the transaction is denominated in the Chinese Yuan). Assume the Yuan is trading at $0.154 at the date the goods are ordered, and the Yuan is trading at $0.155 at the date the goods are received, and when the invoice is paid a month later, the Yuan is trading at $.156. Assume all three dates are in the same fiscal year. Which of the following is true?
A) The entry to record the payment will include a gain of $744.74.
B) The entry to record the payment will include a gain of $372.37.
C) The entry to record the purchase will include a credit to Accounts Payable of $57,345.29.
D) The entry to record the purchase will include a credit to Accounts Payable of $57,717.66.
Q:
A monopsonistic employer will pay a wage rateA) less than the laborʹs MRP. B) greater than the laborʹs MRP. C) equal to the laborʹs MRP. D) equal to MFC.
Q:
Mutual funds that hold both equities and fixed-income securities in relatively stable proportions are called ____________________.
A. income funds
B. balanced funds
C. asset allocation funds
D. index funds
Q:
If a sale on account by a U.S. company is made with a foreign company, and the U.S. company has no foreign currency risk, then
A) the U.S. company has measured the transaction in US dollars.
B) the U.S. company has denominated the transaction in US dollars.
C) the foreign company has measured the transaction in their own currency.
D) the foreign company has denominated the transaction in their own currency.
Q:
An official description of a particular mutual fund's planned investment policy can be found in the fund's _____________.
A. prospectus
B. indenture
C. investment statement
D. 12b-1 forms
Q:
On November 14, 2011, Scuby Company (a U.S. corporation) enters into a transaction which is denominated in the Canadian dollar. Assume the exchange rate at November 14 is $1.03, and at the December 31 year-end reporting date, the exchange rate is $1.07. On January 27, 2012, when the transaction is settled, the exchange rate is $1.05. At the date of settlement, which of the following is correct?
A) The historical rate = $1.05, and the spot rate at which it is settled is the same as the current rate at $1.07.
B) The historical rate = $1.03, and the spot rate at which it is settled is the same as the current rate at $1.06.
C) The historical rate = $1.05, the current rate for reporting at December 31, 2011 is $1.07, and the spot rate at which it is settled is $1.03.
D) The historical rate = $1.03, the current rate for reporting at December 31, 2011 is $1.07, and the spot rate at which it is settled is $1.05.
Q:
The Service Employees International Union is an example of a(n)A) guild. B) craft union.C) industrial union. D) public-sector union.
Q:
Mutual funds account for roughly ______ of investment company assets.
A. 30%
B. 50%
C. 70%
D. 90%
Q:
A direct quote for the U.S. dollar is given at $1.45 per 1 foreign currency unit (fcu). The respective indirect quote for the U.S. dollar would be reported as
A) 1.45 fcu = $1.00.
B) 1.45 fcu = $.6897.
C) .6897 fcu = $1.00.
D) 1.00 fcu = $1.45.
Q:
If the price elasticity of demand is greater than 1, then consumer demand isA) unrelated to the elasticity of demand. B) inelastic.C) elastic. D) unitary elastic.