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Banking
Q:
What are financial intermediaries and what do they do?
Q:
An investor group borrowed the money necessary to buy all of the stock of a company. Which of the following
terms best describes this transaction?
a. Merger
b. Consolidation
c. Leveraged buyout
d. Tender offer
e. Joint venture
Q:
What is monetary policy and who is responsible for its implementation?
Q:
Which one of the following statements accurately describes a merger?
a. A merger transforms the target firm into a new entity which necessarily becomes a subsidiary of the acquiring firm
b. A new firm is created from the assets and liabilities of the acquirer and target firms
c. The acquiring firm absorbs only the assets of the target firm
d. The target firm is absorbed entirely into the acquiring firm and ceases to exist as a separate legal entity.
e. A new firm is created holding the assets and liabilities of the target firm and its former assets only.
Q:
How does the value of the dollar affect the competitiveness of American businesses?
Q:
News Corporation of America announced its intention to purchase shares in another national newspaper chain.
Which one of the following terms best describes this announcement?
a. Divestiture
b. Spinoff
c. Consolidation
d. Tender offer
e. Merger proposal
Q:
Why should consumers be concerned with movements in foreign exchange rates?
Q:
Pacific Surfware acquired Surferdude and as part of the transaction both of the firms ceased to exist in their
form prior to the transaction and combined to create an entirely new entity, Wildly Exotic Surfware. Which one of the following terms best describes this transaction?
a. Divestiture
b. Tender offer
c. Joint venture
d. Spinoff
e. Consolidation
Q:
Have interest rates been more or less volatile in recent years? Why?
Q:
Restaurant chain, Camin Holdings, acquired all of the assets and liabilities of Cheesecakes R Us. The
combined firm is known as Camin Holdings and Cheesecakes R Us no longer exists as a separate entity. The
acquisition is best described as a:
a. Merger
b. Consolidation
c. Tender offer
d. Spinoff
e. Divestiture
Q:
In recent years, financial markets have become more risky. However, only a limited number of tools (such as derivatives) are available to assist in managing this risk.
Q:
Post-merger financial performance of the new firm is often about the same as which of the following?
a. Joint ventures
b. Strategic alliances
c. Licenses
d. Minority investments
e. All of the above
Q:
Which of the following is the most common reason that M&As often fail to meet expectations?
a. Overpayment
b. Form of payment
c. Large size of target firm
d. Inadequate post-merger due diligence
e. Poor post-merger communication
Q:
Financial markets are what makes financial institutions work.
Q:
Different interest rates have a tendency to move in unison.
Q:
Around the announcement date of a merger, acquiring firm shareholders normally earn
a. 30% positive abnormal returns
b. 20% abnormal returns
c. Zero to slightly negative returns
d. 100% positive abnormal returns
e. 10% positive abnormal returns
Q:
Financial institutions are among the largest employers in the country and frequently pay very high salaries.
Q:
Around the announcement date of a merger or acquisition, abnormal returns to target firm shareholders
normally average
a. 10%
b. 30%
c. 3%
d. 100%
e. 50%
Q:
In a bull market stock prices are rising, on average.
Q:
The hubris motive for M&As refers to which of the following?
a. Explains why mergers may happen even if the current market value of the target firm reflects its true economic value
b. The ratio of the market value of the acquiring firms stock exceeds the replacement cost of its assets
c. Agency problems
d. Market power
e. The Q ratio
Q:
Which of the following is not true of strategic realignment?
a. May be a result of industry deregulation
b. Is rarely a result of technological change
c. Is a common motive for M&As
d. A and C only
e. Is commonly a result of technological change
Q:
Holding everything else constant, as the dollar strengthens foreigners will buy more U.S. exports.
Q:
Which of the following is not true of unrelated diversification?
a. Involves buying firms outside of the companys primary lines of business
b. Involves shifting from a firms core product lines into those which are perceived to have higher growth potential
c. Generally results in higher returns to shareholders
d. Generally requires that the cash flows of acquired businesses are uncorrelated with those of the firms existing businesses
e. A and D only
Q:
A financial intermediary borrows funds from people who have saved.
Q:
Which of the following is not true of financial synergy?
a. Tends to reduce the firms cost of capital
b. Results from a better matching of investment opportunities available to the firm with internally generated funds
c. Enables larger firms to experience lower average security underwriting costs than smaller firms
d. Tends to spread the firms fixed expenses over increasing levels of production
e. A and B
Q:
Financial innovation has provided more options to both investors and borrowers.
Q:
Which of the following are not true about economies of scale?
a. Spreading fixed costs over increasing production levels
b. Improve the overall cost position of the firm
c. Most common in manufacturing businesses
d. Most common in businesses whose costs are primarily variable
e. Are common to such industries as utilities, steel making, pharmaceutical, chemical and aircraft manufacturing
Q:
In recent years, financial markets have become more stable and less risky.
Q:
Holding everything else constant, as the dollar weakens vacations abroad become less attractive.
Q:
Which of the following are generally not considered motives for mergers?
a. Desire to achieve economies of scale
b. Desire to achieve economies of scope
c. Desire to achieve antitrust regulatory approval
d. Strategic realignment
e. Desire to purchase undervalued assets
Q:
Interest rates can be accurately described as the rental price of money.
Q:
Institutional investors in private companies often have considerable influence approving or disapproving
proposed mergers. Which of the following are generally not considered institutional investors?
a. Pension funds
b. Insurance companies
c. Bank trust departments
d. United States Treasury Department
e. Mutual funds
Q:
The government organization responsible for the conduct of monetary policy in the United States is the U.S. Treasury.
Q:
Arbitrageurs often adopt which of the following strategies in a share for share exchange just before or just after
a merger announcement?
a. Buy the target firms stock
b. Buy the target firms stock and sell the acquirers stock short
c. Buy the acquirers stock only
d. Sell the targets stock short and buy the acquirers stock
e. Sell the target stock short
Q:
Monetary policy affects interest rates but has little effect on inflation or business cycles.
Q:
The purpose of a fairness opinion from an investment bank is
a. To evaluate for the targets board of directors the appropriateness of a takeover offer
b. To satisfy Securities and Exchange Commission filing requirements
c. To support the buyers negotiation effort
d. To assist acquiring management in the evaluation of takeover targets
e. A and B
Q:
A stock is a debt security that promises to make periodic payments for a specific period of time.
Q:
Which of the following are often participants in the acquisition process?
a. Investment bankers
b. Lawyers
c. Accountants
d. Proxy solicitors
e. All of the above
Q:
Interest rates are determined in the bond markets.
Q:
Which of the following represent alternative ways for businesses to reap some or all of the advantages of M&As?
a. Joint ventures and strategic alliances
b. Strategic alliances, minority investments, and licensing
c. Minority investments, alliances, and licensing
d. Franchises, alliances, joint ventures, and licensing
e. All of the above
Q:
Money is anything accepted by anyone as payment for services or goods.
Q:
ESOPs may be used for which of the following?
a. As an alternative to divestiture
b. To consummate management buyouts
c. As an anti-takeover defense
d. A, B, and C
e. A and B only
Q:
From the peak of the high-tech bubble in 2000, the stock market ________ by over ________ by late 2002.
A) collapsed; 75%
B) rose; 35%
C) collapsed; 30%
D) rose; 50%
Q:
Which of the following are not true about ESOPs?
a. An ESOP is a trust
b. Employer contributions to an ESOP are tax deductible
c. ESOPs can never borrow
d. Employees participating in ESOPs are immediately vested
e. C and D
Q:
A rising stock market index due to higher share prices
A) increases people's wealth and as a result may increase their willingness to spend.
B) increases the amount of funds that business firms can raise by selling newly issued stock.
C) decreases the amount of funds that business firms can raise by selling newly issued stock.
D) both A and B of the above.
Q:
Which of the following represent disadvantages of a holding company structure?
a. Potential for triple taxation
b. Significant number of minority shareholders may create contentious environment
c. Managers may have difficulty in making the best investment decisions
d. A, B, and C
e. A and C only
Q:
Monetary policy affects
A) interest rates.
B) inflation.
C) business cycles.
D) all of the above.
Q:
Buyers often prefer friendly takeovers to hostile ones because of all of the following except for:
a. Can often be consummated at a lower price
b. Avoid an auction environment
c. Facilitate post-merger integration
d. A shareholder vote is seldom required
e. The target firms management recommends approval of the takeover to its shareholders
Q:
________ are an example of a financial institution.
A) Banks
B) Insurance companies
C) Finance companies
D) All of the above
Q:
Which one of the following is not an example of a horizontal merger?
a. NationsBank and Bank of America combine
b. U.S. Steel and Marathon Oil combine
c. Exxon and Mobil Oil combine
d. SBC Communications and Ameritech Communications combine
e. Hewlett Packard and Compaq Computer combine
Q:
A security
A) is a claim or price of property that is subject to ownership.
B) promises that payments will be made periodically for a specified period of time.
C) is the price paid for the usage of funds.
D) is a claim on the issuer's future income.
Q:
Which of the following is true only of a consolidation?
a. More than two firms are involved in the combination
b. One party to the combination disappears
c. All parties to the combination disappear
d. The entity resulting from the combination assumes ownership of the assets and liabilities of the acquiring firm only.
e. One company becomes a wholly owned subsidiary of the other.
Q:
In recent years
A) interest rates have remained constant.
B) the success of financial institutions has reached levels unprecedented since the Great Depression.
C) stock markets have crashed.
D) all of the above.
Q:
A firm may be motivated to purchase another firm whenever
a. The cost to replace the target firms assets is less than its market value
b. The replacement cost of the target firms assets exceeds its market value
c. When the inflation rate is accelerating
d. The ratio of the target firms market value is more than twice its book value
e. The market to book ratio is greater than one and increasing
Q:
Which of the following is an example of economies of scope?
a. Declining average fixed costs due to increasing levels of capacity utilization
b. A single computer center supports multiple business units
c. Amortization of capitalized software
d. The divestiture of a product line
e. Shifting production from an underutilized facility to another to achieve a higher overall operating rate and shutting down the first facility
Q:
The largest financial intermediaries are
A) insurance companies.
B) finance companies.
C) banks.
D) all of the above.
Q:
All of the following are considered business alliances except for
a. Joint ventures
b. Mergers
c. Minority investments
d. Franchises
e. Licensing agreements
Q:
________ was the stock market's worst one-day drop in history in the 1980s.
A) Black Friday
B) Black Monday
C) Blackout Day
D) none of the above
Q:
Which of the following are generally considered restructuring activities?
a. A merger
b. An acquisition
c. A divestiture
d. A consolidation
e. All of the above
Q:
(I) Banks are financial intermediaries that accept deposits and make loans.
(II) The term "banks" includes firms such as commercial banks, savings and loan associations, mutual savings banks, credit unions, insurance companies, and pension funds.
A) (I) is true, (II) false.
B) (I) is false, (II) true.
C) Both are true.
D) Both are false.
Q:
Banks, savings and loan associations, mutual savings banks, and credit unions
A) are no longer important players in financial intermediation.
B) have been providing services only to small depositors since deregulation.
C) have been adept at innovating in response to changes in the regulatory environment.
D) all of the above.
E) only A and C of the above.
Q:
Regulatory and political change seldom plays a role in increasing or decreasing the level of M&A activity.
True or False
Q:
Banks are important to the study of money and the economy because they
A) provide a channel for linking those who want to save with those who want to invest.
B) have been a source of financial innovation that is expanding the alternatives available to those wanting to invest their money.
C) are the only financial institution to play a role in determining the quantity of money in the economy.
D) do all of the above.
E) do only A and B of the above.
Q:
Financial considerations, such as an acquirer believing the target is undervalued, a booming stock market or falling interest rates, frequently drive surges in the number of acquisitions. True or False
Q:
Individual investors can generally diversify their own stock portfolios more efficiently than corporate managers who diversify the companies they manage. True or False
Q:
Economists group commercial banks, savings and loan associations, credit unions, mutual funds, mutual savings banks, insurance companies, pension funds, and finance companies together under the heading financial intermediaries. Financial intermediaries
A) act as middlemen, borrowing funds from those who have saved and lending these funds to others.
B) play an important role in determining the quantity of money in the economy.
C) help promote a more efficient and dynamic economy.
D) do all of the above.
E) do only A and C of the above.
Q:
The empirical evidence shows that unrelated diversification is an effective means of smoothing out the business cycle. True or False
Q:
Economists group commercial banks, savings and loan associations, credit unions, mutual funds, mutual savings banks, insurance companies, pension funds, and finance companies together under the heading financial intermediaries. Financial intermediaries
A) act as middlemen, borrowing funds from those who have saved and lending these funds to others.
B) produce nothing of value and are therefore a drain on society's resources.
C) help promote a more efficient and dynamic economy.
D) do all of the above.
E) do only A and C of the above.
Q:
The empirical evidence supports the presumption that bigger is always better when it comes to acquisitions.
True or False
Q:
Monetary policy is chiefly concerned with
A) how much money businesses earn.
B) the level of interest rates and the nation's money supply.
C) how much money people pay in taxes.
D) whether people have saved enough money for retirement.
Q:
Growth is often cited as an important factor in acquisitions. The underlying assumption is that that bigger is
better to achieve scale, critical mass, globalization, and integration. True or False
Q:
The central bank of the United States is
A) Citicorp.
B) The Fed.
C) Bank of America.
D) The Treasury.
E) none of the above.
Q:
A leveraged buyout is the purchase of a company financed primarily by debt. This is a term more frequently applied to a firm going private financed primarily by debt. True or False
Q:
The organization responsible for the conduct of monetary policy in the United States is the
A) Comptroller of the Currency.
B) U.S. Treasury.
C) Federal Reserve System.
D) Bureau of Monetary Affairs.
Q:
An acquisition is the purchase of an entire company or a controlling interest in a company. True or False
Q:
Money is defined as
A) anything that is generally accepted in payment for goods and services or in the repayment of debt.
B) bills of exchange.
C) a riskless repository of spending power.
D) all of the above.
E) only A and B of the above.
Q:
Consolidation occurs when two or more companies join to form a new company. True or False
Q:
From 1980 to early 1985 the dollar ________ in value, thereby benefiting American ________
A) appreciated; businesses.
B) appreciated; consumers.
C) depreciated; businesses.
D) depreciated; consumers.
Q:
A subsidiary merger is a merger of two companies where the target company becomes a subsidiary of the parent. True or False
Q:
A weaker dollar benefits ________ and hurts ________
A) American businesses; American consumers.
B) American businesses; foreign consumers.
C) American consumers; American businesses.
D) foreign businesses; American consumers.