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Finance
Q:
Some specialized futures contracts are sold over the counter, whereas standardized financial futures contracts are traded on exchanges.
a. True
b. False
Q:
The types of business activities measured by the statement of cash flows are:
A) selling goods, selling services, and obtaining financing.
B) operating activities, investing activities, and financing activities.
C) hiring, producing, and advertising.
D) generating revenues, paying expenses, and paying dividends.
Q:
Settlement of stock index futures contracts occurs through delivery of the underlying securities.
a. True
b. False
Q:
The separate entity assumption means:
A) a company's financial statements reflect only the business activities of that company.
B) each separate owner's finances must be revealed in the financial statements.
C) each separate entity that has a claim on a company's assets must be shown in the financial statements.
D) if the business is a sole proprietorship, the owners personal activities are included in the companys financial statements.
Q:
Stock index futures cannot be closed out before the settlement date.
a. True
b. False
Q:
Operating activities include:
A) interest paid on a bank loan
B) the buying or selling of land, buildings, equipment, and other long-term investments.
C) the repayment of loan proceeds to the bank.
D) obtaining a bank loan to cover the payment of wages, rent and other operating costs.
Q:
The cost of carry, or net financing cost, to the purchaser of stock index futures refers to the brokerage commissions paid to the broker as a result of the purchase.
a. True
b. False
Q:
Which of the following would not represent a financing activity?
A) Paying dividends to stockholders.
B) An investment of capital by the owners.
C) Borrowing money from a bank to purchase new equipment.
D) Buying supplies on account.
Q:
Financial futures contracts on stock indexes are referred to as interest rate futures.
a. True
b. False
Q:
Cash flows from (used in) investing activities includes amounts:
A) received from a company's stockholders for the sale of stock.
B) received from the sale of the companys office building.
C) paid for dividends to the companys stockholders.
D) paid for salaries of employees.
Q:
Expenses are reported on the:
A) income statement in the time period in which they are paid.
B) income statement in the time period in which they are incurred.
C) balance sheet in the time period in which they are paid.
D) balance sheet in the time period in which they are incurred.
Q:
The futures price is mainly a function of the prevailing price of the underlying security plus an expected adjustment in that price by the settlement date.
a. True
b. False
Q:
Net income is the amount:
A) the company earned after subtracting expenses and dividends from revenue.
B) by which assets exceed expenses.
C) by which assets exceed liabilities.
D) by which revenues exceed expenses.
Q:
Since stock index futures prices are primarily driven by movements in the corresponding stock indexes, participants in stock index futures monitor indicators that may signal changes in the stock indexes.
a. True
b. False
Q:
A legal document called a stock certificate is used to indicate ownership in a:
A) Corporation.
B) Sole proprietorship.
C) Partnership.
D) Both sole proprietorship and partnership.
Q:
Cross-hedging with Treasury bond futures is primarily intended to protect against credit (default) risk of securities.
a. True
b. False
Q:
Which of the following statements about organizational forms of a business is not correct?
A) In a sole proprietorship form of business or in a partnership form, the owner(s) are personally responsible for the debts of the business.
B) The partnership agreement states how profits are to be shared between partners and what happens when a new partner is to be admitted or an existing partner is retiring.
C) A corporation is a separate entity from both a legal and accounting perspective.
D) The owners of a corporation are legally responsible for the corporations debts and taxes.
Q:
The price of stock index futures may reflect investor expectations about the market more rapidly than stock prices.
a. True
b. False
Q:
Which of the following statements about financial accounting is correct?
A) Financial accounting reports are used primarily by employees to make business decisions related to production.
B) Financial accounting reports are used primarily by management to understand whether a product line should be discontinued.
C) Financial accounting reports are primarily prepared to provide information for external decision makers.
D) Financial accounting reports primarily contain detailed internal records of the company.
Q:
The earnings of a financial institution that hedges with interest rate futures are less sensitive to economic events than the earnings of an institution that does not hedge.
a. True
b. False
Q:
Internal users of financial data include:
A) investors.
B) creditors.
C) management.
D) regulatory authorities.
Q:
Brokers commonly require margin deposits from their customers above those required by the exchanges.
a. True
b. False
Q:
Which of the following business organizations has only one owner?
A) Corporation
B) Sole proprietorship
C) Public company
D) Partnership
Q:
The value of a stock index futures contract has little correlation with the value of the underlying stock index.
a. True
b. False
Q:
Market participants who expect the stock market to perform poorly before the settlement date may consider selling S&P 500 index futures.
a. True
b. False
Q:
An investor who is looking at a companys financial statements cannot determine whether the:
A) companys earnings are rising or falling.
B) company pays a dividend.
C) company has positive cash flow.
D) companys owners are financially sound.
Q:
Financing that individuals or institutions have provided to a corporation is:
A) always classified as a liability.
B) classified as a liability when provided by creditors and as stockholders' equity when provided by owners.
C) always classified as equity.
D) classified as a stockholders' equity when provided by creditors and a liability when provided by owners.
Q:
A bond index futures contract allows for the buying, but not the selling, of a bond index for a specified price at a specified date.
a. True
b. False
Q:
The values of stock index futures contracts are insulated from market risk.
a. True
b. False
Q:
Creditors are:
A) people or organizations who owe money to a business.
B) people or organizations to whom a business owes money.
C) stockholders of a business.
D) customers of a business.
Q:
Purchasers of financial futures contracts traded on an exchange know who the sellers are, and send a check directly to the seller at the time of the purchase.
a. True
b. False
Q:
Accounting systems:
A) are summarized in publicly published reports.
B) analyze, record, summarize, and the activities affecting its financial condition and performance.
C) monitor business activities only in financial terms.
D) capture only the information that is needed by the owners of the company.
Q:
Financial futures contracts on U.S. securities are commonly traded by non-U.S. financial institutions that maintain holdings of U.S. securities.
a. True
b. False
Q:
The owner(s) of a business are taxed on the profits of the business if the business is a:
A) sole proprietorship.
B) partnership.
C) corporation.
D) public partnership.
Q:
Credit risk exists for futures contracts traded on exchanges, but it is normally not a concern for over-the-counter futures transactions.
a. True
b. False
Q:
Public corporations are businesses:
A) owned by two or more people, each of whom is personally liable for the debts of the business.
B) whose stock is bought and sold on a stock exchange.
C) whose stock is bought and sold privately.
D) where stock is not used as evidence of ownership.
Q:
Indicate whether the statement is true or false.Financial futures contracts are normally sold on a futures exchange, not over the counter.a. Trueb. False
Q:
The Sarbanes-Oxley Act (SOX) requires top management of companies to sign a report certifying that the financial statements are free of error.
Q:
While an investors ability to simultaneously consider multiple markets to accommodate orders was perceived to allow for more competitive pricing (lower transactions costs), it also led to a form of _______________ whereby traders with relatively faster access to specific markets can use another traders planned orders and move ahead of that order.
a. randomized algo
b. front running
c. circuit breaking
d. specialist surfing
Q:
The Securities and Exchange Commission (SEC) is the government agency that has primary responsibility for setting accounting standards in the U.S.
Q:
Karen purchased a stock priced at $33 on margin, paying $23 and borrowing the remainder from a brokerage firm at 15 percent annual interest. The stock pays an annual dividend of $2. If Karen sells the stock after one year at a price of $50, what is her return on the stock?
a. 27.60 percent
b. 82.61 percent
c. 76.09 percent
d. 58.70 percent
e. None of these are correct.
Q:
In the United States, generally accepted accounting principles (GAAP) are established by the PCAOB (Public Company Accounting Oversight Board).
Q:
The risk of a short sale is that the stock price
a. may decrease over time.
b. will remain the same.
c. may increase over time.
d. None of these are correct.
Q:
A stock that does not pay a dividend is an undesirable investment.
Q:
You purchase a stock with cash, and you earn a negative return on the stock. If you had purchased the stock with 60 percent cash and 40 percent borrowed funds, your return on your investment would have been
a. positive.
b. more negative than if you had covered the entire investment with cash.
c. negative, but more favorable than if you had covered the entire investment with cash.
d. zero.
Q:
Creditors are mainly interested in the profitability of a company.
Q:
The Division of ____ of the SEC assesses possible violations of SEC regulations and can take action against individuals or firms.
a. Corporation Finance
b. Enforcement
c. Administration
d. Trading and Markets
Q:
Common Stock is reported as an asset on the balance sheet.
Q:
______________ represents the use of electronic platforms to execute orders based on an algorithm with programmed instructions.
a. High frequency trading
b. Mechanical analysis
c. Liquidity trading
d. Technical analysis
Q:
Generally Accepted Accounting Principles (GAAP) require profitable companies to distribute some of their earnings to their stockholders.
Q:
Trading halts are imposed by
a. the SEC.
b. brokers.
c. stock exchanges.
d. the Treasury.
Q:
Revenue is reported on the income statement only if cash was received at the point of sale.
Q:
Which of the following statements is incorrect?
a. In a short sale, investors place an order to sell a stock that they do not own.
b. Investors sell a stock short when they anticipate that its price will rise.
c. When investors sell short, they will ultimately have to provide the stock back to the investor from whom they borrowed it.
d. Short-sellers must make payments to the investor from whom the stock was borrowed to cover the dividend payments that the investor would have received if the stock had not been borrowed.
Q:
If a company reports net income on the income statement, then the statement of cash flows will report the same amount as cash flows from operating activities for the period.
Q:
____ offer advice to customers on stocks to buy or sell.
a. Full-service brokers
b. Discount brokers
c. Floor brokers
d. Specialists
e. Market makers
Q:
Dividends are subtracted from revenues on the income statement.
Q:
____ is defined as a computerized response by institutional investors to either buy or sell a large basket of stocks in response to movements in a particular stock index.
a. Direct access brokering
b. Electronic communication networking
c. Program trading
d. High-volume stock trading
Q:
Accounts Payable, Notes Payable, and Salaries and Wages Payable are examples of liabilities.
Q:
When the price of a companys stock increases or decreases significantly in advance of a public announcement of an event affecting the company, there are suspicions that __________ may have occurred.
a. bid rigging
b. default inversion
c. insider trading
d. an increase in margin requirements
Q:
Amounts reported on financial statements are sometimes rounded to the nearest million.
Q:
A short-seller
a. anticipates that the price of the stock sold short will increase.
b. earns the difference between what was initially paid for the stock versus what the stock is later sold for.
c. makes a profit equal to the difference between the original selling price and the price paid for the stock, after subtracting any dividend payments made.
d. is essentially lending the stock to another investor and will ultimately receive that stock back from that investor.
e. None of these are correct.
Q:
A company owes $200,000 on a bank loan. It will be reported by the company as Notes Payable.
Q:
Assume a stock is initially priced at $50, and pays an annual $2 dividend. An investor uses cash to pay $25 a share and borrows the remaining funds at a 12 percent annual interest. What is the return if the investor sells the stock for $55 at the end of one year?
a. 50 percent
b. 30 percent
c. 10 percent
d. 16 percent
e. 8 percent
Q:
Stockholders' equity is the difference between a companys assets and its liabilities.
Q:
The SEC's ____ reviews the registration statement filed when a firm goes public, corporate filings for annual and quarterly reports, and proxy statements that involve voting for board members or other corporate issues.
a. Division of Corporation Finance
b. Division of Trading and Markets
c. Division of Enforcement
d. None of these are correct.
Q:
The daily activities involved in running a business, such as buying supplies and paying salaries and wages, are classified as operating activities on the statement of cash flows.
Q:
Mark purchases a stock priced at $70. The stock is not expected to pay any dividends in the coming year. Mark thinks he can sell the stock for $100 after one year. If Mark uses his own funds for half of the investment amount and borrows the remainder from his brokerage firm at an annual interest rate of 12 percent, his estimated return on the stock would be ____ percent.
a. 42.86
b. 85.71
c. 73.71
d. 30.00
Q:
The payment of dividends is a financing activity on the statement of cash flows.
Q:
Which of the following is incorrect in regard to short selling?
a. Naked short selling involves selling a stock short without first borrowing the stock.
b. During the credit crisis, the SEC temporarily protected more than 800 firms from short selling.
c. The SECs uptick rule prevents speculators from taking a short position in stocks that have declined at least 30 percent for the day, except when the most recent trade resulted in an increase in the stock price.
d. During the credit crisis, some short-sellers focused particularly on the stocks of financial institutions.
e. None of these are correct.
Q:
Building a new warehouse is an operating activity on the statement of cash flows.
Q:
High frequency traders set up their own _________ that specify the conditions under which a specific stock should be purchased or sold, the size of the transaction, and the price that should be paid.
a. algorithms
b. inverse programs
c. circuit breakers
d. nextron networks
Q:
With a ____ order, the investor specifies a purchase price that is above the current market price.
a. market
b. limit
c. stop-loss
d. stop-buy
Q:
You paid $10,000 to buy 1% of the stock in a corporation that is now bankrupt. The company owes $10 million dollars to its creditors. As a result of the bankruptcy, you are responsible for paying $100,000 (or $10 million 1%) of the amount owed to the creditors.
Q:
Expert networks consisting of managers or executives of a publicly traded company who are hired as consultants (experts) by a hedge fund to provide insight about the company
a. are illegal under Regulation FD.
b. are legitimate if the consultants divulge only information that is already public.
c. have raised concerns that the consultants provide inside information.
d. are legitimate if the consultants divulge only information that is already public AND have raised concerns that the consultants provide inside information.
Q:
All corporations acquire financing by issuing stock for sale on public stock exchanges.
Q:
Stockholders are creditors of a corporation.
Q:
When a brokerage firm demands more collateral from investors who have borrowed from the brokerage firm to buy stocks, it is making a
a. margin call.
b. short sale.
c. proxy fight.
d. hedge.
Q:
____ are enforced to restrict the amount of credit extended to customers by stockbrokers.
a. Limit orders
b. Margin requirements
c. Maintenance margins
d. Initial margins
Q:
Which of the following statements is incorrect with respect to the structure of the SEC?
a. It is composed of seven commissioners appointed by the president of the United States.
b. The president selects one commissioner to chair the commission.
c. Each commissioner serves a five-year term.
d. Commissioners' terms are staggered.
e. Commissioners meet to assess whether existing regulations are successfully preventing abuses and to revise the regulations as needed.
Q:
A criticism of dark pools is that they
a. reduce transparency.
b. are more expensive than the public stock exchanges.
c. are not accessible to institutional investors.
d. cannot be used to trade large blocks of stock.