1. Financial statement analysis is:

I. the process of looking for items that are exceptions to the norm.

II. only used for internal purposes.

III. useful to both creditors and shareholders.

IV. useful when forecasting future performance.

a. II and IV only

b. II, III, and IV only

c. I, III, and IV only

d. I, II, III, and IV

e. I and III only

2. A fundamental problem in finance is that of a principal agent relationship. This type of problem exists between managers of a firm and its shareholders.

a. All such problems can be solved completely by writing good management contracts.

b. The use of stock options to reward managers addresses this issue perfectly.

c. Writing good management contracts and having good corporate governance policies in place help to modify the severity of all such problems.

d. Both "b" and "c" are correct answers

e. Create a firm with only employees as shareholders and managers, this way all conflicts will be resolved.