Question 1. The primary advantage that pledging accounts receivable provides is
a. the flexibility it gives to the borrower.
b. that the financial institution bears the risk of collection.
c. the low cost as compared with other sources of short-term financing.
d. that the financial institution services the accounts.
Question 2. A company that forgoes the discount when credit terms are 2/10 net 60 due to insufficient cash flow would be better off to borrow funds and take the discount as long the company could borrow the funds at any rate
a. less than 16.33%.
b. less than 15.47%.
c. less than 14.69%.
d. less than 12.00%.
Question 3. The time necessary for a deposited check to clear through the commercial banking system causes which of the following types of floats?
a. mail
b. processing
c. transit
d. disbursing
Question 4. One advantage of zero balance accounts is an increase in disbursing float.
a. True
b. False
Question 5. Flashbinder Guitars, Inc. is considering a lockbox system that will increase its check processing cost by $.20 per check. The company estimates an average check size of $900 and expects any funds freed up by the new lockbox system can be invested in an account that earns 4% per year before taxes. What reduction in collection time is necessary for the lockbox to be beneficial to Flashbinder Guitars Inc.?
a. 1.96 days
b. 2.03 days
c. 1.73 days
d. 2.15 days
Question 6. Flashbinder Guitars, Inc. is considering a lockbox system that will increase its check processing cost by $.15 per check. The company estimates an average check size of $1,700 and expects the lockbox to reduce check collection time by 3 days. What annual before-tax yield must Flashbinder Guitars, Inc. earn on its marketable securities for the lockbox system to be beneficial?
a. 1.825%
b. 1.118%
c. 1.074%
d. 0.735%
Question 7. In the basic EOQ model the optimal inventory level is the point at which
a. total cost is minimized.
b. total revenue is maximized.
c. carrying costs are minimized.
d. ordering costs are minimized.
Question 8. Salamander Insurance Company tries to settle claims as quickly as possible. In certain cases, agents can present payments to claimants which are cleared through the banking system like a check, but must be passed through the Insurance Company for approved prior to payment. This is an example of a
a. zero balance account.
b. payable-through draft.
c. insurance float voucher.
d. post-dated check.
Question 9. Effective cash management involves the tradeoff between the risk of insolvency (resulting in higher near cash balances) and the desire to earn higher returns (resulting in lower near cash balances).
a. True
b. False
Question 10. If you were a treasurer for a Fortune 1,000 corporation who has responsibility for investing "excess cash balances," which of the following alternatives would you be least likely to select?
a. commercial paper
b. common stock
c. bankers' acceptances
d. U.S. Treasury bills
Question 11. Payable through drafts
a. provides for effective control over field payments.
b. are not legal instruments.
c. cannot be cleared through the banking system.
d. are a form of commercial paper.
Question 12. Assume that liquid funds can be invested to yield 4.5 percent. If annual remittance checks total $2 billion, what is it worth for the firm to reduce float by 1 day?
a. $388,349
b. $246,575
c. $257,534
d. $24,658
Question 13. The 30-day forward exchange rate is .01073033 dollars per yen. If this forward rate represents a per year discount of 2.5% from the current spot rate, what is the current spot exchange rate?
a. .01073033 dollars per yen
b. .01257754 dollars per yen
c. .01329684 dollars per yen
d. .01093833 dollars per yen
Question 14. Which of the following is a reason for international investment?
a. to reduce portfolio risk
b. to increase P/E ratio
c. to gain an advantage in a foreign country
d. to gain access to foreign currency
Question 15. If you are an importer of goods and you need to make payment for the purchase of inventory before the close of business today, which of the below is the correct term for the exchange rate that you will use?
a. indirect rate
b. spot rate
c. direct rate
d. forward rate
Question 16. Assume that the British pound is worth 1.6242 U.S. dollars. If a new Jaguar costs $138,000, what is the cost in British pounds?
a. 201,000
b. 84,965
c. 71,642
d. 119,998
Question 17. A bottle of German wine costs $21 euros in Berlin. According to the purchasing power parity theory, what would the bottle sell for in New York if it costs the New York company $1.25 per bottle to transport the wine to the United States? Assume the exchange rate is $1.32 per euro.
a. $40.54
b. $28.97
c. $27.22
d. $39.50
Question 18. If you are an importer of goods and you will make payment for the purchase of inventory on 90-day terms, which of the below is the correct term for the exchange rate that you will use?
a. indirect rate
b. spot rate
c. direct rate
d. forward rate
Question 19. Suppose a U.S. importer purchases an Italian product today but will not pay for it for 90 days. The cost of the product today is 30,000 euros. The spot exchange rate today is .6233 euros per dollar. If the U.S. importer does not hedge the position, which of the following spot exchange rates in 90 days will yield the highest returns?
a. 0.6833 euros per dollar
b. 0.6499 euros per dollar
c. $1.4844 per euro
d. $1.5387 per euro
Question 20. A British-made component costs 36 U.K. pounds. A company in the United States needs to buy these components and the current indirect quote indicates that one dollar will buy .6250 pounds. Ignoring transactions costs, how much will one component cost in U.S. dollars?
a. $22.50
b. $45.94
c. $57.60
d. $72.00
Question 21. Foreign currency forward rates aid traders by reducing uncertainty regarding future market fluctuations.
a. True
b. False
Question 22. Buying and selling in more than one market to make a riskless profit is called
a. profit-maximization.
b. arbitrage.
c. international trading.
d. cannot be determined from the above information