Financial Markets and Institutions, 8e (Mishkin) Chapter 2 Overview of the Financial System 2.1 Multiple Choice 1) Every financial market performs the following function: A) It determines the level of interest rates. B) It allows common stock to be traded. C) It allows loans to be made. D) It channels funds from lenders-savers to borrowers-spenders. Answer: D Topic: Chapter 2.1 Function of Financial Markets Question Status: Previous Edition 2) Financial markets have the basic function of A) bringing together people with funds to lend and people who want to borrow funds.
c. U.S. Treasury bills. d. Banker’s acceptances. e. Money market mutual funds27. Money markets are markets for
a. Adjusted trial balance b. Comparative balance sheets c. Current income statement d. Additional information 4. The primary purpose of the statement of cash flows is to a. provide information about the investing and financing activities during a period. b. prove that revenues exceed expenses if there is a net income.
VI. Selective credit control. VII. Direct credit control. There are four aims of monetary policy.
Phases of the business cycle III. Economics policy and the business cycle IV. Fiscal policy and Monetary policy A. Fiscal Policy i. Expansionary ii. Contractionary B.
D) medium of exchange, unit of account, and store of value. Answer: D Topic: What is Money? Skill: Recognition* 2) Which of the following does NOT describe a function of money? A) a unit of account B) a hedge against inflation C) a medium of exchange D) a store of value Answer: B Topic: What is Money? Skill: Recognition 3) Which of the following is a primary function of money?
If it did, how did the firm invest its excess cash? 6. If not, what were the sources of cash the firm used to pay for the capital expenditures and/or dividends? Sources of cash used to pay for capital expenditures and/or dividends are proceeds from long-term debt and short term borrowings. 7.
It refers to gains and losses that may be incurred, when monetary transactions are settled in a foreign currency. Le ctu Pr of. re Az by ar m i Example of transactions exposure? -A company buys (or sells) on credit a product that is priced in a foreign currency. -A firm borrows (or lends) in a foreign currency.
A1 of 3 Formulas involved on the WACC calculations Corporate Finance - MBA 2009 Note written by Prof. Carles Vergara-Alert & Prof. Pedro Saffi 1 Objective This note tries to clarify the different assumptions and formulas used to calculate the Weighted Average Cost Of Capital (WACC) that you will find in different textbooks and articles. 2 The WACC formula The WACC formula is a weigthed average of the cost of equity and the after-tax cost of debt: W ACC = E D+E RE + D D+E (1 − τ )RD (1) being RE the cost of equity, RD the cost of debt, τ the corporate tax, E the market value of the firm’s equity, and D the market value of the firm’s debt. Note that sometimes we call V to the sum of D and E, therefore, V = D + E. Sometimes, not all the financing is provided by debt and equity. As an example, let us assume that some financing is provided by preferred stock as well as equity and debt. The WACC formula has to be modified to include the main sources of long-term financing of the firm such as preferred stock: W ACC = E D P RE + (1 − τ )RD + RP D+E+P D+E+P D+E+P where RP is the cost of preferred stock and P is the market value of the firm’s preferred stock.
It achieves this through a process known as the transmission mechanism, which occurs in a number of distinct stages: - Purchasing and sale of government bonds in the STMM to influence the cash rate - Changes in the cash rate influence other interest rates, particularly short term securities, such as bank bills. In this way, changes in monetary policy are usually translated into the rates that banks charge for lending. - These lending rates then influence the decisions of businesses and household to borrow and spend, as seen in Figure 1, providing a key channel for transmitting monetary policy to the real economy. 3. Explain the possible impacts of loose monetary policy on the value of the exchange rate and on economic growth in Australia The effect of an expansionary monetary policy is to lower the exchange rate, weaken the financial