Accounting and Finance holds 2,641 questions with answers, free to read and with no account needed. They are grouped into 3 categories: Accounting, Auditing, Finance.
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Answer: B. Banker’s acceptance
A banker's acceptance is a commercial trade draft guaranteed and underwritten by a commercial bank. It serves as a short-term credit instrument used in international trade to finance the shipment of goods. The endorsing...
Answer: A. Tangible asset
Tangible assets are physical items with a measurable value and substance, such as buildings, land, and equipment. These long-lived assets form the foundational productive capacity required by manufacturing and commercial...
Answer: D. over the counter market
Eurobonds are primarily traded in the over-the-counter market globally among international investors. Dealers and institutional participants negotiate transactions directly via telephone and electronic networks. This dec...
Answer: D. price of an option
The total market price of an option is composed of its intrinsic value plus its time value. Adding the intrinsic value and time value together gives traders the exact market premium required to purchase the option. Time...
Answer: C. Trade credit
Trade credit arises spontaneously from normal business operations when purchasing inventory from suppliers. Suppliers often offer early payment discounts or interest-free grace periods for short durations. This makes tra...
Answer: C. negotiable certificate
Large denomination bank deposits with fixed maturity are negotiable certificates. Negotiable certificates of deposit can be traded in secondary markets prior. Fixed interest rates and maturity dates characterize these ba...
Answer: B. cost of euro bond
Interest rate volatility and currency choices directly impact the overall cost of issuing Eurobonds. Fluctuating macroeconomic interest rates alter borrowing expenses while currency shifts affect repayment obligations. I...
Answer: D. forward contract
A forward contract represents a customized agreement between two parties to exchange assets. The terms are negotiated privately and settlement occurs on a predetermined future date. This mechanism locks in prices beforeh...
Answer: B. decreases in funds traded
A downward and leftward shift of the demand curve reduces both interest rates and funds traded. Fewer borrowers seeking capital shrinks the overall volume of financial transactions. Market equilibrium adjusts downward as...
Answer: A. Financial markets
Financial markets connect institutions needing funds with those holding surplus capital reserves. They provide organized venues where capital deficit units borrow from capital surplus units. This vital economic matching...
Answer: C. non-normal cash flow
Cash flows that change signs more than once are classified as non-normal cash flows. This pattern typically occurs when a project requires initial investment, generates income, and then requires cleanup costs. Non-normal...
Answer: A. scalpers
Scalpers hold trading positions for extremely brief intervals ranging from seconds to minutes. These traders capture tiny price discrepancies across active order books repeatedly. High trading frequency allows scalpers t...
Answer: B. deficit of funds
When prevailing interest rates sit below the market equilibrium, borrowing demand surges. At this low rate, the quantity of funds demanded exceeds the quantity of funds supplied. This imbalance creates a structural defic...
Answer: D. 0.15
Reported discount yields rely on dollar discounts relative to face values prorated for 360-day years. Dividing the discount by face value and scaling by maturity days produces the final yield figure. Mathematical executi...
Answer: C. Euros
Eurobonds are international bonds typically denominated in currencies other than that of the home country, often anchored by major currencies like the Euro. The Eurobond market developed to allow international borrowing...
Answer: C. non-cumulative preferred stock
Non-cumulative preferred stock does not accumulate missed dividend payments from prior financial periods. If a company skips a dividend payment, investors permanently lose their claim to that money. Board decisions to om...
Answer: C. 40%
The retention ratio is calculated as retained earnings divided by total net income. Subtracting the distributed dividends of one hundred fifty thousand from net income leaves one hundred thousand. Dividing one hundred th...
Answer: B. deficiencies for banks
High loan demand places pressure on bank liquidity, frequently leading to temporary reserve deficiencies. When loan originations outpace deposit inflows, banks must borrow funds to meet reserve requirements. The correct...
Answer: D. secondary markets
Secondary markets provide liquidity where investors can buy and sell existing bonds. Financial institutions holding swapped bonds liquidate them easily on these established exchanges. Secondary trading ensures that secur...
Answer: A. European option
A European option can only be exercised on its exact expiration date, unlike options with flexible exercise features. Holders cannot exercise European options early, even if the underlying asset price moves favorably int...
Answer: C. Present value cash flow
Calculating net present value begins by projecting and determining the present value of future cash flows. Future operational cash inflows must be discounted back to the current period using an appropriate hurdle rate. O...
Answer: A. banker acceptance
A banker's acceptance is a guaranteed short-term debt instrument created by a firm and backed by a bank. International trade transactions frequently rely on banker acceptances to ensure payment certainty for sellers. Ban...
Answer: C. auction process
Treasury Inflation Protected Securities (TIPS) have their coupon rates and yields established via Treasury auctions. Competitive bidding by primary dealers and institutional investors determines the final auction clearin...
Answer: C. non-participating preferred stock
Non-participating preferred stock guarantees a fixed dividend payout regardless of how profitable the company becomes. Investors holding this security receive steady income without sharing in extra corporate earnings dis...
Answer: A. Product cost
Product costs are directly tied to production and are expensed as cost of goods sold when the inventory is sold. These expenses include direct materials, direct labor, and manufacturing overhead incurred during the creat...
Answer: A. organized secondary markets
Unlike Treasury bills, most commercial papers lack a broad, organized secondary market, making them harder to liquidate quickly. Holders typically retain commercial paper until its final maturity date rather than attempt...
Answer: A. municipal bonds
Bonds issued by state and local government entities are classified as municipal bonds. Local municipalities use these debt instruments to fund public projects like schools and roads. Interest earned from municipal bonds...
Answer: D. participating preferred stock
Participating preferred stock grants holders the right to receive extra dividends if common stock payouts exceed a certain threshold. Holders of participating preferred shares receive their fixed dividend first and then...
Answer: C. Return on Equity
Return on Equity measures the profitability of a business relative to the total equity capital invested. This financial metric reveals how effectively management utilizes shareholder funds to generate net income. Calcula...
Answer: C. contraction period
During economic contractions, reduced business activity leaves banks with funds. Contraction periods feature slow loan demand from businesses and consumers. Excess funds accumulate in banks as borrowing opportunities dec...
Answer: B. wider price fluctuations
Longer term bonds are much more sensitive to changes in prevailing market interest rates. As market interest rates fluctuate, the present value of distant cash flows shifts significantly. This increased sensitivity leads...
Answer: C. clearing house
A clearing house sits between buyers and sellers to guarantee the execution of transactions. By acting as the universal counterparty, it completely eliminates direct default risks for traders. This centralized system ens...
Answer: B. national debt
National debt represents the cumulative total of past annual budget deficits accumulated over time. When a government spends more than tax revenues collected, the annual deficit adds debt. Total outstanding government bo...
Answer: B. buying treasury bills
When the central bank purchases Treasury bills, it injects cash into the financial system. This open market purchase increases bank reserves and expands the overall money supply. More available money lowers borrowing cos...
Answer: D. 20.65
Stock price is found by dividing conversion value by the conversion rate. Dividing the conversion value of ninety-five hundred by the rate of four hundred sixty yields twenty point sixty-five. This mathematical relations...
Answer: A. day traders
Day traders open and liquidate all financial positions within the exact same trading day. Positions are never held overnight to avoid exposure to after-hours market gap risks. Active monitoring of intraday price charts d...
Answer: A. Operating efficiency
Profit margin calculates the percentage of revenue remaining after covering all operating expenses. This metric reveals how efficiently management controls costs to turn sales into net income. Higher profit margins direc...
Answer: C. return
The difference between a T-bill purchase price and higher face value represents the investor return. Zero-coupon instruments generate all investor earnings through capital appreciation rather than periodic coupons. Purch...
Answer: A. 307
The call premium is determined by subtracting the face value from the call price components. Subtracting three hundred seventy eight from six hundred eighty five yields the correct premium value. This mathematical differ...
Answer: B. interest rate swaps
Interest rate swaps involve two counterparties exchanging fixed interest payments for floating payments. These financial agreements rely on a predetermined notional principal amount to calculate cash flows. Neither party...
Answer: A. Sole-proprietorship
A sole proprietorship is owned by a single individual and faces minimal government regulation. It requires very few formal legal procedures to establish compared to complex corporate entities. Owners enjoy direct control...
Answer: B. directly
Issuing companies often sell commercial paper directly to investors without involving brokers or dealers. Direct placement saves large corporations substantial transaction fees associated with dealer intermediation. The...
Answer: D. accrued interest
Accrued interest represents the interest accumulated on a bond since the last coupon payment date. Buyers compensate sellers for this accumulated portion during secondary market bond transactions. Settlement date calcula...
Answer: D. both A and B
Both common stock and preferred stock are primary varieties of corporate equity traded extensively on centralized exchanges. Corporations issue these two distinct equity classes to raise permanent capital from public and...
Answer: B. Financial Analysts
Financial analysts extensively utilize comprehensive accounting information to evaluate company performance, valuation, and creditworthiness. These professionals sift through balance sheets, income statements, and cash f...
Answer: C. non-competitive bids
Non-competitive bids allow smaller investors to purchase Treasury bills without specifying a yield. Bidders accept the average auction price determined by competitive bidding when submitting non-competitive bids. Allocat...
Answer: A. treasury notes and bonds
Treasury notes and bonds are government securities issued to fund national debt and federal spending. Notes feature medium-term maturities, while bonds provide long-term financing for government operations. These securit...
Answer: A. 13500
Net proceeds represent the final financial amount calculated by subtracting the underwriter spread from gross proceeds. In this specific contextual scenario, mathematical adjustment principles align the calculated figure...
Answer: B. Long-term Solvency Ratios
Long-term solvency ratios evaluate a firm's financial leverage and its ability to meet long-term debt obligations. These metrics examine the proportion of debt financing relative to equity on the corporate balance sheet....
Answer: C. opportunity cost
Opportunity cost represents the potential return foregone by holding non-earning cash balances rather than investing them. Every dollar kept idle in cash forfeits the interest or capital gains it could have earned in fin...
