Question 1

"Mid-size" firms may issue publicly-traded __________ and they usually turn to commercial banks for __________-term debt financing.

Accepted Answer

A)  bonds; long 
B)  bonds; short 
C)  equity; long 
D)  equity; short 
A)  bonds; long 
B)  bonds; short 
C)  equity; long 
D)  equity; short

Question 2

An "unsecured" loan is one

Accepted Answer

A)  with no stated collateral. 
B)  that is pending approval by a bank loan committee. 
C)  which has collateral. 
D)  in which the borrower is delinquent in loan payments but has not formally defaulted on. 
A)  with no stated collateral. 
B)  that is pending approval by a bank loan committee. 
C)  which has collateral. 
D)  in which the borrower is delinquent in loan payments but has not formally defaulted on.

Question 3

Financing accounts receivable and inventory is known as

Accepted Answer

A)  capital financing. 
B)  working capital financing. 
C)  long-term financing. 
D)  equity financing. 
A)  capital financing. 
B)  working capital financing. 
C)  long-term financing. 
D)  equity financing.

Question 4

Do underwriters normally run any kind of risk?

Accepted Answer

A)  They risk being unable to sell the bonds they underwrite. 
B)  They risk receiving a lower price than the commitment price to the bond issuer. 
C)  They risk default on the bonds. 
D)  No, their operations are generally risk-free. 
A)  They risk being unable to sell the bonds they underwrite. 
B)  They risk receiving a lower price than the commitment price to the bond issuer. 
C)  They risk default on the bonds. 
D)  No, their operations are generally risk-free.

Question 5

Commercial banks

Accepted Answer

A)  buy private placements for their own portfolio of assets. 
B)  help firms sell private placements. 
C)  sell their own private placements. 
D)  have nothing to do with private placements. 
A)  buy private placements for their own portfolio of assets. 
B)  help firms sell private placements. 
C)  sell their own private placements. 
D)  have nothing to do with private placements.

Question 6

A small firm's __________ usually has the task of getting to know the loan officers of local banks.

Accepted Answer

A)  accountant 
B)  owner 
C)  production manager 
D)  tax attorney 
A)  accountant 
B)  owner 
C)  production manager 
D)  tax attorney

Question 7

It is __________ in the United States for a bank to require a business owner to put up some of his personal assets as "__________" collateral for a loan to his business.

Accepted Answer

A)  legal; inside 
B)  legal; outside 
C)  illegal; inside 
D)  illegal; outside 
A)  legal; inside 
B)  legal; outside 
C)  illegal; inside 
D)  illegal; outside

Question 8

Under __________ a borrower gets advance approval from the SEC to issue securities up to a certain amount at an unspecified time in the future.

Accepted Answer

A)  advance registration 
B)  pre-registration 
C)  guaranteed registration 
D)  shelf registration 
A)  advance registration 
B)  pre-registration 
C)  guaranteed registration 
D)  shelf registration

Question 9

A large business finds it __________ than a small business to pursue secretly a high-risk investment in violation of the terms of its loan agreement, and so the large business is __________ beset by the moral hazard problem.

Accepted Answer

A)  more difficult; more 
B)  more difficult; less 
C)  easier; more 
D)  easier; less 
A)  more difficult; more 
B)  more difficult; less 
C)  easier; more 
D)  easier; less

Question 10

A clause in a loan contract disallowing the borrower from acquiring other companies during the term of the loan is an example of a

Accepted Answer

A)  guarantee. 
B)  collateral agreement. 
C)  restrictive covenant. 
D)  moral hazard. 
A)  guarantee. 
B)  collateral agreement. 
C)  restrictive covenant. 
D)  moral hazard.

Question 11

Liens __________ the moral hazard problem since the borrower is then __________ to sell the affected assets at its discretion.

Accepted Answer

A)  worsen; able 
B)  worsen; unable 
C)  ease; able 
D)  ease; unable 
A)  worsen; able 
B)  worsen; unable 
C)  ease; able 
D)  ease; unable

Question 12

Private placements avoid

Accepted Answer

A)  restrictive agreements. 
B)  SEC registration costs. 
C)  the need for collateral. 
D)  the primary market. 
A)  restrictive agreements. 
B)  SEC registration costs. 
C)  the need for collateral. 
D)  the primary market.

Question 13

A firm that can borrow from a bank any amount it wishes up to a certain limit, and at any time up to a certain date, is said to have a

Accepted Answer

A)  repurchase agreement. 
B)  trade credit. 
C)  a line of credit. 
D)  internal financing. 
A)  repurchase agreement. 
B)  trade credit. 
C)  a line of credit. 
D)  internal financing.

Question 14

Are bank lines of credit to small firms collateralized?

Accepted Answer

A)  All of them are. 
B)  Some of them are, especially if the firm is risky. 
C)  Some of them are, especially if the firm is safe. 
D)  None of them are. 
A)  All of them are. 
B)  Some of them are, especially if the firm is risky. 
C)  Some of them are, especially if the firm is safe. 
D)  None of them are.

Question 15

The distinction between a "secured" lender and an "unsecured" lender is that in the event of the bankruptcy of the borrower

Accepted Answer

A)  the unsecured lender has first claim on collateral. 
B)  the secured lender has first claim on collateral. 
C)  the secured lender has a first claim on all of the assets of the bankrupt borrower. 
D)  the unsecured lender has a first claim on all of the assets of the bankrupt borrower. 
A)  the unsecured lender has first claim on collateral. 
B)  the secured lender has first claim on collateral. 
C)  the secured lender has a first claim on all of the assets of the bankrupt borrower. 
D)  the unsecured lender has a first claim on all of the assets of the bankrupt borrower.

Question 16

Because consumer loans are rather __________, they have been relatively __________ to securitize.

Accepted Answer

A)  standardized; easy 
B)  standardized; difficult 
C)  not standardized; easy 
D)  not standardized; difficult 
A)  standardized; easy 
B)  standardized; difficult 
C)  not standardized; easy 
D)  not standardized; difficult

Question 17

The steps in the process of commercial bank lending in order are

Accepted Answer

A)  borrower bank search, credit analysis, borrower-bank negotiation, bank funding. 
B)  borrower bank search, borrower-bank negotiation, credit analysis, bank funding. 
C)  credit analysis, borrower bank search, borrower-bank negotiation, bank funding. 
D)  borrower-bank negotiation, borrower bank search, credit analysis, bank funding. 
A)  borrower bank search, credit analysis, borrower-bank negotiation, bank funding. 
B)  borrower bank search, borrower-bank negotiation, credit analysis, bank funding. 
C)  credit analysis, borrower bank search, borrower-bank negotiation, bank funding. 
D)  borrower-bank negotiation, borrower bank search, credit analysis, bank funding.

Question 18

In the private placement market the term "due diligence" means

Accepted Answer

A)  an investor finding an honest agent from whom to buy a bond. 
B)  a borrower finding an honest agent to sell its bonds. 
C)  conducting a credit analysis of the borrower. 
D)  an agent tailoring terms of the placement to meet investor needs. 
A)  an investor finding an honest agent from whom to buy a bond. 
B)  a borrower finding an honest agent to sell its bonds. 
C)  conducting a credit analysis of the borrower. 
D)  an agent tailoring terms of the placement to meet investor needs.

Question 19

"Medium term notes" have a maturity ranging up to

Accepted Answer

A)  one year. 
B)  two years. 
C)  five years. 
D)  ten years. 
A)  one year. 
B)  two years. 
C)  five years. 
D)  ten years.

Question 20

Which of these forms of financing requires the smallest minimum size of the borrower?

Accepted Answer

A)  short-term commercial bank loans 
B)  commercial paper 
C)  mezzanine funds 
D)  venture capital funds 
A)  short-term commercial bank loans 
B)  commercial paper 
C)  mezzanine funds 
D)  venture capital funds

Exam 14: Understanding Financial Contracts

"Mid-size" firms may issue publicly-traded __________ and they usually turn to commercial banks for __________-term debt financing.

An "unsecured" loan is one

Financing accounts receivable and inventory is known as

Do underwriters normally run any kind of risk?

Commercial banks

A small firm's __________ usually has the task of getting to know the loan officers of local banks.

It is __________ in the United States for a bank to require a business owner to put up some of his personal assets as "__________" collateral for a loan to his business.

Under __________ a borrower gets advance approval from the SEC to issue securities up to a certain amount at an unspecified time in the future.

A large business finds it __________ than a small business to pursue secretly a high-risk investment in violation of the terms of its loan agreement, and so the large business is __________ beset by the moral hazard problem.

A clause in a loan contract disallowing the borrower from acquiring other companies during the term of the loan is an example of a

Liens __________ the moral hazard problem since the borrower is then __________ to sell the affected assets at its discretion.

Private placements avoid

A firm that can borrow from a bank any amount it wishes up to a certain limit, and at any time up to a certain date, is said to have a

Are bank lines of credit to small firms collateralized?

The distinction between a "secured" lender and an "unsecured" lender is that in the event of the bankruptcy of the borrower

Because consumer loans are rather __________, they have been relatively __________ to securitize.

The steps in the process of commercial bank lending in order are

In the private placement market the term "due diligence" means

"Medium term notes" have a maturity ranging up to

Which of these forms of financing requires the smallest minimum size of the borrower?

Introducing Money, Banking, and Financial Markets

The Role of Money in the Macroeconomy

Financial Instruments, Markets, and Institutions

Interest Rate Measurement and Behavior

The Term and Risk Structure of Interest Rates

The Structure and Performance of Securities Markets

The Pricing of Risky Financial Assets

Money and Capital Markets

Demystifying Derivatives

Understanding Foreign Exchange

The Nature of Financial Intermediation

Depository Financial Institutions

Nondepository Financial Institutions

The Regulation of Markets and Institutions

Financial System Design

Who's in Charge Here?

Bank Reserves and the Money Supply

The Instruments of Central Bankin

Understanding Movements in Bank Reserves

Monetary Policy Strategy

The Classical Foundations

The Keynesian Framework

The ISLM World

Money and Economic Stability in the ISLM World

An Aggregate Supply and Demand Perspective on Money and Economic Stability

Rational Expectations: Theory and Policy Implications

Empirical Evidence on the Effectiveness of Monetary Policy

Tying It All Together

Filters

"Mid-size" firms may issue publicly-traded and they usually turn to commercial banks for -term debt financing.

It is in the United States for a bank to require a business owner to put up some of his personal assets as "" collateral for a loan to his business.

A large business finds it than a small business to pursue secretly a high-risk investment in violation of the terms of its loan agreement, and so the large business is beset by the moral hazard problem.

Liens the moral hazard problem since the borrower is then to sell the affected assets at its discretion.

Because consumer loans are rather , they have been relatively to securitize.