FINMAFI

FINMAFI
TEST YOURSELF
TRUE OR FALSE
1. Managing the firm’s net working capital involves deciding on an investment strategy for
financing the firm’s current assets and liabilities, and equity.
2. When the firm is able to purchase items of inventory on credit, cash is tied up for the full length
of its operating cycle.
3. The components of Inventory are: raw materials, work in process, and finished goods.
4. Prior to expiration, an option will least likely to sell for more than its intrinsic value.
5. Credit Policy are standards set to determine the amount and nature of credit to extend to
customers.
6. Time value is the difference between the market price of the option and its intrinsic value.
7. Under pricing assumptions, arbitrage opportunities exist.
8. Simple Arbitrage is the process of buying and selling in more than 1 market to make a riskless
profit.
9. The buyer has the obligation to deal at the strike price if the writer or seller exercise the option
 10. Inflation occurs when the money supply increases faster than output increases.
IDENTIFICATION
11. ________________ helps managers ensure that their financial strategies are consistent with their
capital budgets.
12. _____________ is the right to sell a security while ______________ is the right to buy a security
price at a specified price within a specified time.
13. ________________ is the classification of accounts receivable by time outstanding.
14. Conservative Working Capital Financing Policies use permanent capital for ______________
assets and ______________ assets.
15. _______________________ states that ER will adjust so that a commodity will cost the same
regardless of the country in which it is purchased in.
MULTIPLE CHOICE
16. Which of the following is/are the possible outcome(s) when Market is less than Exercise?
a. In-the-money
b. At-the-money
c. Out-of-the-money
d. b & c
e. a & c
f. a, b & c
17. Which of the following is true?
a. Optimistic case = normal growth
b. Expected case = best case
c. Pessimistic case = retrenchment
18. The break-even probability of collection is:
a. P=PV(Cost)(Rev)/PV
b. P=PV(Rev)/PV(Cost)
c. P=PV(Cost)/PV(Rev)
d. P=(Cost)(Rev)/PV(Cost)(Rev)
19. Which of the following is false?
a. An option buyer will only exercise the right to buy or sell when it is favorable for
him to do so.
b. Extending credit gives you the profitability of making a profit, not the guarantee.
c. At expiration, time value is zero
d. Leasing preserves capital is one of the sensible reasons for leasing.
e. All of the above
20. Which of the following is not part of sources of short-term borrowing?
a. Secured Loans
b. Syndicated paper
c. Commercial Paper
d. Medium term notes
ANSWER KEY
1. FALSE
2. FALSE
3. TRUE
4. FALSE
5. TRUE
6. TRUE
7. FALSE
8. FALSE
9. FALSE
10. TRUE
11. Financial Plan
12. Put option; Call option
13. Aging Schedule
14. Permanent; temporary
15. Purchasing Power Parity
16. E
17. C
18. C
19. D
20. B