1. The European Monetary Union (EMU) which came into effect in January of 1999 includes:

A. Britain, France, Germany, Spain, Italy and six other European countries
. B. the establishment of a new European Central Bank to coordinate monetary policy for the Euro-zone countries.
C. a new currency called the Euro, which will be put into circulation in all EMU countries no later than 2009.
D. All of the above

2. The formation of the European Monetary Union and its single currency Euro is expected to:

A. eliminate foreign currency risk between its member countries.
B. create stock and bond prices denominated in Euros.
C. have stock and bond indexes tracking a combined group of common stocks and bonds from the member countries.
D. All of the above

3. With respect to the United States and its relationship with the rest of the world, it can be said that:

A. the U.S. has invested more dollars in the rest of the world than foreign countries have invested in the U.S.
B. the U.S. has actively helped foreign countries finance the government deficits.
C. foreign investors hold large positions in U.S. government securities.
D. All of the above

4. Federally sponsored credit agencies include all but which of the following?

A. Securities Investor Protection Corporation (SIPC)
B. Federal Home Loan Banks (FHLB)
C. Student Loan Marketing Association (Sallie Mae)
D. Federal National Mortgage Association (Fannie Mae)

5. Corporations prefer bonds over preferred stock for financing their operations because:

A. preferred stocks require a dividend.
B. bond interest rates change with the economy while stock dividends remain constant.
C. the after-tax cost of debt is less than the cost of preferred stock.
D. None of the above

6. In general when interest rates are expected to rise, financial managers:

A. try to lock in long-term financing at low cost.
B. balance the company's debt structure with more short-term debt and less long-term debt.
C. accept more risk.
D. rely more on internal sources of funds rather than external sources.

7. Which of the following is NOT a money market instrument?

A. Treasury bill
B. Commercial paper
C. Negotiable certificate of deposit
D. Treasury bond

8. Which of the following is an internal source of funds?

A. Cash flow from depreciation (tax shield)
B. Net loss
C. Repurchase of debt securities
D. Bank loan

9. The major supplier of funds for investment in the whole economy is:

A. businesses.
B. households.
C. government.
D. financial institutions.

10. Which of the following are benefits of financial intermediaries?

A. Increase market liquidity
B. Provide a direct market for investors
C. Act as agents of the government
D. Both A and B