Exam 2: The Financial Market Environment

In a ________ market, the buyer and seller are not brought together to trade securities directly but instead have their orders executed on the ________.

The Federal Deposit Insurance Corporation (FDIC):

The tax deductibility of various expenses such as general and administrative expenses ________ their after-tax cost.

The over-the-counter (OTC) market is

The tax liability of a corporation with ordinary income of $1,100,000 is ________.

Which of the following are forums in which suppliers and demanders of funds can transact business directly?

Tax laws often are used to accomplish economic goals such as providing incentives for corporate investment in certain types of assets.

Capital markets are for investors who want a safe temporary place to deposit funds where they can earn interest and for borrowers who have a short term need for funds.

A competitive market that allocates funds to their most productive use is called a(n)

When home prices are falling we would expect

Dividends received by a corporation on an investment in the common and preferred stock of another corporation (where ownership in the dividend paying corporation is less than 20%) is subject to 70 percent exclusion for tax purposes.

In the OTC market, the ask price is the highest price offered by a dealer to purchase a given security.

All of the following are examples of organized stock exchanges EXCEPT

The money market is a financial relationship created by a number of institutions and arrangements that allows suppliers and demanders of long-term funds to make transactions.

Firms that require funds from external sources can obtain them in one of the following ways EXCEPT

A financial institution is an intermediary that channels the savings of individuals, businesses, and governments into loans or investments.

Consider two firms, Go Debt corporation and No Debt corporation. Both firms are expected to have earnings before interest and taxes of $100,000 during the coming year. In addition, Go Debt is expected to incur $40,000 in interest expenses as a result of its borrowings whereas No Debt will incur no interest expense because it does not use debt financing. However, No Debt will have to pay stockholders $40,000 in dividend income. Both firms are in the 40 percent tax bracket. Calculate the Earnings after tax for both firms. Which firm has the higher after-tax earnings? Which firm appears to have the higher cash flow? How do you account for the difference?

Money markets are markets for long term funds such as bonds and equity.

Long-term debt instruments used by both government and business are known as

Securitization is the process of pooling mortgages or other types of loans and selling the claims or securities against that pool in the secondary market.