Financial Economics
Question Bank
Course Introduction
Financial Economics explores the application of economic theories and principles to understand the functioning of financial markets and institutions. The course covers topics such as asset pricing, portfolio theory, the behavior of financial markets, risk and return, the role of information in financial decision-making, and the impact of macroeconomic policies on financial systems. Students will analyze how financial instruments are valued, how financial markets operate in the allocation of resources, and the influence of regulatory frameworks on market efficiency. By integrating both theoretical models and real-world case studies, the course prepares students to critically assess financial phenomena and to make informed decisions in complex economic environments.
Recommended Textbook
Principles of Corporate Finance 11th Edition by Richard A Brealey
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Page 2
Chapter 1: Introduction to Corporate Finance
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Sample Questions
Q1) The controller's responsibilities typically include banking relations and cash management.
A)True
B)False
Answer: False
Q2) The ultimate financial goal of a corporation is to:
A)minimize stockholder risk.
B)maximize profit.
C)maximize value of the corporation to the stockholders.
D)increase size of the firm.
Answer: C
Q3) This book is mainly about:
A)financial decisions made by corporations.
B)financial decisions made by households.
C)financial decisions made by governments.
D)financial decisions made by employees.
Answer: A
Q4) Explain the term corporation.
Answer: A corporation is a legal entity and has an existence of its own.Generally,large businesses are organized as corporations.
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Chapter 2: How to Calculate Present Values
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Sample Questions
Q1) A safe dollar is always worth less than a risky dollar because the rate of return on a safe investment is generally low and the rate of return on a risky investment is generally high.
A)True
B)False
Answer: False
Q2) If the three-year present value annuity factor is 2.673 and the two-year present value annuity factor is 1.833,what is the present value of $1 received at the end of the three years?
A)$1.19
B)$0.84
C)$0.89
D)$0.92
Answer: B
Q3) The value of a five-year annuity is equal to the sum of two perpetuities.One makes its first payment in year 1,and the other makes its first payment in year 6.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Valuing Bonds
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Sample Questions
Q1) If the term structure of interest rates is flat,then the 9-year spot interest rate equals the 10-year spot interest rate.
A)True
B)False
Answer: True
Q2) The type of bonds where the identities of bond owners are recorded and the coupon interest payments are sent automatically are called:
A)bearer bonds
B)government bonds
C)registered bonds
D)recorded bonds
Answer: C
Q3) The longer a bond's duration,the greater its volatility.
A)True
B)False
Answer: True
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Page 5
Chapter 4: The Value of Common Stocks
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Q1) Will Co.is expected to pay a dividend of $2 per share at the end of year 1(D<sub>1</sub>),and the dividends are expected to grow at a constant rate of 4% forever.If the current price of the stock is $20 per share,calculate the expected return or the cost of equity capital for the firm.
A)10%
B)4%
C)14%
D)20%
Q2) Super Computer Company's stock is selling for $100 per share today.It is expected that-at the end of one year-it will pay a dividend of $6 per share and then be sold for $114 per share.Calculate the expected rate of return for the shareholders.
A)20%
B)15%
C)10%
D)25%
Q3) Briefly explain why Microsoft experienced a significant drop in price when it announced its first ever,regular dividend along with huge profits.
Q4) Discuss the general principle at work in valuing a common stock.
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Page 6
Chapter 5: Net Present Value and Other Investment Criteria
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Sample Questions
Q1) The profitability index is the ratio of the:
A)future value of cash flows to investment
B)net present value of cash flows to investment
C)net present value of cash flows to IRR
D)present value of cash flows to IRR
Q2) What are some of the advantages of using the IRR method?
Q3) The IRR rule states that firms should accept any project offering an internal rate of return in excess of the cost of capital.
A)True
B)False
Q4) If the sign of the cash flows for a project changes two times,then the project likely has:
A)one IRR.
B)two IRRs.
C)three IRRs.
D)four IRRs.
Q5) Soft rationing may be used to control managerial behavior.
A)True
B)False
Q6) Briefly discuss capital rationing.
Page 7
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Chapter 6: Making Investment Decisions With the Net
Present Value Rule
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Sample Questions
Q1) Define the term cash flow for a project.
Q2) OM Construction Company must choose between two types of cranes.Crane A costs $600,000,will last for five years,and will require $60,000 in maintenance each year.Crane B costs $750,000,will last for seven years,and will require $30,000 in maintenance each year.Maintenance costs for cranes A and B occur at the end of each year.The appropriate discount rate is 12% per year.Which machine should OM Construction purchase?
A)Crane A as EAC is $226,444
B)Crane B as EAC is $194,336
C)Crane A because its PV is $816,286,i.e.,less than the PV of Project B
D)Cannot be calculated as the revenues for the project are not givenCrane A: Annuity factor = (1/.12)× (1 - (1/(1.12^5)))= 3.6048.Crane B: Annuity factor = (1/.12)× (1(1/(1.12^7)))= 4.5638.Costs:PV (A)= 600,000 + 60,000 (3.6048)= 816,286;EAC = 816,286/(3.6048)= $226,444;PV(B)= 750,000 + 30,000 (4.5638)= 886,913;
Q3) What are some of the additional factors that an analyst should consider while estimating cash flows in foreign countries and currencies?
Q4) Briefly explain the acronym MACRS.
Q5) Briefly explain how the decision to replace an existing machine is made?
Q6) How do you compare projects with different lives?
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Chapter 7: Introduction to Risk and Return
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Sample Questions
Q1) Stock X has a standard deviation of return of 10%.Stock Y has a standard deviation of return of 20%.The correlation coefficient between the two stocks is 0.5.If you invest 60% of your funds in stock X and 40% in stock Y,what is the standard deviation of your portfolio?
A)10.3%
B)21.0%
C)12.2%
D)14.8%
Q2) What has been the average annual rate of return in real terms for a portfolio of U.S.common stocks between 1900 and 2011?
A)Less than 2%
B)Between 2% and 5%
C)Between 5% and 8%
D)Greater than 8%
Q3) The variability of a well-diversified portfolio mostly reflects the contributions to risk from the standard deviations of the stocks within that portfolio.
A)True
B)False
Q4) Briefly explain what the beta of a stock means.
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Page 9
Chapter 8: Portfolio Theory and the Capital Asset Pricing Model
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Sample Questions
Q1) Florida Company (FC)and Minnesota Company (MC)are both service companies.Their stock returns for the past three years were: FC: -5%,15%,20%; MC: 8%,8%,20%.
Calculate the variances of returns for FC and MC.
A)FC: 100 MC: 256
B)FC: 350 MC: 96
C)FC: 175 MC: 48
D)FC: 48 MC: 175
Q2) By combining lending and borrowing at the risk-free rate with efficient portfolios,we can:
I.extend the range of investment possibilities;
II.change the set of efficient portfolios from being curvilinear to a straight line; III.provide a higher expected return for any level of risk,except for the tangential portfolio and the risk-free asset
A)I only
B)I and II only
C)I,II,and III
D)II and III only
Q3) Briefly explain the term risk-free rate of interest.
Page 10
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Chapter 9: Risk and the Cost of Capital
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Sample Questions
Q1) An analyst should evaluate each project at its own opportunity cost of capital.The true cost of capital depends on the particular use of that capital.
A)True
B)False
Q2) The company cost of capital is the correct discount rate for any project undertaken by the company.
A)True B)False
Q3) Company A's historical returns for the past three years are: 6.0%,15%,and 15%.Similarly,the market portfolio's returns were: 10%,10%,and 16%.Suppose the risk-free rate of return is 4%.What is the cost of equity capital (required rate of return of company A's common stock),computed with the CAPM?
A)18%
B)14%
C)12%
D)10%
Q4) The company cost of capital is the cost of debt of the firm.
A)True B)False
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Chapter 10: Project Analysis
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Sample Questions
Q1) Briefly discuss various real options associated with capital budgeting projects.
Q2) You are given the following net future values for harvesting trees from a plot of forestland.(This is a one-time harvest.) \[\begin{array} { l c c c c c c }
\text { Year } & 0 & 1 & 2 & 3 & 4 & 5 \\
\text { Net Future Value } & 100 & 125 & 150 & 175 & 195 & 210 \end{array}\]
If the cost of capital is 15%,calculate the optimal year to harvest:
A)year 1
B)year 2
C)year 3
D)year 4
Q3) In most cases the present value break-even quantity is higher than the accounting break-even quantity.
A)True
B)False
Q4) Adding a fudge factor to the cost of capital will penalize longer-term projects more due to compounding.
A)True
B)False
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Chapter 11: Investment, Strategy, and Economic Rents
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Sample Questions
Q1) The formula P<sub>0</sub> = P<sub>t</sub>/((1 + r)^t)applies to assets that: i.pay no dividends; II)are traded in a competitive market; III)cost nothing to hold
A)I only
B)I and II only
C)I,II,and III
D)II and III only
Q2) Suppose the current price of gold is $600 per ounce and the price of gold is expected to increase at a rate of 5% per year for the foreseeable future.What is the current value of 0.2 million ounces of gold to be produced each year for the next five years (the discount rate is 8% per year)?
A)$600.00 million
B)$521.64 million
C)$690.86 million
D)$3,000.00 million
Q3) The total NPV of a new plant is equal to the NPV of the new plant plus the change in the present value of existing plants due to the impact of the new plant.
A)True
B)False
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Chapter 12: Agency Problems, Compensation, and Performance Measurement
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Sample Questions
Q1) A firm has an average investment of $1,000 during the year.During the same time,the firm generates after-tax earnings of $150.
If the cost of capital is 10%,what is the net return on investment?
A)10%
B)5%
C)12%
D)15%
Q2) One calculates economic profit (EP)as follows:
A)EP = (ROI - r)× (capital invested),where r = cost of capital
B)EP = (ROI + r)× (capital invested),where r = cost of capital
C)EP = (ROI)× (capital invested)
D)EP = (ROI)/(capital invested)
Q3) The ultimate responsibility for monitoring a firm rests with the: i.shareholders; II)board of directors; III)independent accountants; IV)lenders
A)I only
B)I and II only
C)I,II,and III only
D)I,II,III,and IV
Q4) Briefly explain the term qualified opinion issued by the auditors.
Q5) Define the term economic rate of return.
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Chapter 13: Efficient Markets and Behavioral Finance
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Sample Questions
Q1) For most stocks,a scatter plot chart of stock returns versus stock returns on the prior trading day will appear as:
A)a shotgun pattern centered close to the origin.
B)a random pattern mostly concentrated in the top-right and lower-left quadrants.
C)a random pattern mostly concentrated in the lower-left and upper-right quadrants.
D)none of the options.
Q2) Suppose that a lawyer works for a firm that advises corporate firms planning to sue other corporations for antitrust damages.He finds that he can "beat the market" by short selling the stock of firms that will be sued.This hypothetical finding would violate the:
A)weak-form hypothesis of market efficiency.
B)semistrong form hypothesis of market efficiency.
C)strong-form hypothesis of market efficiency.
D)none of the hypotheses of market efficiency.
Q3) State the semistrong form of market efficiency and its implications.
Q4) State the weak form of market efficiency and its implications.
Q5) List the three forms of market efficiency and explain the bases for them.
Q6) List the six lessons of market efficiency.
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Page 15
Chapter 14: An Overview of Corporate Financing
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Sample Questions
Q1) If you own 1,000 shares of stock and you can cast 5,000 votes for a particular director,then the stock features:
A)cumulative voting.
B)straight voting.
C)majority voting.
D)proxy voting.
Q2) Shares of stock that have been repurchased by the corporation are called:
A)authorized shares.
B)repurchase agreements.
C)Treasury stock.
D)retained equity.
Q3) A warrant is a type of option.
A)True
B)False
Q4) During which year have U.S.nonfinancial firms raised positive net equity?
A)2007
B)2008
C)2009
D)net equity has been negative from 2007 to 2009
Q5) Briefly explain the voting rights of shareholders.
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Chapter 15: How Corporations Issue Securities
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Sample Questions
Q1) Wealthy individuals who provide equity investment for new firms are called: i.white knights; II)red herrings; III)angel investors
A)I only
B)I and II only
C)III only
D)II only
Q2) Spinning refers to the practice whereby an underwriter sells shares in a hot new issue to a CEO-for the CEO's personal benefit-for the purpose of the underwriter gaining future business from the CEO's firm.
A)True
B)False
Q3) According to the National Venture Capital Association,"venture capital funds earn an average annual rate of return (after expenses)of about":
A)32%.
B)24%.
C)19%.
D)12%.
Q4) Briefly explain the term private placement.
Q5) Discuss the advantages of shelf registration.
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Chapter 16: Payout Policy
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Q1) Most firms have long-run target dividend payout ratios.
A)True
B)False
Q2) Australia follows an imputation tax system for the payment of taxes on dividends.
A)True
B)False
Q3) A firm in Australia earns a pretax profit of $A10 per share.Suppose that it pays a corporate tax of $3 per share (30% tax rate)in taxes.The firm pays the remaining $A7 in dividends to a shareholder in the 30% marginal tax bracket.What is the amount of additional tax paid by the shareholder under an imputation tax system?
A)$A 2.10
B)$A 0.00
C)$A3.00
D)$A 5.10
Q4) Stock repurchases are like bumper dividends,but they do not typically substitute for regular cash dividends.
A)True
B)False
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Chapter 17: Does Debt Policy Matter
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Q1) Capital structure is irrelevant if:
I.capital markets are efficient; II.each investor can borrow/lend on the same terms as the firm; III.there are no tax benefits to debt
A)I only
B)II only
C)III only
D)I,II,and III
Q2) Investors require higher returns on levered equity than on equivalent unlevered equity.
A)True
B)False
Q3) If an investor buys a portion (X)of an unlevered firm's equity,then his/her payoff is:
A)(X)× (profits)
B)(X)× (interest)
C)(X)× (profits - interest)
D)(1/X)× (profits)
Q4) Briefly explain how changes in the debt-equity ratio change the firm's equity beta.
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Chapter 18: How Much Should a Corporation Borrow
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Q1) The pecking order theory of capital structure implies that:
I.high-risk firms will end up borrowing more;
II.firms prefer internal finance;
III.firms prefer debt to equity when external financing is required
A)I only
B)II only
C)II and III only
D)III only
Q2) In order to calculate the tax shield of interest payments for a corporation,always use the:
I.average corporate tax rate;
II.marginal corporate tax rate;
III.marginal rate on personal income tax
A)I only
B)II only
C)III only
D)I and III only
Q3) A firm nearing bankruptcy has an incentive to issue more high risk debt. A)True
B)False
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Chapter 19: Financing and Valuation
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Q1) The WACC formula calculates the cost of capital for the "average risk" project.
A)True
B)False
Q2) Mirion Tech,Inc.,has r<sub>E</sub> of 12%,an r<sub>D</sub> of 6%,at a debt-equity ratio of 0.50.Mirion plans to raise enough preferred stock to retire half of their outstanding common stock,which currently has a market value of $7 million.If the preferred stock has an expected rate of return of 10%,what is the new WACC? (Assume a 35% marginal corporate tax rate and that r<sub>D</sub> remains at 6%.)
A)14.23%
B)11.02%
C)9.30%
D)6.60%
Q3) The APV method can be used for valuing entire businesses.
A)True
B)False
Q4) "Urban renewal can be assisted by the provision of government tax and loan incentives to businesses,despite the existence of negative NPV projects." Explain why this may be true.
Q5) Briefly explain how APV can be used for valuing a business.
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Chapter 20: Understanding Options
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Q1) Discuss the factors that determine the value of a call option.
Q2) Which of the following features increase(s)the value of a call option?
I.A high interest rate;
II.A long time to maturity;
III.A higher volatility of the underlying stock price
A)I only
B)II only
C)III only
D)I,II,and III
Q3) A profit diagram implicitly neglects the time value of money.
A)True
B)False
Q4) Buying an in-the-money option will almost always produce a profit.
A)True
B)False
Q5) An increase in the underlying stock price results in an increase in a call option's price.
A)True
B)False
Q6) Explain the difference between a European option and an American option.
Page 22
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Chapter 21: Valuing Options
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Q1) Briefly explain why the discounted cash-flow method (DCF)does not work for valuing options.
Q2) A put option on ABC stock currently sells for $4.00.The exercise price and the stock price is $60.The put option has a delta of 0.5.If within a short period of time the stock price increases to $60.10,what would be the change in the price of the put option?
A)increases by $0.05
B)decreases by $0.05
C)increases by $0.10
D)decreases by $0.10
Q3) Suppose ACC's stock price is currently $25.In the next six months it will either fall to $15 or rise to $40.What is the current value of a six-month call option with an exercise price of $20? The six-month risk-free interest rate is 5% per six-month period.[Use the replicating portfolio method.]
A)$20.00
B)$8.57
C)$9.52
D)$13.10
Q4) Briefly discuss risk-neutral valuation in the context of option valuation.
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Chapter 22: Real Options
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Q1) Explain the main difference between the Black-Scholes formula and the binomial method.How does this relate to real options analysis?
Q2) Which of the following conditions might lead a financial manager to decide to expedite a positive net present value investment project?
A)The risk-free interest rate increases.
B)Uncertainty about future project value increases.
C)The cash inflows generated by the project are lower than previously thought.
D)Investment required for the project is expected to increase in the near future.
Q3) An example of a real option is:
A)the option to make follow-on investments.
B)the option to abandon a project.
C)the option to wait before investing.
D)all of the options.
Q4) How can managers take advantage of real options? Briefly explain.
Q5) The option to wait is a type of real option.
A)True
B)False
Q6) Briefly explain how temporary abandonment can be thought of as a complex option.
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Chapter 23: Credit Risk and the Value of Corporate Debt
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Q1) Bonds rated below BBB (Baa)are called:
A)investment-grade bonds.
B)junk bonds.
C)default-free bonds.
D)intermediate bonds.
Q2) What is the most important difference between a corporate bond and an equivalent U.S.Treasury bond?
A)Corporate cash flow is relatively smooth,whereas U.S.government revenue is more variable.
B)Corporate bonds are traded on the floor of the New York Stock Exchange,and Treasury bonds trade in the over-the-counter market.
C)In the case of corporate bonds,firms have sometimes defaulted whereas the U.S.government has not.
D)The beta of corporate bonds is usually less than the beta of a U.S.Treasury bond.
Q3) Bonds rated below BBB (Baa)are termed junk bonds.
A)True
B)False
Q4) What is a major drawback to value-at-risk calculations?
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Chapter 24: The Many Different Kinds of Debt
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Q1) In general,which of the following statements is (are)true:
I.Bonds issued in the United States are registered.
II.Bonds issued in the United States are bearer bonds.
III.Eurobonds are normally issued in a major currency,e.g.,$US,euro,or yen.
IV.Eurobonds are normally issued in the local currency.
A)I and III only
B)II only
C)III only
D)II and IV only
Q2) The owner of a convertible bond owns both a straight bond and a call option.
A)True
B)False
Q3) What are reverse floaters?
Q4) A bond-warrant package has different effects on the firm's cash flow and capital structure than a convertible bond.
A)True
B)False
Q5) Discuss the valuation of a convertible bond.
Q6) What are the three elements of convertible bond value?
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Q7) Discuss the differences between publicly issued bonds and private placements.
Chapter 25: Leasing
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Q1) What happens to the NPV of leasing if the lease payments increase?
Q2) If the lessor borrows most of the purchase price of a leased asset,the lease is called a:
A)leveraged lease.
B)sale and lease-back.
C)capital lease.
D)nonrecourse lease.
Q3) What happens to the NPV of leasing if the tax rate increases?
Q4) Leasing is more likely to be advantageous when the lessor's tax rate is substantially higher than the lessee's.
A)True
B)False
Q5) A dubious reason for leasing is that leasing preserves capital.
A)True
B)False
Q6) The user of the leased asset is called the lessee,and the owner of the asset is called the lessor.
A)True
B)False
Q7) Discuss the critical conditions under which leasing may be advantageous.
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Chapter 26: Managing Risk
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Q1) Derivative instruments are financial contracts whose value depends on the value of another asset.
A)True
B)False
Q2) When a standardized forward contract is traded on an exchange,it becomes a(n):
A)forward contract.
B)futures contract.
C)options contract.
D)swap contract.
Q3) Suppose that the current level of the Standard & Poor's Index is 500.The prospective dividend yield on S&P500 stocks is 2%,and the risk-free interest rate is 6%.What is the value of a one-year futures contract on the index? (Assume all dividend payments occur at the end of the year.)
A)530
B)520
C)540
D)560
Q4) Briefly explain the term derivative.
Q5) Briefly explain the term marked to market.
Q6) Briefly describe a swap contract.
Page 28
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Chapter 27: Managing International Risks
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Q1) What is wrong with the following news report? "Today the dollar ended the trading session stronger."
Q2) If a Big Mac costs $2.31 in the U.S.,and in Japan 250 Yen,according to PPP,what is the implied exchange rate in Yen/$US?
A)0.00924
B)108.225
C)119.795
D)250.000
Q3) If the peso is traded at a forward discount relative to the U.S.dollar,then the U.S.dollar is also trading at a discount relative to the peso.
A)True
B)False
Q4) The country with the most favorable political risk score is:
A)United States
B)France
C)Finland
D)United Kingdom
Q5) Briefly explain the concept of interest rate parity.
Q6) Briefly explain the expectations theory of forward exchange rates.
29
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Chapter 28: Financial Analysis
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Q1) Net working capital (NWC)is calculated as:
A)total assets - total liabilities.
B)current assets + current liabilities.
C)current assets - current liabilities.
D)current liabilities - current assets.
Q2) Profitability ratios indicate:
I.whether the firm is using its assets productively;
II.whether the firm is liquid;
III.whether the firm is profitable;
IV.how highly the firm is valued by investors
A)I only
B)II only
C)III only
D)III and IV only
Q3) The difference between total assets of a firm and its total liabilities is called:
A)net working capital.
B)net current assets.
C)net worth.
D)net liabilities.
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Page 30
Chapter 29: Financial Planning
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Q1) The most important function of a short-term financial plan is:
A)to develop a cash budget.
B)to cover the forecasted requirements in the most economical way possible.
C)to help develop the long-term financial plan.
D)none of these answers.
Q2) Briefly discuss some of the problems associated with the use of the percentage of sales model.
Q3) The basic relationship for determining external capital required is:
A)External capital required = - operating cash flow + investment in net working capital.
B)External capital required = -operating cash flow + investment in net working capital + investment in fixed assets.
C)External capital required = -operating cash flow + investment in net working capital + investment in fixed assets + dividends.
D)none of these answers.
Q4) Briefly describe the cash cycle.
Q5) Most firms make a permanent investment in net working capital.
A)True B)False
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Chapter 30: Working Capital Management
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Q1) A factor buys a firm's receivables,and then the firm's customer makes payments directly to the factor.
A)True
B)False
Q2) Which of the following have the most developed secondary market?
A)Treasury bills
B)commercial paper
C)repurchase agreements
D)bankers' acceptances
Q3) Which of the following countries is the heaviest user of checks:
A)U.S.
B)U.K.
C)France
D)Canada
Q4) If a commercial draft is an order to pay immediately,it is called a time draft.
A)True
B)False
Q5) Briefly describe the basic electronic funds transfer systems.
Q6) Briefly explain how firms can protect against bad debt?
Q7) Discuss two important ways of speeding up collection.
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Chapter 31: Mergers
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Q1) The following data on a merger is given: \[\begin{array} { l c l l }
& \text { Firm A } & \text { Firm B Firm AB } \\
\text { Price per share } & \$ 100 & \$ 10 & \\
\text { Total earnings } & \$ 500 & \$ 300 & \\
\text { Shares outstanding } & 100 & 40 & \\
\text { Total value } & \$ 10,000 & \$ 400 & \$ 11,000 \end{array}\]
Firm A has proposed to acquire Firm B at a price of $20 per share for Firm B's stock.Calculate the postmerger P/E ratio assuming cash is used in the acquisition.
A)12.75
B)6.25
C)13.75
Q2) Compensation paid to top management in the event of a takeover is called a: A)poison pill.
B)golden parachute.
C)self-tender.
D)buyout.
Q3) Who are antitakeover defenses designed to protect?
Q4) Briefly explain the term economies of scale.
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Chapter 32: Corporate Restructuring
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Q1) A spin-off is a(an):
I.new company;
II.independent company;
III.company formed by detaching part of a parent firm's assets and operations
A)I only
B)II only
C)I and II only
D)I,II,and III
Q2) The main characteristics of leveraged restructurings are:
I.high debt;
II.management incentives;
III.private ownership
A)I only
B)I and II only
C)I and III only
D)I,II,and III
Q3) Briefly describe the main features of the Bankruptcy Reform Act of 1978.
Q4) Briefly explain the difference between a spin-off and a carve-out.
Q5) Briefly explain the difference between leveraged buyouts and leveraged restructurings.
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Chapter 33: Governance and Corporate Control Around the World
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Q1) Under which circumstances would a conglomerate be effective?
Q2) Large business combinations in Japan are normally carried out through reciprocal ownership of common stock.These networks,or keiretsu,involve a large number of diversified companies centered around a large bank,industrial firm,or trading firm.One of the main benefits of this structure is argued to be:
A)the monopolistic control of economic segments.
B)the reduction in the costs of financial distress.
C)large-scale diversification that cannot be done by individual shareholders.
D)greater efficiency in management beca
Q3) Japan has a bank-based financial system.
A)True
B)False
Q4) The idea that a corporation should be run in the interests of the shareholders is embedded in the law in:
i.the U.S.; II)the U.K.; III)France; IV)Japan
A)I only
B)I and II only
C)III and IV only
D)II and IV only
Page 35
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