The Financing of U.S. Import Transactions, Ceteris Paribus

question 268

Multiple Choice

The financing of U.S. import transactions, ceteris paribus

• A) reduces U.S. interest rates.
• B) increases the amount of foreign currency held by the Fed.
• C) increases U.S. GDP.
• D) decreases the amount of foreign currency held by U.S. banks.

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Definitions:

Pre-Tax Cost

The expense or cost associated with an activity or asset before taxes are deducted.

Debt-Equity Ratio

A measure used to evaluate a company's financial leverage, calculated by dividing its total liabilities by stockholders' equity.

M&M II

The second proposition by Modigliani and Miller which states that in the absence of taxes, bankruptcy costs, and asymmetric information, and in an efficient market, the value of a levered firm is equal to the value of an unlevered firm plus the present value of the tax shields due to debt.

Pre-Tax Cost

Pre-Tax Cost refers to the expense or cost a company incurs before any taxes are deducted.