1. What function do financial markets NOT perform?

A. Facilitate transfer of funds between investors and borrowers B. Provide liquidity to investors C. Manufacture tangible products D. Help determine prices of financial instruments

2. What is the primary difference between short-term and long-term debt financing?

A. Short-term is repaid within less than one year; long-term is over one year B. Short-term has no interest; long-term has interest C. Long-term debt is usually unsecured D. Short-term debt is only for individuals

3. Which among the following is NOT a function of financial markets?

A. Facilitating the raising of capital B. Providing liquidity to investors C. Regulating government fiscal policies D. Enabling price discovery of financial instruments

4. What is an important consideration when selecting a financial source for a business?

A. The development stage of the business B. The founder’s personal preference only C. How short the paperwork is D. Government mandates only

5. What type of risk can be reduced through portfolio diversification?

A. Systematic risk B. Exchange risk C. Unsystematic risk D. Inflation risk

6. Which of the following is a characteristic of a good financial plan?

A. Assumption of unlimited resources B. Flexibility to adapt to changing conditions C. Ignoring liquidity concerns D. Avoidance of profitability forecasts

7. Why is cash flow management critical in financial planning?

A. To ensure adequate funds to meet cash outflows and maintain liquidity B. To maximize expenditures C. To avoid any investment D. To minimize revenues

8. What does financial intermediation primarily involve?

A. Direct lending by individuals to borrowers B. Using financial institutions to channel funds between savers and borrowers C. Investing exclusively in government bonds D. Avoiding risk by not lending funds

9. Which of the following best describes derivatives?

A. Financial instruments whose value depends on the value of underlying assets B. Shares issued by companies to raise long-term capital C. Cash or cash-equivalents with short maturity D. Loans directly issued by banks to corporate clients

10. Which instrument is typically classified as redeemable debt?

A. Irredeemable debentures convertible to equity B. Irredeemable and inconvertible debentures C. Bonds where principal is repaid at maturity D. Equity shares

11. How does maturity affect capital market instruments?

A. They mature in less than six months B. They mature in longer terms, typically over two years C. They always mature on the day of issue D. They don’t mature at all

12. Which of the following is NOT a major function of a financial manager?

A. Cash management B. Fundraising C. Marketing products D. Payroll processing

13. Which among the following is NOT a source of finance for a business?

A. Internal finance B. Personal finance C. Owners' equity D. Government grants applied without documentation

14. What is the primary role of financial planning?

A. To increase the company’s marketing budget B. To provide funds for business activities and investments C. To hire new staff members D. To delay payment of debts indefinitely

15. What is disintermediation in financial markets?

A. The process of increasing the number of intermediaries between saver and borrower B. The use of banks exclusively for all capital raising activities C. The process where investors bypass financial intermediaries to invest directly in securities D. The government regulation of all financial transactions

16. What is the main feature of capital market instruments?

A. Short-term maturity less than one year B. Long-term funding options C. No marketability D. Only government-issued

17. What feature best describes a commercial paper?

A. Long-term debt instrument with maturity of over five years B. Unsecured short-term promissory note issued by corporations C. Government guaranteed bond D. Equity instrument

18. Which risk is considered non-diversifiable and affects all investments?

A. Unsystematic risk B. Business risk C. Systematic risk D. Credit risk

19. What does the matching principle in short-term financing suggest?

A. Using internally generated funds for all business needs B. Matching temporary capital needs with short-term finances and permanent needs with long-term finances C. Always raising capital from equity to avoid debt D. Using long-term finance for all capital expenditures regardless of duration

20. In financial planning, which characteristic ensures the plan can be adapted to changing conditions?

A. Objectivity B. Flexibility C. Profitability D. Comparisons

21. What determines the market value of capital market instruments such as shares?

A. Fixed government price regulations B. Public perception of the issuing company's economic power C. Original issue price only D. The age of the investor

22. What type of financial instrument is a mortgage-backed security?

A. A derivative instrument based on underlying mortgage loans B. A form of government bond C. An equity share D. A commercial paper

23. Which financial objective directly focuses on maximizing shareholder value?

A. Debt reduction B. Shareholders’ wealth maximization C. Profit minimization D. Expense control

24. Which statement best describes financial management?

A. Only managing expenses of a business B. The art and science of managing flows of money through an organization C. Focusing solely on borrowing funds D. Avoiding all forms of investment risk

25. What is an example of a financial intermediary?

A. A shareholder B. A commercial bank C. The government only D. An individual investor

26. What does the term “financial intermediation” signify?

A. An investor directly giving funds to a borrower B. An institution channeling funds from savers to borrowers C. Only cash transactions without intermediaries D. Inhibition of borrowing and lending

27. How does a business's stage in its life cycle affect its financing options?

A. It has no effect on financing options B. Startups find it easier to get finance than mature enterprises C. Mature businesses typically have more financing options than startups D. Financing options decrease as the business grows

28. What is a major risk associated with financing through debt?

A. Losing ownership control B. Inability to repay principal and interest obligations C. Dilution of shares D. Unlimited unlimited earnings

29. Why is liquidity an important feature of capital market instruments?

A. It enables holders to convert securities into cash quickly B. It ensures the instruments do not lose value over time C. It guarantees fixed returns regardless of market conditions D. It prevents securities from being sold to third parties

30. What is a feature of a commercial banker's acceptance?

A. It is an unsecured short-term note B. It guarantees payment by a bank for a trade transaction C. It has no secondary market D. It is a long-term debt instrument

31. In capital markets, what does ‘redeemable’ mean?

A. The principal cannot be paid back B. Principal is paid back at the end of the specified period C. Principal is converted to equity automatically D. The instrument has no fixed maturity

32. In financial intermediation, what role do deposit money banks mostly perform?

A. They act as brokers for securities trading only B. They provide capital directly to companies without intermediaries C. They channel funds from savers to borrowers and provide liquidity D. They only manage foreign exchange transactions

33. Which type of risk can be diversified away by holding a portfolio of securities?

A. Systematic risk B. Credit risk C. Unsystematic risk D. Inflation risk

34. Which policy would guide management in deciding on the proportion of equity and debt capital?

A. Risk management policy B. Capital structure policy C. Marketing policy D. Operational policy

35. Market risk is best described as:

A. Risk specific to one company only B. Risk due to inflation changes alone C. Risk due to overall market condition changes affecting the security value D. Risk of theft only

36. Which of the following is a feature of capital market instruments?

A. They have short maturity periods typically less than one year B. They are illiquid and not easily transferable C. They serve as long-term sources of investment and are traded daily on stock exchanges D. They mostly represent temporarily borrowed funds that must be repaid within a year

37. What characterizes an aging business in terms of financing?

A. High difficulty obtaining finance due to lack of credit rating B. Searching for ways to sell out and are mostly liquid C. Heavy reliance on startup financing D. No need to raise capital

38. What is the main advantage of using ordinary shares as a source of finance?

A. Fixed interest payments B. No obligation to repay principal C. Mandatory redemption on maturity D. Guaranteed dividend payments

39. What is the main objective of profit maximization in a business?

A. To increase the number of employees B. To reduce costs regardless of revenue C. To increase revenue while controlling costs D. To maximize government subsidies

40. What is meant by the term disintermediation in finance?

A. Involving more financial intermediaries in transactions B. Direct investment bypassing financial intermediaries C. Increased regulation of banks D. Reducing the number of shareholders

41. Which of the following best describes a key difference between money market instruments and capital market instruments?

A. Money market instruments typically have maturities longer than two years, while capital market instruments mature in less than one year. B. Capital market instruments are generally unsecured, while money market instruments are always secured. C. Money market instruments are short-term, highly liquid securities usually traded over-the-counter, whereas capital market instruments are long-term and traded on stock exchanges. D. Capital market instruments are primarily used for financing short-term working capital needs, while money market instruments are used for long-term growth investments.

42. What type of financial risk arises from variability in exchange rates?

A. Default risk B. Exchange risk C. Price level risk D. Operating risk

43. In financial control, what is an important purpose of maintaining a vendor database?

A. To increase company taxes B. To reduce monitoring cash outflow efficiently C. To monitor cash outflow efficiently and ensure authorization D. To track only employee salaries

44. What is a characteristic of derivatives in financial markets?

A. They have fixed returns regardless of underlying asset performance B. Their value depends on underlying assets C. They are always risky and illegal D. They are physical commodities only

45. What is a major characteristic of commercial papers as a money market instrument?

A. They are secured by collateral and traded actively in secondary markets B. They have long-term maturities exceeding two years C. They are unsecured short-term promissory notes issued by reputable corporations D. They are issued exclusively by government bodies

46. Which is true about money market instruments?

A. They are long-term securities B. They have maturities usually less than one year C. They lack liquidity D. Tradable only at stock exchanges

47. What characterizes money market instruments?

A. They are long-term investments with maturities over five years B. They usually have short-term maturities and are easily transferable C. They are typically illiquid and hard to trade D. Their prices are highly volatile and unpredictable

48. Which of the following is an example of a money market instrument?

A. Ordinary shares B. Commercial papers C. Bonds with maturity over five years D. Preference shares

49. Why are capital market instruments often used as collateral for bank borrowings?

A. They are inexpensive B. They are illiquid and hard to sell C. They are easily transferable and liquid D. They have a fixed maturity of less than one year

50. Which of the following statements about risk retention is true?

A. It means transferring risk to an insurance company B. It involves accepting potential loss because insuring would be too costly C. It eliminates all types of risk D. It applies only to government agencies