1. What is a key characteristic of irredeemable and convertible capital market instruments?

A. They must be repaid in cash upon maturity B. They cannot be converted to equities C. The principal sum is converted to equities upon maturity D. They have no dividend payments

2. What is the defining feature of bankers’ acceptances?

A. They are long-term securities guaranteed by commercial banks B. They are short-term time drafts guaranteed by a bank and payable to a seller of goods C. They are only issued to government agencies D. They cannot be traded in secondary markets

3. How does shareholders’ wealth maximization differ from profit maximization?

A. It focuses only on short-term profits B. It ignores the value or cost of business decisions C. It considers timing and risk of returns using net present value D. It maximizes gross profit without tax considerations

4. Which of the following best explains the limitation of profit maximization?

A. It accounts for timing of returns accurately B. It fully considers risk and uncertainty of future earnings C. It ignores qualitative aspects such as growth and diversification D. It ensures maximum cash flow for shareholders

5. What is the main advantage of a financial plan having flexibility?

A. It eliminates all risks entirely B. It reduces the need for investment in working capital C. It allows modification to respond quickly to changing business conditions D. It guarantees fixed profitability

6. What is the major limitation of financial planning?

A. Plans always require no assumptions B. Future facts are unavailable, so assumptions must be made C. Plans only focus on cash inflows D. Planning eliminates all business risks

7. Why might a company engage in direct lending bypassing financial intermediaries?

A. To increase transaction costs and delays B. Due to high liquidity and easy access to bank loans C. To reduce intermediation costs and speed up access to funds D. Because regulations prohibit bank borrowing

8. How does operating risk relate specifically to a firm’s financial risk?

A. It only applies to external political uncertainty B. It relates to fixed operational costs causing higher operating leverage C. It is unrelated to business fixed charges D. It always improves profitability in the short term

9. How does risk intermediation help in the financial system?

A. By transferring all risks from lenders to borrowers without evaluation B. By enabling banks to appraise borrowers’ creditworthiness and provide risk-free returns to depositors C. By completely eliminating risk in loan transactions D. By increasing the cost of borrowing to risk-free levels

10. Which of the following is NOT included in the risks associated with finance?

A. Price level risk caused by inflation variability B. Liquidity risk related to improper cash flow management C. Technology risk from outdated financial policy documents D. Exchange risk due to currency value fluctuations

11. What does the matching principle suggest when sourcing finance for a firm?

A. Matching short-term funds with long-term projects B. Matching permanent needs with short-term finance C. Matching temporary fund needs with short-term sources and permanent needs with long-term sources D. Using only short-term credit for all needs

12. What is a primary characteristic of a commercial paper?

A. It is a short-term unsecured promissory note used to finance working capital B. It is backed by real estate assets C. It is only issued by banks D. It must be repaid with interest at the end of a five-year term

13. What is the fundamental difference between equity shareholders’ funds and borrowed funds?

A. Equity funds require regular fixed interest payments B. Borrowed funds have no fixed commitment C. Equity funds do not require repayment or fixed dividend commitment D. Borrowed funds are usually more expensive than equity funds

14. Which of the following is NOT a feature of capital market instruments?

A. They generally represent long-term investments B. They are usually illiquid and cannot be easily traded C. Their market values reflect public perception of issuer’s economic power D. They can be used as collateral for bank borrowings

15. What type of risk does mismatching the maturities of assets and liabilities expose a financial institution to?

A. Operational risk B. Interest rate risk C. Foreign exchange risk D. Country risk

16. What is internal business risk?

A. Risk coming from external economic or political factors B. Risk associated with operational conditions within the firm that can be managed C. Risk caused by currency devaluation D. Risk from competitors in the industry

17. Which derivative is commonly used in Nigeria that gives holders the right to purchase additional securities at a pre-allocated ratio?

A. Futures B. Options C. Rights D. Swaps

18. Which money market instrument represents a short-term unsecured promissory note used by corporations?

A. Treasury Bills B. Commercial Papers C. Certificates of Deposit D. Bankers’ Acceptances

19. Derivatives prices depend primarily on:

A. The interest rates fixed by the central bank B. The underlying asset from which the derivative is derived C. The trading volume in secondary markets only D. Government policies on securities trading

20. What is the role of financial policies in a business firm?

A. They only govern the firm's expenditure controls B. They guide procurement, administration, and disbursement of funds C. They focus solely on marketing and sales procedures D. They replace the need for financial planning and procedures

21. Why is cash flow management critical in financial control?

A. Because it ignores creditor-debtor relationships B. To reduce the occurrence of bad debts and extravagant expenditure C. Because cash inflows always exceed cash outflows D. To simplify financial statements preparation

22. Which feature is common to most capital market instruments?

A. They have short-term maturities B. They are easily tradable on stock exchanges ensuring liquidity C. They are only bought by commercial banks D. They have no growth potential

23. What is the main disadvantage to a company using disintermediation when issuing bonds?

A. It reduces the company’s funding options B. It requires dedicating internal resources to manage funding previously handled externally C. It leads to lower transparency in financial dealings D. It eliminates the need for bond rating agencies

24. What is a major consequence if a firm mismanages liquidity risk?

A. Sudden withdrawal of liabilities may force asset liquidation at low prices B. Overinvestment in long-term assets C. Better short-term profitability D. Reduced reliance on external funds

25. What is the role of the Securities and Exchange Commission (SEC) in Nigeria’s primary market?

A. Determining interest rates on capital B. Regulating the issuance of securities by both public and private companies with foreign participation C. Setting trading schedules for stock exchanges D. Approving all bank loans for corporate customers

26. What is the best method of managing financial risks after identification and assessment?

A. Avoidance, reduction, sharing, or retention B. Ignoring all but the most obvious risks C. Increasing financial leverage to offset risk D. Outsourcing all financial functions to third parties

27. How do derivatives derive their value in financial markets?

A. From the performance of unrelated assets B. From the underlying securities or assets C. By fixed interest rate payments D. From government subsidies

28. What characteristic of a good financial plan ensures it can adjust to changes in the environment of a firm?

A. Flexibility B. Simplicity of purpose C. Objectivity D. Rigidity

29. What is the main disadvantage of disintermediation for investors?

A. Reduced personal responsibility B. Increased burden in managing all investment transactions directly C. Lower returns due to intermediaries’ fees D. Less need for research on investments

30. What is the primary concern of a finance manager when making a finance decision?

A. Selecting the right investment project B. Determining the optimal mix of equity and debt C. Determining the sale price of shares D. Calculating daily cash needs

31. Which of the following best describes financial intermediation involving size transformation?

A. Collecting a large deposit to lend in small amounts B. Lending only to those with equivalent funds C. Accumulating small deposits to provide large loans D. Exchanging foreign currencies at a profit

32. Which financial market segment primarily deals with raising long-term funds over two years?

A. Money market B. Capital market C. Foreign exchange market D. Derivatives market

33. What is the main function of bankers’ acceptances in international trade?

A. They act as unsecured short-term promissory notes B. They provide payment guarantee by a bank to the seller before shipment C. They are long-term government securities D. They are physical assets used as collateral

34. Which of the following is considered an internal source of short-term finance for a firm?

A. Bank overdraft B. Trade credits C. Cash flow management D. Commercial paper issue

35. What type of risk involves mismatched maturities between assets and liabilities in a financial institution?

A. Credit risk B. Interest rate risk C. Liquidity risk D. Operational risk

36. Which of the following is a market risk faced by financial institutions?

A. Risk due to fluctuating customer preferences B. Risk due to changes in interest rates, exchange rates, or prices in trading assets and liabilities C. Risk due to internal management errors only D. Risk due to fixed costs in the firm's operation

37. Why is financial leverage considered both beneficial and risky?

A. It always guarantees high returns B. It magnifies shareholder returns but increases insolvency risk C. It eliminates the need for shareholders’ funds D. It reduces market risk to zero

38. The primary market in capital markets is mainly concerned with:

A. Trading of existing securities only B. Issue and sale of new securities not previously quoted C. Regulating secondary market transactions only D. Banking sector deposits and withdrawals

39. Why is forecasting considered fundamental in financial planning?

A. It eliminates all uncertainties about the future B. It allows for collection of facts to predict variable future factors C. It makes decisions based on current financial reports only D. It removes the need to prepare contingency plans

40. What is the primary objective of profit maximization in a firm?

A. To maintain the current levels of revenue B. To maximize the business’s profit for the shareholders C. To minimize costs regardless of revenue D. To focus only on short-term sales growth

41. What distinguishes negotiable certificates of deposit (NCDs) from non-negotiable certificates of deposit (NNCDs)?

A. NCDs cannot be transferred; NNCDs can B. NCDs can be transferred by negotiation; NNCDs cannot and must be held to maturity C. Both have identical transferability characteristics D. NNCDs pay higher interest than NCDs

42. Which is an argument in favor of wealth maximization over profit maximization?

A. It ignores risk but focuses on maximizing profit B. It is based on subjective personal judgments C. It emphasizes the value creation for shareholders including timing and risk D. It only considers earnings per share without market values

43. What is the nature of treasury certificates (TCs) as money market instruments?

A. Short-term instruments with less than one year maturity B. Medium-term securities issued by CBN to bridge financing gaps C. Long-term federal government bonds with no secondary market D. Private commercial bank-issued securities for working capital financing

44. What distinguishes negotiable certificates of deposit (NCDs) from non-negotiable ones (NNCDs)?

A. NCDs cannot be transferred B. NCDs can be transferred by negotiation C. NNCDs have higher interest rates D. NNCDs are tradable on stock exchanges

45. Which risk type cannot be eliminated through portfolio diversification?

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

46. Which of the following best describes trade credit as a source of finance?

A. A secured short-term loan from banks B. An unsecured, interest-free short-term credit from suppliers C. A promissory note with fixed interest D. A long-term fixed debt

47. Which of these is NOT a risk associated with financial intermediation?

A. Interest rate risk B. Credit risk C. Operational risk D. Political risk in unrelated industries

48. What is disintermediation in financial markets?

A. Involving more financial intermediaries in transactions B. Removing financial intermediaries and dealing directly between lenders and borrowers C. Increasing the number of banks involved in loan processing D. Using only government institutions as intermediaries

49. What is size transformation/intermediation in banking?

A. Breaking large investments into smaller deposits B. Pooling smaller deposits to provide large loans to borrowers C. Changing the currency denomination of loans D. Only lending small amounts to individual borrowers

50. What is the purpose of rights as a derivative instrument in capital markets?

A. To give holders voting rights only B. To provide holders the option to buy additional shares in a proportionate ratio C. To secure fixed income payments like bonds D. To guarantee redemption of principal at maturity