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WorksheetsFinance Management Quiz
Total questions: 86
Worksheet time: 3600secs
Which of the following is a legitimate reason for international investment?
Dividends from a foreign subsidiary are tax exempt in the United States.
Most governments do not tax foreign corporations.
There are possible benefits from international diversification.
International investments have less political risk than domestic investments.
By definition, currency appreciation occurs when
The value of all currencies falls relative to gold.
The value of all currencies rises relative to gold.
The value of one currency rises relative to another currency.
The value of one currency falls relative to another currency.
Theory which considers change in exchange rate with fluctuations in inflation rates is classified as
Liquidated power parity
Purchasing power parity
Selling power parity
Volatile power parity
If purchasing power parity were to hold even in the short run, then:
Real exchange rates should tend to decrease over time.
Quoted nominal exchange rates should be stable over time.
Real exchange rates should tend to increase over time.
Real exchange rates should be stable over time.
Given a home country and a foreign country, purchasing power parity suggests that:
The home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate.
The home currency will depreciate if the current home interest rate exceeds the current foreign interest rate.
The home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate.
The home currency will depreciate if the current home inflation rate exceeds the current foreign interest rate.
Interest Rate Parity (IRP) implies that:
Interest rates should change by an equal amount but in the opposite direction to the difference in inflation rates between two countries.
The difference in interest rates in different currencies for securities of similar risk and maturity should be consistent with the forward rate discount or premium for the foreign currency.
The interest rates between two countries start in equilibrium, any change in the differential rate of inflation between the two countries tends to be offset over the long term by an equal but opposite change in the spot exchange rate.
In the long run, real interest rate between two countries will be equal.
Nominal interest rates in each country are equal to the required real rate plus compensation for expected inflation
In equilibrium position, spread between foreign and domestic rate of interest must be equal to spread of
Domestic rates
Forward and spot exchange rates
Forward rate
Spot rates
Rule which states that similar set of goods and services produced in various countries should have equal price is classified as
Law of similar mortgage rate
Law of one type manufacturing
Law of similar labor rules
Law of one price
Example of derivative securities includes
Swap contract
Option contract
Futures contract
All of above
Authority which intervenes directly or indirectly in foreign exchange markets by altering interest rates is considered as
Central government
Centralized stocks
Central corporations
Centralized instruments
The forward market is especially well-suited to offer hedging protection against
Translation risk exposure.
Transactions risk exposure.
Political risk exposure.
Taxation.
Suppose that the Japanese yen is selling at a forward discount in the forward-exchange market. This implies that most likely
This currency has low exchange rate risk.
This currency is gaining strength in relation to the dollar.
Interest rates are higher in Japan than in the United States.
Interest rates are declining in Japan.
Hedging is used by companies to:
Decrease the variability of tax paid
Decrease the spread between spot and forward market quotes
Increase the variability of expected cash flows
Decrease the variability of expected cash flows
Which of the following is true of foreign exchange markets?
The futures market is mainly used by hedgers while the forward market is mainly used for speculating.
The futures market and the forward market are mainly used for hedging.
The futures market is mainly used by speculators while the forward market is mainly used for hedging.
The futures market and the forward market are mainly used for hedging.
15. Exchange rates (a) are always fixed (b) fluctuate to equate the quantity of foreign exchange demanded with the quantity supplied (c) fluctuate to equate imports and exports (d) fluctuate to equate rates of interest in various countries
are always fixed
fluctuate to equate the quantity of foreign exchange demanded with the quantity supplied
fluctuate to equate imports and exports
fluctuate to equate rates of interest in various countries
16. An arbitrageur in foreign exchange is a person who (a) earns illegal profit by manipulating foreign exchange (b) causes differences in exchange rates in different geographic markets (c) simultaneously buys large amounts of a currency in one market and sell it in another market (d) None of the above
earns illegal profit by manipulating foreign exchange
causes differences in exchange rates in different geographic markets
simultaneously buys large amounts of a currency in one market and sell it in another market
None of the above
17. A speculator in foreign exchange is a person who (a) buys foreign currency, hoping to profit by selling it at a higher exchange rate at some later date (b) earns illegal profit by manipulation foreign exchange (c) causes differences in exchange rates in different geographic markets (d) None of the above
buys foreign currency, hoping to profit by selling it at a higher exchange rate at some later date
earns illegal profit by manipulation foreign exchange
causes differences in exchange rates in different geographic markets
None of the above
18. A floating exchange rate (a) is determined by the national governments involved (b) remains extremely stable over long periods of time (c) is determined by the actions of central banks (d) is allowed to vary according to market forces
is determined by the national governments involved
remains extremely stable over long periods of time
is determined by the actions of central banks
is allowed to vary according to market forces
19. The current system of international finance is a (a) gold standard (b) fixed exchange rate system (c) floating exchange rate system (d) managed float exchange rate system
gold standard
fixed exchange rate system
floating exchange rate system
managed float exchange rate system
20. A simultaneous purchase and sale of foreign exchange for two different dates is called (a) currency devalue (b) currency swap (c) currency valuation (d) currency exchange
currency devalue
currency swap
currency valuation
currency exchange
21. Investment can be defined as (a) Person’s dedication to purchasing a house or flat (b) Use of capital on assets to receive returns (c) Usage of money on a production process of products and services (d) Net additions made to the nation’s capital stocks
Person’s dedication to purchasing a house or flat
Use of capital on assets to receive returns
Usage of money on a production process of products and services
Net additions made to the nation’s capital stocks
22. The concept of Financial management is (a) Profit maximization (b) All features of obtaining and using financial resources for company operations (c) Organization of funds (d) Effective Management of every company
Profit maximization
All features of obtaining and using financial resources for company operations
Organization of funds
Effective Management of every company
23. What is the primary goal of financial management? (a) To minimize the risk (b) To maximize the owner’s wealth (c) To maximize the return (d) To raise profit
To minimize the risk
To maximize the owner’s wealth
To maximize the return
To raise profit
24. GST is a consumption of goods and service tax based on: (a) Development (b) Destiny (c) Duration (d) Destination
Development
Destiny
Duration
Destination
25. The finance manager is accountable for (a) Earning capital assets of the company (b) Effective management of a fund (c) Arrangement of financial resources (d) Proper utilization of funds
Earning capital assets of the company
Effective management of a fund
Arrangement of financial resources
Proper utilization of funds
26. The market value of a share is responsible for (a) The investment market (b) The government (c) Shareholders (d) The respective companies
The investment market
The government
Shareholders
The respective companies
27. The capital budget is associated with (a) Long terms and short terms assets (b) Fixed assets (c) Long terms assets (d) Short term assets
Long terms and short terms assets
Fixed assets
Long terms assets
Short term assets
28. CAPM stands for (a) Capital asset pricing model (b) Capital amount printing model (c) Capital amount pricing model (d) Capital asset printing model
Capital asset pricing model
Capital amount printing model
Capital amount pricing model
Capital asset printing model
29. What does financial leverage measure? (a) No change with EBIT and EPS (b) The sensibility of EBIT with % change with respect to output (c) The sensibility of EPS with % change in the EBIT level (d) % variation in the level of production
No change with EBIT and EPS
The sensibility of EBIT with % change with respect to output
The sensibility of EPS with % change in the EBIT level
% variation in the level of production
30. From the below-mentioned items which are financial assets? (a) Machines (b) Bonds (c) Stocks (d) Band C
Machines
Bonds
Stocks
Band C
31. Trade between two countries can be useful if cost ratios of goods are: (a) Undetermined (b) Decreasing (c) Equal (d) Different
Undetermined
Decreasing
Equal
Different
32. The term Euro Currency market refers to (a) The international foreign exchange market (b) The market where the borrowing and lending of currencies take place outside the country of issue (c) The countries which have adopted Euro as their currency (d) The market in which Euro is exchanged for other currencies
The international foreign exchange market
The market where the borrowing and lending of currencies take place outside the country of issue
The countries which have adopted Euro as their currency
The market in which Euro is exchanged for other currencies
33. Which of the following theories suggests that firms seek to penetrate new markets over time? (a) Imperfect Market Theory (b) Product cycle theory (c) Theory of Comparative Advantage (d) None of the above
Imperfect Market Theory
Product cycle theory
Theory of Comparative Advantage
None of the above
34. Dumping refers to: (a) Reducing tariffs (b) Sale of goods abroad at low a price, below their cost and price in home market (c) Buying goods at low prices abroad and selling at higher prices locally (d) Expensive goods selling for low prices
Reducing tariffs
Sale of goods abroad at low a price, below their cost and price in home market
Buying goods at low prices abroad and selling at higher prices locally
Expensive goods selling for low prices
35. International and domestic trade differ because of: (a) Different government policies (b) Immobility of factors (c) Trade restrictions (d) All of the above
Different government policies
Immobility of factors
Trade restrictions
All of the above
International and domestic trade differ because of:
Different government policies
Immobility of factors
Trade restrictions
All of the above
The margin for a currency futures should be maintained with the clearinghouse by
The seller
The buyer
Either the buyer or the seller as per the agreement between them
Both the buyer and the seller
The following statement with respect to currency option is wrong
Foreign currency-Rupee option is available in India
An American option can be executed on any day during its currency
Put option gives the buyer the right to sell the foreign currency
Call option will be used by exporters
Govt. policy about exports and imports is called:
Commercial policy
Fiscal policy
Monetary policy
Finance policy
Which of the following is international trade:
Trade between countries
Trade between regions
Trade between provinces
Both (b) and (c)
Market in which currencies buy and sell and their prices settle on is called the
International bond market
International capital market
Foreign exchange market
Eurocurrency market
Purchasing goods from a foreign country is called
Import
Entrepot
Export
Re-Export
Goods imported for the purpose of export is known as
Hometrade
Foreigntrade
Entrepot
Trade
This retail business acts as a universal supplier of a wide variety of products.
Multipleshop
Mail order Business
Tele-shopping
Departmental store
What is the Bill receivable account?
Personal Account
Machinery Account
Real Account
Nominal Account
A bill of exchange includes.
An order to pay
A request to pay
A promise to pay
All the above
Which bill is drawn and accepted in the same country?
Trade Bill
Foreign Bill
Inland Bill
Accommodation Bill
Who draws a bill of exchange?
Creditor
Debtor
Holder
None of the above
What is the person known as who draws a bill of exchange
Drawer
Payee
Drawee
None of the above
What are the three additional days known as that a drawer gives to the drawee for payment
Conditional days
Additional days
Days of grace
Days of rebate
When the drawee signs the bill, it is considered as
Accepted
Retired
Renewed
Endorsed
What kind of acceptance is known as when the bill is accepted without any condition?
Qualified acceptance
Conditional acceptance
Blank acceptance
General acceptance
When the bill is noted from the notary public, it is known as?
Noting
Discounting
Accepting
None of the above
What does retiring a bill under rebate means?
Making a payment of the bill before the due date
Dishonoring of a bill
Making a payment of the bill after the due date
All of the above
The most widely used monetary policy tool among these is.
Open market operations
Issuing of notes
Close market operations
Discount rate
Basic objective of Financial Management is
Maximization of profit
Maximization of shareholders wealth
Ensuring Financial discipline in the firm
All of these
Financial structure refers to
Short-term resources
All the financial resources
Long-term resources
All of these
The market value of the firm is the result of
Dividend decisions
Working capital decisions
Capital budgeting decisions
Tradeoff between risk and return
Cost of capital is
Lesser than the cost of debt capital
Equal to the last dividend paid to the equity shareholders
Equal to the dividend expectations of equity shareholders for the coming year
None of the above
In Walter model formula D stands for
Dividend per share
Direct dividend
Direct earnings
None of these
____ security is known as variable income security.
Debentures
Preference shares
Equity shares
None of these
Quick asset does not include
Government bonds
Book debts
Advance for supply of raw materials
Inventories
Long-term finance is required for
Current assets
Fixed assets
Intangible assets
None of these
Financial leverage can be measured in
Stock term
Flow term
Both (a) and (b)
None of these
Current ratio of a concern is 1, it
Financial leverage can be measured in
Stock term
Flow term
Both(a) and (b)
None of these
Current ratio of a concern is 1, its networking capital will be
Positive
Neutral
Negative
None of the above
Risk-return tradeoff implies
Increasing the portfolio of the firm through increased production
Not taking any loans which increase the risk
Not granting credit to risky customers
Taking decisions in such a way which optimizes the balance between risk and return
____ is a specific risk factor
Market risk
Inflation risk
Interest rate risk
Financial risk
____ is not a diversifiable or specific risk factor
Company strike
Bankruptcy of a major supplier
Death of a key company officer
Industrial recession
Mr. Anil purchased 100 stocks of Futura Informatics Ltd, for Rs. 21 on March 15, sold for Rs. 35 on March 14 next year. In the company paid a dividend of Rs. 2.50 per share, the Mr. Anil's holding period return is
11.90%
45.40%
66.70%
78.60%
The major benefit of diversification is to
Increase the expected return
Increase the size of the investment portfolio
Reduce brokerage commissions
Reduce the expected risk
___ is concerned with the acquisition, financing, and management of assets with some overall goal in mind
Financial management
Profit maximization
Agency theory
Social responsibility
___ is concerned with the maximization of a firm's earnings after taxes
Shareholder wealth maximization
Profit maximization
Stakeholder maximization
EPS maximization
___ is the most appropriate goal of the firm
Shareholder wealth maximization
Profit maximization
Stakeholder maximization
EPS maximization
Which of the following statements is correct regarding profit maximization as the primary goal of the firm?
Profit maximization considers the firm's risk level
Profit maximization will not lead to increasing short-term profits at the expense of lowering expected future profits
Profit maximization does consider the impact on individual shareholder's EPS
Profit maximization is concerned more with maximizing net income than the stock price
If a company issues bonus shares the debt equity ratio
Remain unaffected
Will be affected
Will improve
None of the above
Which of the following is not normally a responsibility of the treasurer of the modern corporation but rather the controller?
Budgets and forecasts
Asset management
Investment management
Financial management
The ____ decision involves determining the appropriate make-up of the right-hand side of the balance sheet
Asset management
Financing
Investment
Capital budgeting
Treasurers should report to
Chief Financial Officer
Vice President of Operations
Chief Executive Officer
Board of Directors
The ______ decision involves a determination of the total amount of assets needed, the composition of the assets, and whether any assets need to be reduced, eliminated, or replaced
Asset management
Financing
Investment
Accounting
The par value of the stocks and bonds outstanding is termed as
Capitalization
Multiplication
Outstanding income
Earnings before interest and taxes
According to the text's authors, ____ is the most important of the three financial management decisions
Asset management decision
Financing decision
Investment decision
Accounting decision
The _____ decision involves efficiently managing the assets on the balance sheet on a day-to-day basis, especially current assets
Asset management
Financing
Investment
Accounting
_______ is not normally a responsibility of the controller of the modern corporation
Budgets and forecasts
Asset management
Financial reporting to the IRS
Cost accounting
All constituencies with a stake in the fortunes of the company are known as
Shareholders
Stakeholders
Creditors
Customers
