c


  


u Ê A surplus spending unit is one who(se):
(a)Ê Income and expenditures for the period are equal
(b)ÊIncome for the period exceeds consumption and real investment expenditure
(c)Ê Expenditure for the period exceeds receipts
(d)ÊUses credit cards for all consumer purchase

2 Ê All except one is associated with direct financing:

(a)Ê One financial claim contract
(b)ÊA broker, dealer or investment banker
(c)Ê Small denomination financial claims
(d)ÊGovernment and business borrowers dominate

3 Ê A capital market financing is most likely to finance:

(a)Ê New plant and equipment
(b)ÊSeasonal inventory needs
(c)Ê A quarterly dividend payment
(d)ÊThe sale of common stock

4 Ê Large industrial corporations are involved in the money market by:

(a) Investing excess cash balances
(b) Buying and selling goods on credit in international trade
(c) Issuing commercial papers
(d) All of the above

5 Ê The money market is an important financial market because:

(a) The money market is the world¶s liquidity market
(b) It is the market in which the central bank conducts monetary policy
(c) The government finances most of its credit needs in the money market
(d) All of the above

6 Ê
inancial intermediation is best described as

(a)Ê The flow of savings of lenders to borrowers in return for the IOU of the
borrower
(b)ÊThe flow of borrowed funds directly to deficit spending units
(c)Ê The purchase of indirect financial claims of financial intermediaries and the
subsequent purchase of direct financial claims, held as liabilities of financial
intermediaries
(d)ÊThe purchase of direct financial claims with funds raised by issuing separate
indirect financial claims to savers




ÿ Ê Shareholder wealth" in a firm is represented by:

a)Ê The market price per share of the firm's common stock
b)Ê The amount of salary paid to its employees
c)Ê The book value of the firm's assets less the book value of its liabilities
d)Ê The number of people employed in the firm

8 Ê The long-run objective of financial management is to:

a)Ê Maximize earnings per share

b)Ê Maximize the value of the firm's common stock
c)Ê Maximize return on investment
d)Ê Maximize market share

9 Ê The focal point of financial management in a firm is:

a)Ê The number and types of products or services provided by the firm
b)Ê The minimization of the amount of taxes paid by the firm
c)Ê The creation of value for shareholders
d)Ê The dollars profits earned by the firm

u ÊThe decision function of financial management can be broken down into the
decisions

aÊ financing and investment

bÊ investment, financing, and asset management
cÊ financing and dividend
dÊ capital budgeting, cash management, and credit management

uu Êhich of the following enjoys limited liability?

aÊ A general partnership
bÊ A corporation
cÊ A sole proprietorship
dÊ None of the above



 !"
u2 ÊA major advantage of the corporate form of organization is:

aÊ Ease of organization
bÊ Limited owner liability
cÊ Legal restrictions
dÊ eduction of double taxation

u3 Êhich of the following is not an example of a financial intermediary?

aÊ International Business Machines, Inc (IBM)

bÊ anguard Mutual
und
cÊ El Dorado Savings and Loan Association
dÊ Bank of America

u4 ÊThe purpose of financial markets is to:

aÊ Increase the price of common stocks

bÊ Lower the yield on bonds
cÊ Allocate savings efficiently
dÊ ontrol inflation

u5 Êow are funds allocated efficiently in a market economy?

a Ê The most powerful economic unit receives the funds

b Ê The economic unit that is willing to pay the highest expected return
receives the funds
c Ê The economic unit that considers itself most in need of funds
receives them
d Ê eceipt of the funds is rotated so that each economic unit can receive
them in turn

u6 Êhich of the following statements best describes the purpose of financial accounting
in a limited liability company?

aÊ To assist in the day-to-day management of the company

bÊ To enable the business to pay the correct amount of tax
cÊ To ensure that the business pays the correct dividend
dÊ To help the directors discharge their obligations to the shareholders




uÿ ÊSole traders differ from other types of trading organizations hich of the following
statements correctly summarizes the key characteristics of a sole trader¶s business?

a Ê Liability is limited to the providers of loan finance and only the trader takes an active
part in managing the business
b Ê The trader has unlimited liability and runs the business in conjunction with the
providers of loan finance
c Ê The trader has unlimited liability and must have the business accounts audited
d Ê The trader has unlimited liability, takes sole responsibility for management of the
business and no audit is needed

u8 Ê
inancial markets and institutions-

aÊ Involve the movement of huge quantities of money

bÊ Affect the profits of businesses
cÊ Affect the types of goods and services produced in an economy
dÊ Do all of the above

u9 ÊMarkets in which funds are transferred from those who have excess funds available
to those who have a shortage of available funds are called

aÊ ommodity markets
bÊ
und-available markets
cÊ Derivative exchange markets
dÊ
inancial markets

2 ÊEconomists group commercial banks, savings and loan associations, credit unions,
mutual funds, mutual savings banks, insurance companies, pension funds, and finance
companies together under the heading financial intermediaries
inancial
intermediaries-
a Ê Act as middlemen, borrowing funds from those who have saved and lending
these funds to others
b Ê roduce nothing of value and are therefore a drain on society¶s resources
c Ê elp promote a more efficient and dynamic economy
d Ê Do all of the above
e Ê Do only (a) and (c) of the above



 !"
2u ÊEconomists group commercial banks, savings and loan associations, credit unions,
mutual funds, mutual savings banks, insurance companies, pension funds, and finance
companies together under the heading financial intermediaries
inancial
intermediaries-

a Ê Act as middlemen, borrowing funds from those who have saved and lending these
funds to others
b Ê lay an important role in determining the quantity of money in the economy
c Ê elp promote a more efficient and dynamic economy
d Ê Do all of the above
e Ê Do only (A) and () of the above

22 ÊEvery financial market has the following characteristic:

aÊ It determines the level of interest rates

bÊ It allows common stock to be traded
cÊ It allows loans to be made
dÊ It channels funds from lenders-savers to borrowers-spenders

23 Ê
inancial markets have the basic function of :

a Ê Bringing together people with funds to lend and people who want to borrow
funds
b Ê Assuring that the swings in the business cycle are less pronounced
c Ê Assuring that governments need never resort to printing money
d Ê Both (a) and (c) of the above
e Ê Both (b) and (c) of the above

24 Ê
inancial intermediaries

a Ê Exist because there are substantial information and transaction costs in the
economy
b Ê Improve the lot of the small saver
c Ê Are involved in the process of indirect finance
d Ê Do all of the above
e Ê Do only (a) and (c) of the above




25 Êhich of the following can be described as involving direct finance?

aÊ A corporation¶s stock is traded in an over-the-counter market

bÊ eople buy shares in a mutual fund
cÊ A pension fund manager buys commercial paper in the secondary market
dÊ An insurance company buys shares of common stock in the over-the-counter
markets
e Ê None of the above

26 ÊThe main sources of financing for businesses, in order of importance, are ±

aÊ financial intermediaries, issuing bonds, issuing stocks

bÊ issuing bonds, issuing stocks, financial intermediaries
cÊ issuing stocks, issuing bonds, financial intermediaries
dÊ issuing stocks, financial intermediaries, issuing bonds

2ÿ ÊInvestor generally their money in money market for-

aÊ 5 years
bÊ 2 years
cÊ u year and above
dÊ u year and less

28 ÊA financial manager¶s daily function:

aÊ Inventory control
bÊ eceipt and disbursement of funds
cÊ redit management
dÊ All of the above

29 Ê
inancial markets (u year or less) that deals with short term securities called as-

aÊ apital Market
bÊ Money Market
cÊ Secondary Market
dÊ Stock Market



 !
3 Êhich has continual life?

aÊ Sole proprietorship
bÊ orporation
cÊ artnership
dÊ All of the above

3u ÊThe ³Subchapter S corporation´ designation can be applied to corporations with up

to-

aÊ 55 stockholders
bÊ 65 stockholders
cÊ ÿ5 stockholders
dÊ 85 stockholders

32 ÊThe ³Subchapter S corporation´ is designed to-

a Ê Earn more profit

b Ê Avoid the double taxation of earnings and dividends found in the corporate
form of organization
c Ê ontrol corruption
d Ê Simplify decision making

33 ÊInsider trading occurs when

a Ê Someone has information not available to the public which they use to profit from
trading in stocks
b Ê orporate officers buy stock in their company
c Ê Lawyers, investment bankers, and others buy common stock in companies
represented by their firms
d Ê Any stock transactions occur in violation of the
ederal Trade ommission¶s
restrictions on monopolies

34 ÊOne of the major disadvantages of a sole proprietorship is

aÊ That there is unlimited liability to the owner

bÊ The simplicity of decision making
cÊ Low organizational costs
dÊ Low operating costs



"
35 Êhat is the primary goal of financial management?

aÊ Increased earnings
bÊ Maximizing cash flow
cÊ Maximizing shareholder wealth
dÊ Minimizing risk of the firm

36 Êroper risk-return management means that -

aÊ The firm should take as few risks as possible

bÊ The firm must determine an appropriate trade-off between risk and return
cÊ The firm should earn the highest return possible
dÊ The firm should value future profits more highly than current profits

3ÿ ÊA corporation is ±

aÊ Owned by stockholders who enjoy the privilege of limited liability

bÊ Easily divisible between owners
cÊ A separate legal entity with perpetual life
dÊ All of these

38 Êorporate governance is the

a Ê elationship and exercise of oversight by the board of directors of the company

b Ê elationship between the chief financial officer and institutional investors
c Ê Operation of a company by the chief executive officer (EO) and other senior
executives on the management team
d Ê Governance of the company by the board of directors with a focus on social
responsibility

39 ÊAgency theory examines the relationship between the

aÊ Shareholders of the firm and the firm's investment banker

bÊ Owners of the firm and the managers of the firm
cÊ Board of directors and large institutional investors
dÊ Shareholders and the firm's transfer agent



 !
 4 ÊAgency problems are least likely to arise in which organizational form?

aÊ Sole proprietorship
bÊ Limited partnership
cÊ orporation
dÊ Subchapter S corporation

4u ÊMaximization of shareholder wealth is a concept in which

aÊ Increased earnings is of primary importance

bÊ rofits are maximized on a quarterly basis
cÊ irtually all earnings are paid as dividends to common stockholders
dÊ Optimally increasing the long-term value of the firm is emphasized

42 Êhich of the following is not a true statement about the goal of maximizing
shareholder wealth?

aÊ It takes into account the timing of cash-flows

bÊ It is a short-run point of view which takes risk into account
cÊ It considers risk as a factor
dÊ None of these



"

A ÊS Masum
Leading University, Sylhet