Chapter 7: The business's finance function

.
1 Collinson plc is a medium-sized group operating at four locations in the
UK. It operates a centralised finance function and is concerned that the
function as a whole is not performing well. Centralisation of this
finance function is least likely to be effective in:
A external reporting to shareholders
B recording financial transactions
C managing cash
D Internal reporting to operational managers
2 Maureen is employed in the finance function of Gralam plc. Her duties
are to ensure that the company always has sufficient funds available to
meet both its short-term and long-term financial requirements. It is clear
that Maureen is employed by Gralam plc in its:
A financial reporting section
B management accounting section

C treasury management section

D transaction processing section

3 Which three of the following are characteristics of management

accounting information rather than financial reporting information?
A It is both forward looking and historical
B It is governed by statute
C It is primarily used by shareholders
D It is likely to include a statement of cash flows
E It is likely to include a cash flow forecast
F It is likely to include budgetary information

4 Harold is an accountant with Farnworth plc. He was asked to join a

project team examining the company's compliance with both FRC and
 IASB standards. It appears, therefore, that Harold has been recruited into
this project team to exploit his expertise in:
A financial reporting
B performance measurement

C corporate governance

D information systems

5 Novel plc is establishing its accounting and finance function. The

company has been told there are two purposes of published, audited
financial statements. These are to help users assess how effectively
managers are running a business, and to make judgements about the likely
levels of risk and return in the future.
Which of the following user groups of Novel plc's published, audited
financial statements is most likely to use accounting information for
these purposes?
A Community representatives
B Employees
C Shareholders
D Managers
6 When a company's finance function prepares financial statements in
accordance with legal rules and accounting standards, it is engaged in
the support activity of:
A record-keeping and stewardship
B planning and control
C external reporting
D internal reporting

7 Mainstream Ltd's finance director is establishing an effective system in

the finance function for producing management accounting reports.
Which issue should be the finance director's primary consideration?
A The information needs of the company's managers
B The need for effective internal control mechanisms
 C The need for cost-effectiveness
D The need for effective information security
8 Tram plc's finance function must provide information to management
on the company's balanced scorecard. This role is undertaken as part of
Tram plc's:
A statutory audit requirement
B financial reporting function
C treasury management process
D performance measurement system

9 performance measurement system

'Effectiveness', 'economy' and 'efficiency' are often mentioned with
reference to resource use. Match these terms with the definitions below:
1 A reduction or containment of costs
2 Achieving maximum output at minimum cost
3 The measure of achievement by reference to objectives
A 1 = effectiveness 2 = economy 3 = efficiency
B 1 = economy 2 = efficiency 3 = effectiveness
C 1 = efficiency 2 = effectiveness 3 = economy
D 1 = economy 2 = effectiveness 3 = efficiency
10 Which statement about critical success factors (CSFs) for a business is
true?

A Low costs will always be a CSF; high sales revenue will always be
a CSF.
B Low costs will always be a CSF; high sales revenue will not
always be a CSF.

C Low costs will not always be a CSF; high sales revenue will
always be a CSF.
 D Low costs will not always be a CSF; high sales revenue will
not always be a CSF.
11 Three basic approaches to performance measures are measures of
economy, efficiency, and effectiveness. Economy is measured by:
A the amount of resources used for the tasks that have been achieved

B the success in achieving goals and targets

C team member satisfaction and the motivational climate

D the success of the team or work group in controlling its costs
12 A consultant has made two statements about the primary focus of the
users of financial statements of an entity.
Statement (1) The primary focus of suppliers is on the entity's risk
and return.
Statement (2) The primary focus of shareholders is on the entity's
solvency.
Identify whether each statement is true or false.

A Statement (1) true; Statement (2) false

B Statement (1) false; Statement (2) false
C Statement (1) true; Statement (2) true
D Statement (1) false; Statement (2) true
13 Tom works in the finance function of Bateman Ltd, which trades with
many companies around the world. His duties involve managing the
company's foreign exchange requirements. From this it can be seen that
Tom is employed by Bateman Ltd in its finance function's:
A financial reporting section
B management accounting section
C treasury management section
D financial transaction recording section
14 Chinward Ltd manufactures garden furniture from recycled wood and
wishes to apply the sustainability reporting standards issued by the
Global Reporting Initiative (GRI) in its sustainability reporting.
Statement (1) Under the environmental section of the report, the company
should identify the total weight of wood used in the manufacture of its
products in the financial period.
Statement (2) Under the social section of the report, the company
should identify the number of new workers employed in the financial
period by age, gender and region.
Identify whether each statement is true or false.

A Statement (1) true; Statement (2) false

B Statement (1) false; Statement (2) false
C Statement (1) true; Statement (2) true
D Statement (1) false; Statement (2) true
15 Historically, the role of the finance function at Delbin plc has been
viewed primarily in terms of reporting and control. However, the senior
management team at Delbin plc are keen for the finance function to
have more of a role as a business partner.
In which of the following should members of the finance function
expect to become increasingly involved as a result of the business
partnering role?
1 Formulating strategies
2 Commercial decision making and negotiations
3 Provision of accurate accounting information

A. 1 and 2 only
B. 1 and 3 only
C. 2 and 3 only
D. 1, 2 and 3
Chapter 8: Business finance

1 A family-owned removals company has liquidity problems and needs

an injection of funds. From the following list identify which would be
classified as a source of short-term finance for this company.
A Share capital
 B Bank loan

C Factoring
D Commercial mortgage
2 A consultant has made the following statements concerning each
possible relationship between a bank and its customer.
Statement (1) In the fiduciary relationship the bank is expected to
act with good faith towards the customer.
Statement (2) In the mortgagor/mortgagee relationship the bank
asks the customer to secure a loan with a charge over the customer's
liabilities.
Statement (3) In the bailor/bailee relationship the bank accepts the customer's
property for storage and undertakes to take reasonable care to safeguard
it against loss or damage.
Identify which of the statements about these relationships are true.

A Statements (1) and (2) only

B Statements (2) and (3) only
C Statements (1) and (3) only
D Statements (1), (2) and (3)
3 The directors at Landsaver plc want to raise long-term finance by
issuing shares in the company. They have been told that the way to do
this is 'by accessing the market' but they are not sure what this means. A
market where new securities are bought and sold for the first time is
known as:
A a futures market
B a secondary capital market
C a primary capital market
D a money market
4 A consultant has made the following statements about venture capital.
Statement (1) Venture capitalists may realise their investment by
selling their shares following flotation on the stock exchange.
Statement (2) Venture capitalists never sit on the board of a
company.
Statement (3) Venture capitalists normally expect a company's
existing owners to bear a substantial part of the risk.
Which of the statements are true?

A Statements (1) and (2) only

B Statements (2) and (3) only

C Statements (1) and (3) only
D Statements (1), (2) and (3)

5 The following is a definition of what type of market?

"A short-term wholesale market for securities maturing in one year, such
as certificates of deposit, treasury bills and commercial paper."
A Capital market
B The London Stock Exchange
C AIM (Alternative Investment Market)
D Money market
6 Which of the following is an example of an institutional investor?

A The Bank of England

B The Financial Reporting Council
C The Financial Conduct Authority
D A unit trust
7 In which of the following projects would a venture capital organisation
be least likely to invest?
A A business start-up
B A management buyout
C Renovation of a production facility
D A rapidly growing company, looking to expand into new markets

8 Which of the following forms of new share issues would normally be

underwritten?
 A Introduction
B Offer for sale by tender
C Placing
D Rights issue
9 Grid plc wants to be listed on the London Stock Exchange. An adviser
has stated that the following are methods by which a company can
obtain a new London Stock Exchange listing for its shares.
Method 1 Offer for sale Method 2 Placing Method 3
Rights issue

Method 4 Offer for subscription

Which of these methods are available to Grid plc?

A Methods 1, 2 and 3 only

B Methods 2, 3 and 4 only
C Methods 1, 2 and 4 only
D Methods 1, 3 and 4 only
10 Which of the following is a function of financial regulators?
A The provision of financial advice and information to businesses
B Reduction of risk for clients via aggregation of funds
C Maturity transformation
D Prudential control of financial institutions
11 Which of the following is an advantage to the shareholders of a
company that is obtaining a listing on the London Stock Exchange?
A Disclosure requirements are reduced
B Larger dividends can be paid
C Shares become more readily marketable
D The company becomes entitled to put 'plc' (public limited company)
after its name
12 Which type of finance should be used to fund an increase in inventory?

A Immediate finance
 B Short-term finance
C Medium-term finance
D Long-term finance
13 Which of the following is the source of finance which a company can
draw on most easily in practice?
A Cash generated from retained earnings
B New share issues
C Rights issues
D Bank borrowings
14 All of the following statements about leases are correct, except one.
Which is the exception?
A The lease period can be less than the useful life of the asset.
B Lessees may be liable to pay interest on the lease.
C The lessee owns the asset outright from the time of purchase.
D Lessors may be responsible for repairs and maintenance on the asset
being leased
15 Which of the following statements about venture capital is most valid?

A Venture capital is a low risk and low return form of finance.

B Companies listed on major stock exchanges normally use venture capital to
raise new finance.
C Venture capital can be appropriate for a management buyout.
D Venture capital normally takes the form of debt finance.
16 Which of the following is a source of long-term finance?

A Trade credit from suppliers

B Bank overdraft
C Factoring of trade debts
D Mortgage on property
17 What is the following statement a definition of?
"A document issued by a bank on behalf of a customer, authorising a
person to draw money to a specified amount from its branches or
 correspondents, usually in another country, when the conditions set out
in the document have been met."
A Bill of exchange
B Export guarantee
C Banker's draft
D Letter of credit
18 Which of the following services is least likely to be offered by a
factoring company to its client?
A Provision of finance by advancing 80% of invoice value immediately,
and the remainder on settlement of the debt by the client's customer
B Taking over responsibility for administration of the client's sales
ledger
C Deciding what credit limits the client should give customers
D Taking over responsibility for irrecoverable debts
19 Ken plc's new building programme is likely to start within the next 90
days, but the precise start date and timing of the cash flows are still
uncertain. The company has £150,000 available in cash in anticipation
of the investment. Which of the following is the least appropriate use of
the funds in the interim period?
A Investment in equities
B Treasury bills
C Bank deposits
D Local authority deposits
20 Which of the following contractual relationships between a bank and a
customer concerns the bank accepting customer property for storage in
its safe deposit?
A Receivables/payables
B Principal/agent
C Bailor/bailee
D Mortgagor/mortgagee
21 Which of the following sources of finance involves the business
requesting a specific sum of money from individuals, usually via the
 internet?
A Alternative investment market
B Business angels
C Venture capital
D Crowdfunding

22 Financial instruments with maturities of less than one year are traded in
the:

A equity market
B capital market
C money market
D fixed-income market
23 A consultant has stated that a 30-year Treasury bond issued in the last year
can be sold in four different categories of market.
1 The money market
2 The capital market
3 The primary market
4 The secondary market
Which of these markets are available for the sale?

A 1 and 3 only
B 1 and 4 only
C 2 and 3 only
D 2 and 4 only
24 Sunita Ltd has the choice of two investments carrying similar levels of risk.
One is short-term and the other is a long-term bond. Sunita Ltd should
expect the interest on the longer term bond to be:
A normally higher
B lower
C normally the same
 D impossible to tell

25 Which part of the Bank of England is responsible for the stability and
resilience of the UK's financial system as a whole?
A Financial Conduct Authority
B Monetary Policy Committee
C Financial Policy Committee
D Prudential Regulation Authority
26 Adventurous plc has recently sent goods to its first non-UK customer
but has taken out insurance because it is worried about the possibility of
payment default. What type of risk does such a non-payment represent?
A Physical risk
B Credit risk
C Trade risk
D Liquidity risk

27 Cinq plc has been offered support by a commercial organisation in

respect of its receivables ledger. Under the offer, Cinq plc will pay the
commercial organisation a premium and in return the commercial
organisation will pay Cinq plc the value of customer debt if it becomes
irrecoverable.
What service is the commercial organisation offering Cinq plc?

A Non-recourse debt factoring

B Finance against sales
C Receivables insurance
D Receivables management
28 Lion plc is seeking to raise debt finance. It is planning to offer a series of
£10,000 loan stock to investors. The loan stock will each be redeemed at
£9,500 and attracts 5% interest per annum.
Which of the following statements concerning the loan stock is correct?

A It is a floating rate note which is redeemed at a £500 premium.

 B It is a bond which is redeemed at a £500 premium.
C It is a floating rate note which is redeemed at a £500 discount.
D It is a bond which is redeemed at a £500 discount.

Chapter 11: Governance and ethics

1 Which three of the following attributes are identified by the Institute of

Business Ethics as being typical of ethical business leaders?
A Fair mindedness
B Honesty
C Ability to listen
D Empathy
E Accountability

2 In a market-based financial system, the financial system will be

characterised by:

A comparatively more government regulation than a bank-based system

B comparatively less close relationships between banks and businesses
than in a bank- based system
C comparatively more risk averse households than in a bank-based system
D households with less access to investment in physical assets than in a bank-
based system

3 In the country of Zanadu, the population has a risk seeking attitude

 towards financial matters. Zanadu's financial system is likely to be:
A a market-based system
B a stakeholder system
C a bank-based system
D a public policy system

4 Under a unitary board structure, a company's board of directors is

responsible for both management of the business and reporting to:
A the non-executive directors
B the supervisory board
C the company's employees
D the company's shareholders

5 The agency problem is behind the need for sound corporate governance.
The 'principal' in this agency relationship is:
A customers as a body
B shareholders as a body
C managers as a body
D directors as a body
6 A consultant has made the following statements, which he maintains are
drawn from the definition of corporate governance in the OECD's
Principles of Corporate Governance.
Statement (1) Corporate governance comprises the practices and
procedures for ensuring that a company is run in such a way that it
achieves its objectives.
Statement (2) Corporate governance is a set of relationships
between a company's management, its board, its shareholders and other
stakeholders.
 Identify whether each statement matches the definition.
A Statement (1) matches; Statement (2) does not match
B Statement (1) does not match; Statement (2) does not match
C Statement (1) matches; Statement (2) matches
D Statement (1) does not match; Statement (2) matches
7 Different corporate governance systems reflect different ways in which
companies are managed and controlled by different board structures.
The following statements have been made about the structure of a board
of directors.
Statement (1) In the UK and Germany there is a unitary board
system.
Statement (2) A two-tier system comprises a management board
and a supervisory board. Identify whether each statement is true or false.

A Statement (1) true; Statement (2) false

B Statement (1) false; Statement (2) false
C Statement (1) true; Statement (2) true
D Statement (1) false; Statement (2) true
8 The following statements have been made about ethical audits and
corporate responsibility.
Statement (1) An ethical audit is a process which measures both the
internal and external consistency of a company's values base.
Statement (2) How far an organisation protects stakeholders with
which it has contractual relationships is a measure of its corporate
responsibility.
Identify whether each statement is true or false.

A Statement (1) true; Statement (2) false

B Statement (1) false; Statement (2) false
C Statement (1) true; Statement (2) true
D Statement (1) false; Statement (2) true
9 A financial system comprises which three of the following?
 A Governance structures
B Intermediaries
C Securities
D Markets
E Regulators
10 Woolmer plc adopts corporate responsibility as a key element in its
strategies. This will mean that the company seeks to:
A meet the minimum obligations it owes to stakeholders
B exceed the minimum obligations it owes to stakeholders
C meet the minimum obligations it owes to shareholders
D exceed the minimum obligations it owes to shareholders
11 In seeking to address the problem of the separation of ownership and
control, corporate governance attempts to align the interests of which
two of the following stakeholders?
A Investors
B Employees
C Regulators
D Managers
E Auditors

12 The stewardship approach to corporate governance requires directors of

limited companies:
A to act at all times in the best interests of the company
B to allow shareholders to see detailed accounting records on request
C to hold regular monthly meetings to answer shareholders' questions
D to consult the shareholders over difficult management decisions
13 The board of directors of Lake plc is concerned that the current chief
executive's actions are undermining the ethical culture at the company.
She fails to listen to the concerns of managers about unfair treatment of
suppliers, and she has failed to learn from a recent scandal in which the
company was fined for data protection breaches.
 To improve the ethical culture at Lake plc, which of the following is the
most important action for the board to take?
A Draft a code of business ethics for Lake plc's employees
B Rewrite Lake plc's policies regarding suppliers and customers
C Demonstrate leadership by encouraging Lake plc's chief executive to be
more open
D Brief shareholders more fully about Lake plc's incentive scheme for
managers
14 Protea plc manufactures sporting equipment for leisure centres. The
Chairman is Jonathan Potter, and the Chief Executive is his daughter
Elise. All of the directors receive bonuses based on annual profits. The
company's sales are made by individual salespeople who routinely
bypass the company's strict credit check procedures. A number of
irrecoverable debts have arisen in the current year that would have
affected profitability and the share price, if the Finance Director had not
manipulated the accounts.
From this information, what are the likely corporate governance issues at
Protea plc?

A Domination by a small group

B Emphasis on short-term profitability
C Lack of supervision of employees
D All of the above
15 Which of the following is a list of the five key elements of good
corporate governance?
A Board of directors, senior management, employees, external auditors,
internal auditors
B Senior management, shareholders, employees, external auditors,
lenders
C Board of directors, senior management, shareholders, external
auditors, internal auditors
D Senior management, stakeholders, internal auditors, employees,
government regulators
16 Ultra Zeta AG is a company based in Germany. The business has a dual
 board structure for its Board of Directors.
Which of the following types of board forms part of the company's
board structure?

A Unitary board
B Supervisory board
C Non-executive board
D Executive board
17 The national culture in the country of Erewhon is characterised by a
high ‘power distance’ score, and an acceptance that power is distributed
unequally, and concentrated in the hands of a small number of key
individuals.
By contrast, the country of Wenland has a lower ‘power distance’ score,
and people strive to get power distributed more evenly.
Based on the ‘power distance’ scores of the two countries, identify if
each of the following statements is likely to be true or false.
The corporate governance code in Erewhon prohibits the role of CEO and
chair being combined, but the code in Wenland permits this.
The corporate governance code in Wenland requires a higher proportion of
independent NEDs on the board than the code in Erewhon does.
A Statement 1 = True; Statement 2 = True
B Statement 1 = True; Statement 2 = False
C Statement 1 = False; Statement 2 = True
D Statement 1 = False; Statement 2 = False
18 Which of the following statements about whistle-blowing is/are true?
1 Whistle-blowing involves the disclosure by an employee of illegal or
unethical behaviour in the workplace.
2 Employees should always report concerns about unethical behaviour to
their line manager in the first instance.
A Neither of them
B 1 only
C only
 D Both of them
19 Which three of the following are core aspects of South Africa’s King
Report?

A Good corporate citizenship

B Equality
C Leadership
D Sustainability
E Responsibility
20 Goldenwood plc is a multinational company that makes sweets and
sugary drinks targeted at children between the ages of 4 and 8 years old.
The company regularly advertises its products during prime time
children’s television programmes and on popular YouTube channels
with high numbers of child subscribers. In recent weeks, the company
has received adverse publicity because of its targeting of young children
which has been branded as ‘unethical’.
Which business function is impacted by this ethical issue?

A Operations
B Procurement
C Human Resources
D Marketing
Chapter 13: The economic environment of business and finance

1 Anu manufactures pieces of classic furniture. Anu predicts that "if

people's incomes rise next year, then the demand for my furniture will
increase".
The accuracy of Anu's prediction depends on whether the pieces of
furniture he produces:

A are normal goods

B have few substitutes
C have many complements
 D have few complements

2 Potatoes are a Giffen good. An increase in the price of potatoes will

cause:

A an increase in demand for potatoes

B a decrease in demand for substitutes for potatoes
C a decrease in demand for potatoes
D an increase in demand for substitutes for potatoes

3 Y is a complement of X in consumption. An increase in the price of Y

will:

A increase the demand for Y and decrease the demand for X

B decrease the demand for Y and increase the demand for Y
C increase the demand for both Y and X
D decrease the demand for both Y and X

4 A brand of cheese is an inferior good. A consultant has made two

statements about the cheese.
Statement (1) Demand for the cheese will rise as incomes rise.
 Statement (2) Demand for the cheese only exists because of the effects of
advertising. Identify whether each statement is true or false.

A Statement (1) true; Statement (2) false

B Statement (1) false; Statement (2) false
C Statement (1) true; Statement (2) true
D Statement (1) false; Statement (2) true

5 The market for a product is a natural monopoly. Production of the

product must be associated with:
A high marginal costs
B low marginal costs
C economies of scope acting as a barrier to entry
D low fixed costs

6 The cross elasticity of demand between the Terra product and the Nova
product is zero. The two products are:
A complements
B substitutes
C veblen goods
D unrelated
7 The UK government has recently imposed a maximum price on Pratex
which is set at a lower level than its equilibrium price. In future,
therefore, it can be expected that there will be:
A excess supply of the product
B excess demand for the product
C no effect on supply but an increase in demand
D no effect on demand but a decrease in supply

8 An analyst with Lanes plc has drawn a supply curve for one of the
company's major products, the Ledo. The curve is a vertical straight
line. This indicates that supply of the Ledo is:
A perfectly inelastic
B of unitary elasticity
C perfectly elastic
D one

9 There has been a significant rise in factor costs for the Tempo product
during recent months. It can be expected that there will be:
A a contraction in demand and supply
B Ban expansion in demand and supply
C a contraction in demand and an expansion in supply

D an expansion in demand and a contraction in supply

10 In the market for the Optica product competitors do not compete
through price. Instead they spend substantial sums of money on raising
consumer awareness through advertising. There is some differentiation
between products, often achieved through branding. There are many
buyers and sellers in the market for the product. The market for the
Optica product is characterised as:
A monopolistic competition
B oligopoly
C perfect competition
D monopoly

11 Which three of the following are associated with conditions of perfect

competition?

A Suppliers are price-makers

B Suppliers earn 'normal' profits
C Consumers lack influence over market price
D Differentiated products
E A single selling price

12 Gromet plc has been able to achieve significant external economies of

scale. This indicates that the market for the company's only product has
been:
A static, so forcing the company to achieve economies of scale in
production
B growing, so enabling the economies of scale to be achieved
C contracting, so enabling the company to cut costs in distribution
D volatile, meaning that internal economies of scale were unattainable

13 If the price of a particular product is £9.00 per unit, on average 150

 units of the product are sold per month. At a price of £10.00 per unit, on
average 110 units per month are sold. The price elasticity of demand for
the product is:
A A –0.42
B B –2.40
C C –0.27
D D –0.11

14 The minimum price for a good is set by the government above the
current free market equilibrium price. What will be the effect (if any) on
demand for and supply of the good in the short term?
A Demand for the good will fall; supply of the good will rise
B Demand for the good will rise; supply of the good will fall
C Both demand for and supply of the good will rise

D There will be no effect on either demand for or supply of the good

15 Bench Ltd produces chairs. An economist predicts that, if average incomes
rise next year, demand for the chairs will increase in direct proportion to
the rise in incomes (assuming all other factors remain unchanged). The
accuracy of the economist's prediction depends on whether the chairs:
A are normal goods
B have many complementary goods
C C have few complementary goods
D D have few substitutes

16 The basic economic problem facing all national economies is:

A maximising economic growth

B unemployment
C inflation
 D allocating scarce resources

17 Which of the following is regarded by economists as a factor of

production?

A Demand
B Enterprise
C Supply
D Innovation

18 Which of the following is a source of economies of scale?

A The introduction of a new product

B Bulk buying
C The use of skills in production
D Cost savings resulting from new production techniques

19 The marginal propensity to consume measures:

A the relationship between changes in consumption and changes in
consumer utility
B the proportion of household incomes spent on consumer goods
C the proportion of total national income spent on consumer goods

D the relationship between changes in income and changes in

consumption
19 Which of the following is the correct sequence in a business cycle?

A Boom, Recession, Depression, Recovery

B Recession, Recovery, Boom, Depression
C Boom, Recovery, Recession, Depression
D Recovery, Recession, Depression, Boom

20 The recession phase of the business cycle will normally be accompanied

by all of the following except:
A a rise in the rate of inflation
B a fall in the level of national output
C an improvement in the trade balance

D a rise in the level of unemployment

21 The government may seek to reduce the rate of demand-pull inflation

by any of the following means except:
A reducing interest rates
B increasing VAT
C applying more stringent controls over bank lending
D reducing public expenditure
22 Which of the following would lead to demand pull inflation?

A Rising import prices

B Increase in wages
C Increases in indirect taxation
D High consumer expenditure such that aggregate demand exceeds
aggregate supply

23 Which of the following are effects of reduced interest rates?

1 Consumer spending will increase
2 Business investment will be encouraged
3 Saving will increase

A 1 only
B and 2 only
C and 3 only
D 1, 2 and 3

24 Which of the following is a fiscal policy measure by government?

A To raise short-term interest rates in the money markets

B To support the exchange rate for the country's currency
C To control growth in the money supply
D To alter rates of taxation
25 'Supply side' economics concerns:
A the behaviour of the microeconomic supply curve

B the supply of factors of production in response to changing levels of factor

rewards
C the behaviour of the aggregate supply curve in connection with the levels
of prices, incomes and employment
D the effect that an increase in the supply of money has on inflation

26 If the government wishes to increase consumer spending, it should

increase the rate of:

A income tax
B corporation tax
C import duties
D social security payments

27 Changes in the supply of a product which arise due to reduced costs of

its manufacture will be represented on the product's supply curve by:
A a shift to the right in the supply curve
B a shift to the left in the supply curve
C movements along the supply curve
D none of these
29 Pinewood Ltd produces two complementary products, the Buggle and
the Chine.
Which of the following describes the cross elasticity of demand
between the two products?

A Negative
B Indeterminate
C Zero
D Positive

30 The government of Zeeland is concerned about demand pull inflation.

Which of the following statements describes the impact and cause of
demand pull inflation on Zeeland's economy?
A Price rises because of persistent excess of supply over demand in the
economy as a whole.
B Price rises because of persistent excess of demand over supply in the
economy as a whole.
C Price falls because of persistent excess of supply over demand in the
economy as a whole.

D Price falls because of persistent excess of demand over supply in the

economy as a whole.

TEST CHAP 11,13 (1)

1. The agency problem underlies the need for sound corporate governance.
In this context, the "agents" are the company's:
A. Customers

B. Shareholders

C. Directors

D. Auditors

2. Which of the following is concerned with overall control to ensure that

the company can achieve its objectives in an acceptable and sustainable
way?

A. Governance

B. Management

C. Marketing

D. Financing

3. The agency problem concerns the misalignment in interests and conflicts

of interest between:

A. banks and financial markets

B. regulators and professional bodies

C. government and industry

D. directors and shareholders

4. Which of the following is NOT the symptom of conflicts between

stakeholders' interests?

A. Financial collapse without warning

B. Directors trying to disclose the true financial performance of the

company.

C. Disputes over directors' remuneration such as huge salaries, bonuses.

D. Empire building
5. Which of the following is NOT a good practice in corporate governance?

A. Good internal controls and risk management.

B. Openness and transparency.

C. Increasing the potential for conflict.

D. Accountability in judging directors' performance.

6. In comparison with the corporate and the public policy perspectives on

corporate governance, the stakeholder perspectives place the LEAST
emphasis on:

A. accountability.

B. alignment of interests of shareholders and other stakeholders.

C. good information.

D. efficient use of resources.

7. The set of legal or regulatory methods put in place to ensure effective

corporate governance is:

A. Corporate structure.

B. Board structure.

C. Management structure.

D. Governance structure.

8. In good corporate governance, monitoring and judging directors'

performance based on the returns that the company has achieved under
their stewardship ensures:

A. Management ethics.

B. Interest of managers.

C. Management accountability.
D. Management Openness.

9. Market-based financial systems are NOT characterised by:

A. Households bear more risk and so hold more equity.

B. Households have greater access to investments in physical assets.

C. Markets are more important than banks for long-term finance.

D. Banks have close relationships with the businesses they lend to.

10. The stewardship perspective on corporate governance means:

A. A balance between economic and social goals and between individual and
communal goals.

B. Senior management should balance the interest of shareholders with those of

other stakeholders to achieve long-term sustained value for shareholders.

C. Directors act in the best interest of the company when acting as

"stewards" of the company's resources.

D. Directors disguise the true financial performance of the company from

shareholders.

11. A business culture reflects:

A. The paying scheme for directors and managers.

B. The structure of the board.

C. The basic values and beliefs of a company.

D. The commitment of the business to its stakeholders.

12. Which of the following is the characteristic of a market-based financial

system?

A. Banks are highly concentrated and integrated.

B. Banks and businesses have a close relationship.

C. Households prefer to hold equity securities.

D. Households are risk-avoidance.

13. The presence of the management board and the supervisory board is:

A. The unitary structure.

B. The dual structure.

C. The single board.

D. The sole structure.

14. Corporate governance of a company in which the CEO, CFO, and Chief
Accountant are siblings faces the problem of:

A. Domination by a small group.

B. Inadequate control function.

C. Lack of supervision.

D. Misleading financial statements

15. Corporate governance of a company in which all the directors receive

bonuses based on annual profits faces the problem of:

A. Domination by a small group.

B. Inadequate control function.

C. Emphasis on short-term profitability.

D. Misleading financial statements.

16. Which of the following factor is NOT included in the national influences
of the macro environment?

A. The business cycle.

B. Government policies.
C. Globalization of markets.

D. Inflation.

17. Fiscal policy is government policies on the following except

A. Public borrowing

B. Public spending

C. The availability of credit.

D. Taxation.

18. Anu manufactures pieces of classic furniture. Anu predicts that "If
people's income rises next year, then the demand for my furniture will
increase".

The accuracy of Anu's prediction depends on whether the pieces of

furniture he produces:

A. are normal goods

B. have few substitutes.

C. have many complements.

D. have few complements.

19. Price elasticity of demand would be positive for the goods termed as:

A. Normal.

B. Inferior.

C Veblen.

D. Necessities.

20. The recession phase of the business cycle is normally accompanied by:

A. A rise in general price levels.

B. A rise in the level of national output.

C. A fall in the level of unemployment.

D. A fall in consumer demand.

21. The government's fiscal policy is considered as expansionary when:

A. Increased taxation without an increase in public spending.

B. Increased both taxation and public spending.

C. Decreased public borrowing and decreased public spending.

D. Increased both public borrowing and public spending.

22. The UK government has recently imposed a maximum price on Product

X which is set at a lower level than its equilibrium price. In the future,
therefore, it can be expected that there will be:

A. excess supply of the product.

B. excess demand for the product.

C. no effect on supply but an increase in demand.

D. no effect on demand but a decrease in supply

23. The price of a product is $2.5 per unit, on average 40,000 units of the
product are sold each month. At a price of $3 per unit, on average 50,000
units per month are sold. The price elasticity of demand (PED) for the
product and type of this product are:

A. PED is 1.25, the product is Giffen product.

B. PED is -1.25, the product is an Inferior product .

C. PED is 1.04, the product is a Giffen product.

D. PED is 1.25, the product is an Inferior product.

24. Travelling by train and air substitutes. Which of the following
statements will be true?

A. A rise in the fare of trains will lead to a rise in demand for airlines.

B. A rise in the fare of airlines will lead to a rise in demand for airlines.

C. A fall in the fare of trains will lead to a rise in demand for airlines.

D. A fall in the fare of airlines will lead to a fall in demand for airlines.

25. Which of the following is associated with a low level of saving in the
national economy?

A. A low level of income.

B. An increase in interest rates.

C. An increase in the cost of credit.

D. An increase in life expectancy.

26. Which of the following are NOT associated with conditions of perfect
competition?

A. Suppliers earn 'normal' profits.

B. Consumers lack influence over market price.

C. Differentiated products.

D. A single selling price.

27. The difference between an increase in disposable income and an

increase in consumption by households is a formula to measure:

A. Gross domestic product.

B. Marginal propensity to consume.

C. Price elasticity of demand.

D. Income elasticity of demand

28. A shift of the demand curve to the right could be caused by which of the
following conditions.

A. A rise in household income.

B. A negative change in tastes for the goods.

C. A fall in the price of substitute.

D. A rise in the price of a complement.

29. Market mechanism is the interaction of demand and supply for:

A. A specific item.

B. A single geographical place.

C. Worldwide.

D. A particular group of consumers.

30. Which of the following factor is NOT referred to in the four factors of
production in the: gross domestic product?

A. Land.

B. Government

C. Labour

D. Entrepreneurship

TEST CHAP 11, 13

 TEST 2

1. The agency problem underlies the need for sound corporate governance.
In this context, the "principal" in this agency relationship is:

A. customers.

B. shareholders.

C. managers.

D. directors.

2. In seeking to address the problem of the separation of ownership and

control, corporate governance attempts to align the interest of which of the
following pair of stakeholders?

A. Shareholders and Regulators.

B. Shareholders and Managers.

C. Managers and Regulators.

D. Shareholders and Auditors.

3. How entities are systematically directed and controlled refers to which of

the following?

A. Corporate governance.

B. Sustainability.

C. Agents.

D. Internal controls.

4. Which of the following is NOT the perspective on corporate governance?

A. Customer perspective.

B. Stakeholder perspective.

C. Stewardship perspective.
D. Public policy perspective.

5. Which of the following is NOT the symptom of poor corporate

governance?

A. Inadequate control function.

B. Lack of supervision of employees.

C. Misleading financial statements and information.

D. Emphasis on long-term profitability.

6. The board of directors of L. plc is concerned that the current chief

executive's actions undermining the ethical colture at the company. She
fails to listen to the concerns of manag about the unfair treatment of
suppliers, and she has failed to learn from a recent scandal in which the
company was fined for data protection breaches To improve the ethical
coltore at 1K ple. which of the following is the most important action for the
board to take?

A Draft a code of business ethics for LK ple's employees

B. Rewrite LK, ple's policies regarding suppliers and customers

C. Demonstrate leadership by encouraging LK ple's chief executive to be

more open

D. Brief shareholders more fully about LK ple's incentive scheme for managers

7. Which of the following is the characteristic of a market-based financial

system?

A Banks and businesses are highly integrated

B. Comparatively more government intervention

C. Banks have fewer close relationships with businesses.

D. Household prefers to deposit with banks

8. In good corporate governance, disclosure of information ensures:

A. Management ethics.

B. Interest of managers

C. Openness and Transparency

D. Management Accountability

9. Bank-based financial systems can be characterised by:

A. Banks are highly concentrated and integrated in terms of providing both

banking and non-barking services.

B. Bank lending is the least important source of business finance

C. Banks and businesses are less integrated.

D. Households prefer to bear more risk and so hold more equity.

10. Corporate responsibility refers to:

A. The structure of the board.

B. The basic values and beliefs of a company

C. The commitment of the business to its stakeholders.

D. The principles for the governance structure.

11.

12. Corporate values and culture are critical to good corporate governance
because:

A. It affects individual behavior.

B. It reduces the income level of employees.

C. It puts the decision of the board into effect.

D. It ensures the interest of managers.

13. In good corporate governance, who works on behalf of the shareholders
to evaluate whether or not the company's financial statements are true and
fair?

A. Directors.

B. Internal audits.

C. External audits.

D. Employees.

14. Corporate governance of a company in which finance directors

manipulate the accounts to hide irrecoverable debts faces the problem of:

A. Domination by a small group.

B. Inadequate control function.

C. Lack of supervision.

D. Misleading financial statements and information.

15. The stewardship perspective on corporate governance requires senior

management to:

A. Ensure the interest of the public at large.

B. Balance between economic and social goals.

C. Achieve long-term sustainable value for shareholders.

D. Act as the stewards of the company's resources.

16. In terms of the economic environment, the business cycle is part of:

A. national influences in the macroeconomic environment.

B. global influences in the macroeconomic environment.

C. the microeconomic environment of the firm.

D. The price mechanism in the microeconomic environment of the firm.

17. Which of the following factor is NOT a determinant of demand?

A. Price

B. Cost of production

C. Income levels.

D. Fashion

18. When the demand for a good rises as incomes rise but then falls back as
incomes pass a certain point, the good is termed?

A. giffen

B. normal

C. inferior

D. veblen

19. Which of the following are NOT associated with conditions of perfect
competition?

A. Suppliers earn 'normal' profits.

B. Consumers lack influence over market price.

C. Differentiated products.

D. A single selling price..

20. Which of the following is the correct sequence in a business cycle:

A. Boom, Recession, Depression, Recovery.

B. Recession, Recovery, Boom, Depression.

C. Boom, Recovery, Recession, Depression.

D. Recovery, Recession, Depression, Boom.

21. The difference between an increase in disposable income and an increas
e in consumption by households is a formula to measure:

A. Gross domestic product.

B. Marginal propensity to consume.

C. Price elasticity of demand.

D. Income elasticity of demand. by which of the following conditio

22. A shift of the demand curve to the right could be caused

A. A rise in household income.

B. A negative change in tastes for the goods.

C. A fall in the price of substitute.

D. A rise in the price of a complement.

23.

24. When the government imposes a maximum price on a market, when will
supply be reduced?

A. Always.

B. If the maximum price is set above equilibrium.

C. If the maximum price is set below equilibrium.

D. Never.

25. Travelling by train and air substitutes. Which of the following

statements will be true?

A. A rise in the fare of trains will lead to a rise in demand for airlines.

B. A rise in the fare of airlines will lead to a rise in demand for airlines.

C. A fall in the fare of trains will lead to a rise in demand for airlines.
D. A fall in the fare of airlines will lead to a fall in demand for airlines.

26. The price of a product is $2.5 per unit, on average 40,000 units of the
product are sold each month. At a price of $3 per unit, on average 50,000
units per month are sold. The price elasticity of demand (PED) for the
product and type of this product are:

A. PED is 1.25, the product is Giffen product.

B. PED is -1.25, the product is an Inferior product.

C. PED is 1.04, the product is a Giffen product.

D. PED is 1.25, the product is an Inferior product.

27. The recession phase of the business cycle is normally accompanied by:

A. A rise in general price levels.

B. A rise in the level of national output.

C. A fall in the level of unemployment.

D. A fall in consumer demand.

28. Which of the following is associated with a decrease in consumption by

households?

A. An decrease in interest rate.

B. An increase in direct taxation.

C. Expectations of price increase.

D. The development of major new products.

29. Price elasticity of demand would be positive for the goods termed as:

A. Normal.

B. Inferior.

C. Giffen.
D. Necessities.

30. Fiscal policy is government policies on the following except:

A. Public borrowing.

B. Public spending.

C. The availability of credit.

D. Taxation.

TEST 2

1. The agency problem underlies the need for sound corporate governance.
In this context, the "agents" are the company's:

A. Customers.

B. Shareholders.

C. Directors.

D. Auditors.

2. Which of the following is concerned with overall control to ensure that

the company can achieve its objectives in an acceptable and sustainable
way?

A. Governance.

B. Management.

C. Marketing.

D. Financing.

3. The agency problem concerns the misalignment in interests and conflicts

of interest between:

A. banks and financial markets.

B. regulators and professional bodies.

C. government and industry.

D. directors and shareholders.

4. Which of the following is NOT the symptom of conflicts between

stakeholders' interests? A. Financial collapse without warning.

B. Directors trying to disclose the true financial performance of the company.

C. Disputes over directors' remuneration such as huge salaries, bonuses.

D. Empire building

5. Which of the following is NOT a good practice in corporate governance?

A. Good internal controls and risk management.

B. Openness and transparency.

C. Increasing the potential for conflict.

D. Accountability in judging directors' performance.

6. In comparison with the corporate and the public policy perspectives on

corporate governance the stakeholder perspectives place the LEAST
emphasis on:

A. accountability.

B. alignment of interests of shareholders and other stakeholders.

C. good information.

D. efficient use of resources.

7. The set of legal or regulatory methods put in place to ensure effective

corporate governance is:

A. Corporate structure.

B. Board structure.
C. Management structure.

D. Governance structure.

8. In good corporate governance, monitoring and judging directors'

performance based on the returns that the company has achieved under
their stewardship ensures:

A. Management ethics.

B. Interest of managers.

C. Management accountability.

D. Management Openness.

9. Market-based financial systems are NOT characterised by:

A. Households bear more risk and so hold more equity.

B. Households have greater access to investments in physical assets.

C. Markets are more important than banks for long-term finance.

D. Banks have close relationships with the businesses they lend to.

10. The stewardship perspective on corporate governance means:

A. A balance between economic and social goals and between individual and
communal goals.

B. Senior management should balance the interest of shareholders with those of

other stakeholders to achieve long-term sustained value for shareholders.

C. Directors act in the best interest of the company when acting as "stewards" of
the company's resources.

D. Directors disguise the true financial performance of the company from

shareholders

11. A business culture reflects:

A. The paying scheme for directors and managers.

B. The structure of the board.

C. The basic values and beliefs of a company.

D. The commitment of the business to its stakeholders.

12. Which of the following is the characteristic of a market-based financial

system? e is:

A. Banks are highly concentrated and integrated.

B. Banks and businesses have a close relationship.

C. Households prefer to hold equity securities.

D. Households are risk-avoidance.

13. The presence of the management board and the supervisory board is:

A. The unitary structure.

B. The dual structure.,

C. The single board.

D. The sole structure.

14. Corporate governance of a company in which the CEO, CFO, and Chief
Accountant are siblings faces the problem of:

A. Domination by a small group.

B. Inadequate control function.

C. Lack of supervision.

D. Misleading financial statements.

15. Corporate governance of a company in which all the directors receive

bonuses based on annual profits faces the problem of:
A. Domination by a small group.

B. Inadequate control function.

C. Emphasis on short-term profitability.

D. Misleading financial statements.

16. Which of the following factor is NOT included in the national influences
of the macro environment?

A. The business cycle.

B. Government policies.

C. Globalization of markets.

D. Inflation

17. Fiscal policy is government policies on the following except:

A. Public borrowing.

B. Public spending.

C. The availability of credit.

D. Taxation.

18. Anu manufactures pieces of classic furniture. Anu predicts that "If
people's income rises next year, then the demand for my furniture will
increase". The accuracy of Anu's prediction depends on whether the pieces
of furniture he produces:

A. are normal goods.

B. have few substitutes.

C. have many complements.

D. have few complements.

19. Price elasticity of demand would be positive for the goods termed as:
A. Normal.

B. Inferior.

C. Veblen.

D. Necessities.

20. The recession phase of the business cycle is normally accompanied by:

A. A rise in general price levels.

B. A rise in the level of national output.

C. A fall in the level of unemployment.

D. A fall i n consumer demand.

21. The government's fiscal policy is considered as expansionary when:

A. Increased taxation without an increase in public spending.

B. Increased both taxation and public spending.

C. Decreased public borrowing and decreased public spending.

D. Increased both public borrowing and public spending.

22. The UK government has recently imposed a maximum price on Product

X which is set at a lower level than its equilibrium price. In the future,
therefore, it can be expected that there will be:

A. excess supply of the product.

B. excess demand for the product.

C. no effect on supply but an increase in demand.

D. no effect on demand but a decrease in supply.

23. The price of a product is $2.5 per unit, on average 40,000 units of the
product are sold each onth. At a price of $3 per unit, on average 50,000
units per month are sold. The price elasticity of demand (PED) for the
product and type of this product are:

A. PED is 1.25, the product is Giffen product.

B. PED is -1.25, the product is an Inferior product.

C. PED is 1.04, the product is a Giffen product.

D. PED is 1.25, the product is an Inferior product.

24. Travelling by train and air substitutes. Which of the following

statements will be true?

A. A rise in the fare of trains will lead to a rise in demand for airlines.

B. A rise in the fare of airlines will lead to a rise in demand for airlines.

C. A fall in the fare of trains will lead to a rise in demand for airlines.

D. A fall in the fare of airlines will lead to a fall in demand for airlines.

25. Which of the following is associated with a low level of saving in the
national economy? A. A low level of income.

B. An increase in interest rates.

C. An increase in the cost of credit.

D. An increase in life expectancy.

26. Which of the following are NOT associated with conditions of perfect
competition?

A. Suppliers earn 'normal' profits.

B. Consumers lack influence over market price.

C. Differentiated products.

D. A single selling price.

27. The difference between an increase in disposable income and an
increase in consumption by households is a formula to measure:

A. Gross domestic product.

B. Marginal propensity to consume.

C. Price elasticity of demand.

D. Income elasticity of demand.

28. A shift of the demand curve to the right could be caused by which of the
following conditions:

A. A rise in household income.

B. A negative change in tastes for the goods.

C. A fall in the price of substitute.

D. A rise in the price of a complement.

29. Market mechanism is the interaction of demand and supply for:

A. A specific item.

B. A single geographical place.

C. Worldwide.

D. A particular group of consumers.

30. Which of the following factor is NOT referred to in the four factors of
production in the gross domestic product?

A. Land.

B. Government.

C. Labour.

D. Entrepreneurship.