Fundamentals of Financial Management mcq practice set 6

Q201. Convertible securities allow the holders to:
a) Lease assets at a reduced cost
b) Convert debt into equity
c) Access short-term loans from financial institutions
d) Invest in foreign securities

Answer

Answer: b) Convert debt into equity

Q202. Which of the following is an international source of finance?
a) Inter-corporate deposits
b) Trade credit
c) American Depository Receipts (ADRs)
d) Accruals

Answer

Answer: c) American Depository Receipts (ADRs)

Q203. Hire purchase is a financing option commonly used for acquiring:
a) Short-term assets
b) Long-term assets
c) Ordinary shares
d) Commercial paper

Answer

Answer: b) Long-term assets

Q204. A leverage buyout (LBO) involves acquiring a company primarily using:
a) Debt financing
b) Equity financing
c) Leasing
d) Factoring

Answer

Answer: a) Debt financing

Q205. Inter-corporate deposits refer to the practice of one company depositing funds with:
a) Commercial banks
b) Financial institutions
c) Other companies
d) Government agencies

Answer

Answer: c) Other companies

Q206. Accruals are a short-term source of finance that involves:
a) Borrowing funds from financial institutions
b) Delaying payments to suppliers
c) Utilizing trade credit
d) Accumulating revenue and expenses over time

Answer

Answer: d) Accumulating revenue and expenses over time

Q207. Venture capital funds (VCFs) are an example of:
a) Long-term debt sources
b) Equity sources of finance
c) Short-term financing options
d) Securitization instruments

Answer

Answer: b) Equity sources of finance

Q208. Public deposits are funds obtained by a company from:
a) The government
b) Banks
c) Other companies
d) Individual investors

Answer

Answer: d) Individual investors

Q209. Which institution is typically involved in securitization?
a) Commercial banks
b) Leasing companies
c) Credit rating agencies
d) Factoring companies

Answer

Answer: c) Credit rating agencies

Q210. Which of the following sources of finance is typically considered as long-term debt?
a) Trade credit
b) Commercial paper
c) Leasing
d) Debentures

Answer

Answer: d) Debentures

Q211. What is the primary characteristic of term loans as a source of finance?
a) They have a short repayment period.
b) They are typically provided by individual investors.
c) They are unsecured loans.
d) They have a fixed repayment schedule.

Answer

Answer: d) They have a fixed repayment schedule.

Q212. A company issuing ordinary shares gives the shareholders:
a) Fixed interest payments
b) A voting right in the company
c) A priority claim on company assets
d) A fixed maturity date for their investment

Answer

Answer: b) A voting right in the company

Q213. Which of the following is a characteristic of leasing as a source of finance?
a) Ownership of the asset is transferred to the lessee.
b) Lease payments are tax-deductible.
c) Leasing involves issuing shares to investors.
d) Leasing requires collateral to secure the lease agreement.

Answer

Answer: b) Lease payments are tax-deductible.

Q214. What distinguishes leverage buyouts (LBOs) from other sources of finance?
a) LBOs involve acquiring assets through leasing agreements.
b) LBOs are primarily financed through equity capital.
c) LBOs focus on short-term financing needs.
d) LBOs involve acquiring a company using a significant amount of debt.

Answer

Answer: d) LBOs involve acquiring a company using a significant amount of debt.

Q215. Which of the following is an example of a hybrid source of finance?
a) Trade credit
b) Commercial paper
c) Convertible securities
d) Inter-corporate deposits

Answer

Answer: c) Convertible securities

Q216. Accruals, trade credit, and working capital advance by commercial banks are all examples of:
a) Long-term sources of finance
b) Hybrid sources of finance
c) Equity sources of finance
d) Short-term sources of finance

Answer

Answer: d) Short-term sources of finance

Q217. What is the primary purpose of factoring in finance?
a) Leasing assets to generate revenue
b) Converting debt into equity securities
c) Managing accounts receivable and improving cash flow
d) Providing short-term loans to companies

Answer

Answer: c) Managing accounts receivable and improving cash flow

Q218. Which type of institution is commonly involved in securitization?
a) Commercial banks
b) Credit rating agencies
c) Venture capital firms
d) Factoring companies

Answer

Answer: b) Credit rating agencies

Q219. Commercial paper is typically issued by:
a) Individual investors
b) Commercial banks
c) Government agencies
d) Corporations

Answer

Answer: d) Corporations

Q220. Which source of finance involves pooling together and selling a bundle of financial assets?
a) Accruals
b) Trade credit
c) Securitization
d) Factoring

Answer

Answer: c) Securitization

Q221. What is the main advantage of using public deposits as a source of finance?
a) It allows for long-term financing needs.
b) It does not require any interest payments.
c) It provides a stable source of funds for the company.
d) It offers high returns on investment.

Answer

Answer: c) It provides a stable source of funds for the company.

Q222. Which of the following is an institutional source of funds?
a) Inter-corporate deposits
b) Factoring
c) Foreign institutional investors (FIIs)
d) Commercial paper

Answer

Answer: c) Foreign institutional investors (FIIs)

Q223. Leverage Buyouts (LBOs) are often associated with:
a) Acquiring companies with high levels of debt
b) Issuing shares to raise capital
c) Securitizing assets to generate funds
d) Providing short-term financing to companies

Answer

Answer: a) Acquiring companies with high levels of debt

Q224. Inter-corporate deposits are primarily made between:
a) Companies and commercial banks
b) Companies and financial institutions
c) Companies and government agencies
d) Companies and individual investors

Answer

Answer: b) Companies and financial institutions

Q225. Working capital advance by commercial banks is an example of:
a) Equity financing
b) Short-term financing
c) Leasing
d) Securitization

Answer

Answer: b) Short-term financing

Q226. Which of the following sources of finance involves borrowing against future sales revenue?
a) Factoring
b) Debentures
c) Inter-corporate deposits
d) Commercial paper

Answer

Answer: a) Factoring

Q227. Venture capital funds (VCFs) typically invest in:
a) Publicly traded securities
b) Government bonds
c) Startups and high-growth companies
d) Real estate properties

Answer

Answer: c) Startups and high-growth companies

Q228. Commercial paper is generally issued by:
a) Banks
b) Individual investors
c) Credit rating agencies
d) Large corporations

Answer

Answer: d) Large corporations

Q229. Which of the following is NOT a factor influencing the working capital requirement?
a) Seasonal fluctuations in sales
b) Credit policy of the firm
c) Depreciation expenses
d) Production cycle time

Answer

Answer: c) Depreciation expenses

Q230. The operating cycle of a business includes:
a) Inventory conversion period and accounts payable period
b) Accounts receivable period and inventory conversion period
c) Accounts payable period and accounts receivable period
d) Inventory conversion period and cash conversion period

Answer

Answer: b) Accounts receivable period and inventory conversion period

Q231. The Economic Order Quantity (EOQ) model is used for:
a) Estimating the working capital requirement
b) Determining the optimum inventory level
c) Managing accounts receivable
d) Calculating the cash conversion cycle

Answer

Answer: b) Determining the optimum inventory level

Q232. The objective of inventory management is to:
a) Minimize stockouts and overstocking costs
b) Maximize accounts payable period
c) Decrease the credit period for customers
d) Increase the cash conversion cycle

Answer

Answer: a) Minimize stockouts and overstocking costs

Q233. The Baumol Model is used for:
a) Cash planning and determining the optimum cash level
b) Managing accounts payable
c) Estimating the receivables turnover ratio
d) Optimizing the inventory turnover rate

Answer

Answer: a) Cash planning and determining the optimum cash level

Q234. The Maximum Permissible Bank Finance (MPBF) is used to calculate:
a) Optimum inventory level
b) Accounts receivable turnover
c) Optimal cash balance
d) Credit limits for borrowers

Answer

Answer: d) Credit limits for borrowers

Q235. Which of the following is NOT a cash flow management technique?
a) Cash budgeting
b) Short-term investments
c) Inventory turnover analysis
d) Managing accounts receivable

Answer

Answer: c) Inventory turnover analysis

Q236. A company with negative working capital implies that:
a) The company has excessive cash reserves
b) The company’s current liabilities exceed its current assets
c) The company has high inventory turnover
d) The company has a short cash conversion cycle

Answer

Answer: b) The company’s current liabilities exceed its current assets

Q237. The inventory conversion period is calculated as:
a) Average inventory divided by cost of goods sold
b) Average inventory divided by sales
c) Sales divided by average inventory
d) Cost of goods sold divided by average inventory

Answer

Answer: a) Average inventory divided by cost of goods sold

Q238. The EOQ formula is given by:
a) EOQ = √(2DS/H)
b) EOQ = √(2DH/S)
c) EOQ = √(2SH/D)
d) EOQ = √(2SD/H)

Answer

Answer: a) EOQ = √(2DS/H)

Q239. The cash conversion cycle measures the time taken for:
a) Collecting accounts receivable
b) Converting cash into inventory
c) Converting inventory into cash
d) Paying accounts payable

Answer

Answer: c) Converting inventory into cash

Q240. Which of the following is an objective of receivables management?
a) Increasing the cash conversion cycle
b) Reducing the credit period for customers
c) Maximizing accounts receivable turnover
d) Minimizing bad debts

Answer

Answer: c) Maximizing accounts receivable turnover

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