Cpd Final FM

Multiple choice Questions for CPD stage I Exam by Usha Berty

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Multiple choice Questions for CPD stage I Exam C I Financial Management

Prepared & Compiled by

Usha Berty Assistant Audit Officer(Commercial)

Office of the Accountant General (E&RSA) Choose the most appropriate answer from the choices given. 1. The statement which gives a screen picture of the financial position

of a going concern at a certain moment

a. Balance sheet b. Profit and loss

Account

c. Cash flow statement d. Funds flow statement .

Ans: Balance sheet 2. The Assets which are acquired for the purpose of using them in the

conduct of business operations and not for reselling to earn profit.

a. Current Assets b. Fixed Assets

c. Intangible assets d. Fictitious Assets

. Ans: Fixed Assets


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3. Debts, obligations or charges which are payable either at demand or

within one year from the date of Balance Sheet.

a. Current Liabilities b. revenue expenditure

c. Non-current liabilities d. capital expenditure

. Ans: Current Liabilities 4. Numerical and quantitative relationship between two variables or

items.

a. Ratio b. correlation

c. factor d. dispersion .

Ans: Ratio 5. In MM model, irrelevance of capital structure is based on

a. Cost of debt and equity b. Arbitrage process

c. Decreasing cost d. All of the above Ans: Arbitrage process 6. The rate at which the sum total of cash inflows after discounting

equals to the discounted cash outflows.

a. Internal rate of return b. Average rate of return

c. leverage d. None of the above .

Ans: Internal rate of return


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7. Report on movement of funds explaining wherefrom working capital originates and where into the same goes during an accounting period

a. cash flow statement b. funds flow statement

c. working sheet d. statement of affairs

. Ans: funds flow statement 8. Equity shares issued by a company to employees or directors at a

discount for consideration other than cash or for providing know-how or making available rights in the nature of intellectual property rights,

a. Bonus shares b. Rights issue

c. sweat equity shares d. patent

. Ans: sweat equity shares 9. Institutions rendering financial services not involving general

banking business a. non trading concern b. Non-banking financial

institution c. non profit organisations d. None of the above

. Ans: Non-banking financial institution

10. A system which refers to set of activities facilitating transfer of

financial resources from savers to borrowers.

a. credit collection b. financial system

c. banking system d. None of the above .

Ans: financial system


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11. Carefully structured process whereby loans and other receivables are packaged, underwritten and sold in the form of asset backed securities

a. securitisation b. Receivable management

c. Asset management d. None of the above

. Ans: securitisation 12. A security whose value depends upon the value of underlying assets.

a. collateral security b. secured assets

c. Derivative security d. None of the above .

Ans: Derivative security 13. A process where the issue price of a security is determined by the

demand and supply force in the capital market

a. security trading b. rights issue

c. book building d. None of the above .

Ans: book building 14. The option available to the company issuing securities to the public

to allocate shares in excess of the public issue and operating a post listing price stabilizing mechanism through a stabilizing agent

a. Green shoe option b. Brown shoe option

c. white shoe option d. None of the above

. Ans: Green shoe option


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15. The higher end price in a book building issue.

a. cap price b. premium price

c. discount price d. None of the above .

Ans: cap price 16. Daily or weekly price limits within which the price is allowed to rise

and fall in a book building issue.

a. price band b. market rate

c. fluctuating price d. None of the above. .

Ans: price band 17. A contract in which two parties agree to exchange their respective

future cash flows based on an underlying instrument

a. SWAP b. SWOT

c. contingent contract d. None of the above .

Ans: SWAP 18. A contractual arrangement whereby the lessor grants the lessee the

right to use an asset

a. Hire purchase b. mortgage

c. Lease d. . None of the above .

Ans: Lease


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19. A long term security that gives its owner the right to buy a specified amount of common stock at a fixed price for a fixed period of time

a. warrant b. Bonds

c. Debenture d. None of the above

. Ans: warrant 20. Which of the following is considered as cash flow from financing

activities

a. Payment of Income tax b. Repayment of Advance to customers

c. Payment of Dividend d. purchase of debentures of other companies, .

Ans: Payment of Dividend 21. Any notice, circular ,advertisement or other document inviting offers

from the public for the subscription or purchase of any shares or debentures of a body corporate

Ans: prospectus 22. Admission of securities for dealing on a recognized stock exchange

a. stock trading b. Listing

c. stock taking d. None of the above .

Ans: Listing

a. prospectus b. publication

c. public document d. None of the above .


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23. A free float market capitalization weighted index of 30 stocks representing a sample of large well established and financially sound companies.

a. BSE sensex b. NSE-sensex

c. net float d. None of the above

. Ans: BSE sensex. 24. Long term equity investments in business which display potential for

significant growth and financial return.

a. Debentures b. Venture capital

c. Investment banking d. None of the above . .

Ans: Venture capital 25. A leasing arrangement in which lessor provides both the asset and

the equity capital to the lessee

a. Venture capital b. Venture leasing

c. operating lease d. None of the above .

Ans: Venture leasing 26. A new avenue for cash poor but asset rich senior citizens to

mortgage their equity in residential property to meet their increased living expenditure.

a. Reverse mortgage b. Bridge finance

c. equity mortgage d. None of the above

. Ans: Reverse mortgage


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27. Services rendered by the financial service expert or firm in procurement of term loans and working capital facilities from financial institutions, banks and other financing and investment firms for its clients.

a. Merchant banking b. bridge finance

c. loan syndication d. None of the above

. Ans: loan syndication 28. A firm which seeks to maximize profit in the foreign exchange

market

a. Aggressive firm b. Defensive firm

c. Investment firm d. None of the above .

Ans: Aggressive firm 29. A firm which aims at minimizing potential losses from changed

exchange rates

a. Aggressive firm b. Defensive firm

c. Investment firm d. None of the above .

Ans: Defensive firm 30. The act of simultaneous buying and selling of currencies in two

different markets with the aim of taking advantage of the temporary differential that exists between the two prices.

a. arbitrage b. SWAP

c. option d. None of the above

. Ans: arbitrage


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31. Find out the use of funds if Debtors increase by Rs.5000 and

creditors decrease by Rs.10000.

a. Nil b. Rs.10000

c.Rs.5000 d. Rs.15000 .

Ans: Rs.15000 32. A bill of lading pertains to

a. Auction of goods b. processing of goods

c. Insurance of goods d. Transit of goods .

Ans: Transit of goods. 33. Money deposited as security for the due performance of a contract is

called a. speed money b. Earnest money

c. contract money d. solid money

. Ans: Earnest money

34. Observing changes in the financial variables across the years is

a. Vertical analysis b. Horizontal analysis

c. Inter firm comparison d. Static analysis .

Ans: Horizontal analysis


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35. Ratio as a tool of financial analysis can be expressed as

a. percentage b. A stated comparison between numbers

c. Fraction d. All of the above .

Ans: All of the above 36. An agreement is voidable if it is affected by

a. Mistake b. Minority

c. Misrepresentation d. Absence of consideration .

Ans: Misrepresentation. 37. A Merchant Bank renders the following services

a. Issue of shares b. Issue of currency

c. Issue management d. Issue of license. .

Ans: Issue Management. 38. which of the following is not an essential feature of a valid contract?

a. There must be an offer b. There must be an acceptance

c. There must be a consideration

d. There must be a written agreement

Ans: There must be a written agreement. 39. Zero coupon bonds carry

a. No interest b. Coupons for payment of

interest c. No maturity value d. None of the above

. Ans: No interest


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40. N. Vaghul working group deals with

a. Centre-state financial relations

b. Development of Indian money market

c. Small industry financing d. None of the above .

Ans: Development of Indian money market 41. Bill of lading is issued by

a. Shipping Company b. Exporters Bank

c. Importers Bank d. Captain of the ship .

Ans. Shipping Company. 42. An agreement without consideration is

a. Void b. valid

c. voidable

d. None of the above .

Ans: Void 43. While studying the financial statements, the main concern of a trade

creditor is to assess the firms

a. profitability position b. liquidity position

c. Solvency position

d. All of the above .

Ans: All of the above 44. The first issue of equity shares to the public by an unlisted Company

is called

a. Capital budgeting b. Initial public offering

c.Seed capital d. Capital Appreciation .

Ans: Initial public offering.


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45. Which of the following are the features of Venture Capital. 1. Venture capitalist is inclined to assume a high degree of risk in

the expectation of earning a high rate of return. 2. The Venture capitalist typically subscribes to equity or quasi-

equity financing instruments. 3. The Venture capitalist in addition to providing funds, takes an

active interest in guiding the assisted firm. 4. The financial burden for the assisted firm tends to be negligible

in the first few years.

a. none of the above b. Only 1,3 and 4

c. only 1,2 and 3 d. All of the above .

Ans: All of the above. 46. The mechanism by which companies intending to make Initial Public

Offer announces a price band within which potential investors can change their bids.

a. book building b. Fixed price mechanism

c. French option d. None of the above.

. Ans: Book building 47. The percentage of underwriting commission is --------% of the

nominal value of equity capital being issued to public.

a. 1.5 b. 10

c. 2.5 d. None of the above .

Ans : 2.5


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48. Issue of share capital to the existing shareholders of the company through a letter of offer made in the first instance to the existing shareholders on a pro rata basis.

a. Initial public offering b. private placement

c. None of these d. Rights issue

. Ans. Rights issue. 49. Issue of securities to a select group of persons not exceeding 49.

a. Initial public offering b. private placement

c. Rights issue .

d. None of these .

Ans: private placement 50. Excess of hire purchase price over --------- is treated as hire purchase

charges

a. cash price b. interest

c. down payment d. None of the above. .

Ans: cash price 51. A mutual fund is set up in the form of a

a. partnership firm b. trust

c. co-operative society d. sole trader

Ans: trust


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52. It is a non-depository non banking financial intermediary

a. SBI b. mutual fund

c. RBI d. SEBI

Ans: mutual fund 53. A mutual fund invested only in securities issued by government

a. Gilt fund b. Equity fund c. Sector fund d. Sector specific fund

Ans: Gilt fund 54. A bearer instrument which can be transferred without any transfer deed

Ans: bond 55. Shares of well reputed companies having impressive track record for

better earnings and stable dividend policy.

a. speculative shares b. income shares c. blue chip shares d. growth shares

Ans: blue chip shares 56. The arrangement under which a financial intermediary assumes the

credit risk in the collection of book debts to its clients

a. Forfeiting b. venture capital c. factoring d. loan syndication

Ans: factoring

a. equity share b. preference share c. bond d. debenture


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57. Bombay Stock Exchange Index called SENSEX is a derivative whose value depends upon the prices of underlying

a. 50 shares b. 30 shares c. 25 shares d. 100 shares

Ans: 30 shares 58. Present value of a future cash in flow would decrease if

a. Discount rate is reduced b. Discount rate is

increased c. time period is decreased

d. all of the above

Ans: Discount rate is increased 59. Foreign currency exchange rate risk can be hedged in

a. Options market b. Money market

c. Futures market d. all of the above.

. Ans: all of the above. 60. The long-run objective of financial management is to:

a. Maximise earnings per share

b. maximize the value of the firms common stock

c. Maximise return of investment

d. Maximise market share .

Ans. maximize the value of the firms common stock 61. ___________ refers to meeting the needs of the present without

compromising the ability of future generations to meet their own needs.

a. Corporate Social responsibility

b. Convergence

c. Sustainability d. economic responsibility .

Ans: Sustainability


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62. which of the following is a form of hedging arrangement

a. sale and lease back b. Invoice discounting

c. An interest rate swap d. Factoring

Ans: An interest rate swap 63. securitization involves bundling together ----------- financial or physical

assets of the same type in order to provide backing for issuing interest-bearing securities such as bonds.

a. illiquid b. marketable

c. high risk d. low value

Ans: high risk 64. warrants are a form of

a. preference share b. financial derivative

c. convertible loan d. ordinary share

Ans: financial derivative 65. Security on a loan may take the form of assets pledged either by a

fixed charge or a ----------- charge

a. fluctuating b. variable

c. direct d. floating

Ans: . floating 66. Under Capital Budgeting, Depreciation is incorporated in cash flows

because it

a. is unavoidable cost b. reduces tax liability c. is a cash flow d. involves an outflow

Ans: reduces tax liability


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67. Which of the following is not true for capital budgeting?

a. sunk costs are ignored b. incremental cash flows are

considered c. opportunity costs are excluded d. relevant cash flow are

considered Ans: opportunity costs are excluded 68. The popular debt instrument introduced into the Indian Money

market during the year 1990 on the basis of Vaghul committee.

a. swap b. commercial paper

c. debentures d. equity shares

Ans: commercial paper 69. Investing in the research and development of an initial business

concept

a. seed capital b. project planning

c. debentures d. capitalization

Ans seed capital 70. Which of the following is not true about Mutual funds.

1.Unit Trust of India was the first mutual fund set up in India. 2.The trustees of the mutual fund hold its property for the benefit of the unit holders. 3.Mutual fund is not required to be registered with SEBI 4.Mutual fund determines an investors risk preference.

a. 1 and 2 only b. 1 and 4 only

c. 3 and 4 only d. 1 and 3 only

Ans: 3 and 4 only


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71. Who among the following is not a party to mutual fund

a. Asset management company b. Registrar and transfer agent.

c. Trustees d. Lessee

Ans: Lessee

72. Which of the following is true about Forward Contracts

1. There is no liquidity problem in the contract 2. Settlement of the contract is done on cash basis. 3. The contract is exposed to default risk by counterparty

4. Forward contracts are traded in an over the counter market a. 1 and 2 only b. 1 and 4 only c. 3 and 4 only d. 1 and 3 only Ans: 3 and 4 only 73. The world bank comprises a group of 3 affiliated institutions. They are a. ICICI, IBRD and NABARD b. ADB, IFC and ICICI

c. IDA, IBM and ADB

d. IBRD, IDA and IFC

Ans. IBRD, IDA and IFC

74. LIBOR stands for

a. Local investment bank order rate

b. Lead investment banks operation reports

c. London inter bank offer rate. d. None of these.

Ans: London inter bank offer rate 75. A situation where a constraint or budget ceiling is placed on the

total size of capital expenditures during a particular period.

a. Capital Bugeting b. Capital rationing

c. Zero based Budgeting d. cost control


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Ans: . Capital rationing 76. Degree of financial leverage measures the responsiveness of EPS to the changes

in a. EBIT b. Market value of shares.

c. Sales d. None of these.

Ans: EBIT

77. Which of the following is true about simulation 1. Simulation models are useful in production scheduling, manpower planning decisions etc 2. Monte-carlo method is a technique of simulation. 3. Simulation technique is used to solve problems involving uncertainty.

4. Simulation is a micro analysis of big and complicated system by breaking into each sub system and studying the interface of various subsystems.

a. 1 and 2 only b. 1 and 4 only

c. 3 and 4 only d. All of the above.

Ans: . All of the above 78. Final statements are prepared

a. at the end of calendar year b. on every day

c. at the end of assessment year d. at the end of the accounting year.

Ans: at the end of the accounting year 79. Gross profit is the differences between sales and a. purchases b. cost of goods sold

c. wages d. opening stock


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Ans: cost of goods sold 80. Working Capital is

a. Proprietor Capital b. Current assets- current

liabilities c. Borrowed capital d. Trial Balance.

Ans: Current assets- current liabilities 81. Operating leverage is

a. Contribution/EBIT b. EBIT/PBT c. EBIT/Interest d.EBIT/tax

Ans: Contribution/EBIT

82. Which of the following is correct about Combined leverage.

a. operating leverage/financial leverage

b. operating leverage - financial leverage

c. operating leverage + financial leverage

d. operating leverage x financial leverage.

Ans: operating leverage x financial leverage 83. In order to calculate EPS, Profit after tax and preference dividend is

divided by a. market value of equity shares b. Face value of equity shares

c. Number of equity shares d. None of the above Ans: Number of equity shares 84. DU PONT analysis deals with a. Analysis of current assets.

b. Capital budgeting

c. Analysis of profit

d. Analysis of Fixed Assets.


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Ans: Analysis of profit 85. In inventory turnover calculation, what is taken in the numerator? a. Sales b. Cost of Goods sold

c. Opening stock d..Closing stock

. Ans: Cost of Goods sold 86. Trend Analysis helps comparing performance of a firm a. with other firms b. with other industries

c. over a period of time d. None of the above

. Ans: over a period of time 87. All listed Companies are required to prepare

a. Cash flow statement b. Fund flow statement

c. Statement of affairs d. All of the above.

. Ans: Cash flow statement 88. Return on Assets and Return on investment belong to a. Liquidity ratio b. Solvency ratio

c. profitability ratio d. Turnover

. Ans: profitability ratio

89. Capital budgeting decisions are a. Reversible b. Irreversible

c. not important d. All of the above.

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Ans: Irreversible 90. Which of the following is not a capital budgeting decision.

a. Expansion programme b. Merger

c. Replacement of an asset d. Inventory Level.

. Ans: . Inventory Level 91. Which of the following is not true for capital budgeting

a. Sunk costs are ignored b. Oppurtunity costs are excluded

c. Incremental cash flows are considered

d. Relevant cash flows are not considered. .

Ans: Oppurtunity costs are excluded 92. Which of the following is true about monte carlo method

a. It is a technique of simulation b. It is useful in the analysis of

uncertainty

c. It is based on the concept of random numbers

d. all of the above .

Ans: all of the above 93. Which of the following is classified as a current liability a. Inventory b. provision for tax

c. Marketable securities d. investments

. Ans: provision for tax


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94. The rate of interest payable on a Bond is also called

a. Effective rate of interest b. Coupon rate

c. Yield to maturity d. Internal rate of return

. Ans: Coupon rate 95. Which of the following would increase the working capital a. Issue of Bonus shares b. Issue of right shares

c. Conversion of debt to capital d. None of the above

. Ans: Issue of right shares 96. Relationship between spot and forward exchange rates is referred to as a. Interest rate parity b. Exchange power parity

c. Purchasing power parity d. One price rule

. Ans: Interest rate parity 97. Adjustments in Exchange rates due to different inflation rates in two

countries is known as a. on price rate b. purchasing power parity

c. Interest rate parity d. Exchange power parity.

. Ans: purchasing power parity . 98. XYZ Ltd has a current ratio of 1.5:1 and Net working capital of

Rs. 5,00,000. What are the current assets? a. Rs.5,00,000 b. Rs.10,00,000

c. Rs.15,00,000 d. Rs.25,00,000.

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Ans: Rs.15,00,000 99. Which of the following does not help to increase Current ratio

a. Issue of Debentures to buy stock

b. Issue of debentures to pay creditors.

c. sale of Investment to pay creditors

d. Avail Bank Overdraft to buy Machine .

Ans: Avail Bank Overdraft to buy Machine 100. Which of the following is true with reference to Funds flow

statement?

a. Increase in debenture is a source

b.Increase in debtors is a source

c. Increase in creditors is a source

d. None of the above. .

Ans: Increase in debenture is a source 101. In cash flow Statement, which of the following is classified as

financing activity ?

a. Dividend distribution b. Sale of stock

c. Sale of investment d. Loans to suppliers. Ans: Dividend distribution

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