Microsoft Word - FIN201 Final Exam Sample.docx FIN201 Final Exam Sample MULTIPLE CHOICE. 1. Why will banks permit the use of an overdraft as suitable for funding the purchase of inventory that will...

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Microsoft Word - FIN201 Final Exam Sample.docx FIN201 Final Exam Sample MULTIPLE CHOICE. 1. Why will banks permit the use of an overdraft as suitable for funding the purchase of inventory that will quickly be converted into cash? A. To assist a company in meeting unexpected short-term cash flow problems B. To assist a company in exploiting short-term opportunities C. To assist a company through seasonal downturns in liquidity D. All of the given options Learning Objective: 10.03 Understand the main forms of short-term bank lending and recognise when each may be suitable to a borrowers needs Section: 10.03 Short-term borrowing from banks and other financial institutions 2. Which of the following statements with regard to factoring is true? A. When the customer makes payment, the money initially goes to the factor, which then passes it to the company, plus a factor charge. B. The discount charged by the factor is generally calculated at a rate approximately equal to the secured overdraft rate. C. From the factor's viewpoint, the company accelerates its cash inflow from accounts receivable. D. Some banks and bank subsidiaries may provide factoring. Learning Objective: 10.04 Understand debtor finance, inventory loans and bridging finance and be able to distinguish between them Section: 10.03 Short-term borrowing from banks and other financial institutions 3. The interbank overnight rate is: A. well below the indicator rate for business lending; otherwise, a company could draw on its overdraft to borrow profitably in the cash market. B. well above the indicator rate for business lending; otherwise, a company could draw on its overdraft to borrow profitably in the cash market. C. well below the indicator rate for business lending; otherwise, a company could draw on its overdraft to lend profitably in the cash market. D. well above the indicator rate for business lending; otherwise, a company could draw on its overdraft to lend profitably in the cash market. Learning Objective: 10.06 Compare and contrast the main features of short-term and long-term debt securities Section: 10.02 General characteristics of debt 4. The difference between commercial paper and a bill of exchange is that: A. a bill of exchange is a short-term debt instrument whereas commercial paper is not. B. in a bill of exchange, the issuer and an acceptor are parties to the instrument, as opposed to only the issuer to a commercial paper instrument. C. only a bill of exchange can be traded in an active secondary market. D. none of the given options. Learning Objective: 10.06 Compare and contrast the main features of short-term and long-term debt securities Section: 10.05 Debt securities 5.Endorsement means that: A. if the acceptor is unable to pay the face value on the maturity date, then it is obliged to draw a bill to meet its initial obligations. B. an agreement between the acceptor and an endorser is reached, whereby the acceptor is obliged to pay the face value on the maturity date if the endorser is unable to pay the subsequent holder of the bill. C. the endorser has a contingent liability until the bill matures and is paid. D. none of the given options. Learning Objective: 10.08 Understand the process of using bills of exchange to raise funds and how bills of exchange are priced Section: 10.05 Debt securities 6. A bank bill: A. is accepted by institutions other than banks. B. is regarded as a lower quality bill than a non-bank bill. C. includes both bank-accepted and bank-endorsed bills. D. is not normally endorsed if it is sold after being bought in the secondary market. Learning Objective: 10.08 Understand the process of using bills of exchange to raise funds and how bills of exchange are priced Section: 10.05 Debt securities 7. In a bill discount facility: A. the borrower undertakes to buy bills of exchange drawn by the bank up to a specified total amount. B. the bank undertakes to sell bills of exchange drawn by the borrower up to a specified total amount. C. the bank undertakes to sell bills of exchange drawn by the borrower for an unspecified total amount, usually determined by demand and supply. D. none of the given options. Learning Objective: 10.08 Understand the process of using bills of exchange to raise funds and how bills of exchange are priced Section: 10.05 Debt securities 8. In a bill acceptance facility: A. the bank undertakes to accept bills drawn by the borrower up to a specified total amount. B. the borrower undertakes to accept bills drawn by the bank for an unspecified total amount, usually determined by demand and supply. C. the borrower undertakes to accept bills drawn by the bank up to a specified total amount. D. none of the given options. Learning Objective: 10.08 Understand the process of using bills of exchange to raise funds and how bills of exchange are priced Section: 10.05 Debt securities 9. A fully drawn bill facility: A. provides a company with an unspecified amount for a specified period. B. provides a company with a specified amount for a specified period. C. provides a company with an unspecified amount for an unspecified period. D. provides a company with a specified amount for an unspecified period. Learning Objective: 10.08 Understand the process of using bills of exchange to raise funds and how bills of exchange are priced Section: 10.05 Debt securities 10. A revolving credit bill facility is: A. similar to a fully drawn facility in that the company is permitted to draw on the facility as the funds are required, provided that it does not borrow more than the agreed total amount. B. different from a bank overdraft in that the company is permitted to draw on the facility as the funds are required, provided that it does not borrow more than the agreed total amount. C. different from a bank overdraft in that there is an agreed total amount up to which the company can borrow. D. none of the given options. Learning Objective: 10.08 Understand the process of using bills of exchange to raise funds and how bills of exchange are priced Section: 10.05 Debt securities 11. Which of the following statements is true? A. A bank bill is extremely marketable. B. A non-bank bill may be regarded as almost equivalent to a bank bill. C. A bank bill that is regarded as being very risky will easily be discounted in the bills market. D. A bank bill is extremely marketable and a non-bank bill may be regarded as almost equivalent to a bank bill. Learning Objective: 10.08 Understand the process of using bills of exchange to raise funds and how bills of exchange are priced Section: 10.05 Debt securities 12. An advantage of using debt is that: A. debtholders have no control over the company's operations. B. debtholders usually exert no control over the company's operations. C. interest payments are fixed. D. a company may borrow without the security of an asset. Learning Objective: 10.02 Explain the general characteristics of debt Section: 10.02 General characteristics of debt 13. When comparing debentures and unsecured notes, it can be said that: A. they are identical securities. B. a debenture holder is an unsecured creditor whereas an unsecured note holder is a secured creditor. C. both are an example of unsecured debt. D. a debenture holder is a secured creditor whereas an unsecured note holder is an unsecured creditor. Learning Objective: 10.02 Explain the general characteristics of debt Section: 10.05 Debt securities 14. Interest rates are normally higher on unsecured notes than on debentures because: A. debenture holders have a prior claim over company assets. B. debentures are a riskier form of security. C. unsecured notes are normally secured by a floating charge over assets. D. unsecured notes are normally secured by a fixed charge over an asset. Learning Objective: 10.02 Explain the general characteristics of debt Section: 10.05 Debt securities 15. A constant payout policy for dividends involves: A. a constant total amount of dividends paid each year. B. a constant ratio of dividends to profit and a constant amount of dividends paid from year to year. C. consideration given to profitable investment proposals. D. a constant ratio of dividends to profit but not a constant amount of dividends paid from year to year. Learning Objective: 11.06 Understand the argument that payout decisions may have a role in providing signals to investors Section: 11.02 Is payout policy important to shareholders? 16. A reason why management may have a long-term dividend payout ratio is that: A. investors have a long-term investment horizon. B. the present value of taxes paid on future dividend income is less than the present value of taxes paid on current dividend income. C. management views dividends as a function of sustainable profits. D. it assists management in long-term planning. Learning Objective: 11.07 Explain the ways in which agency costs can be related to payout decisions Section: 11.02 Is payout policy important to shareholders? 17. The Modigliani and Miller dividend irrelevance argument does not rest on the assumption that: