Free Finance and Banking Basics MCQs with Answers

• A. Reducing the variety of products
• B. Maximising the number of employees
• C. Increasing the physical size of offices
• D. Maximising shareholder wealth

Explanation: Maximising shareholder wealth considers both expected returns and the timing and risk of those returns.

• A. State Bank of Pakistan
• B. National Bank of Pakistan
• C. Securities and Exchange Commission of Pakistan
• D. Federal Board of Revenue

Explanation: The State Bank of Pakistan performs central banking functions, including monetary policy and regulation of the banking system.

• A. Land and buildings
• B. Cash in hand
• C. Long-term government bonds
• D. Machinery and equipment

Explanation: Liquidity means how quickly an asset can be converted into cash without a significant loss in value.

• A. Rs. 11,000
• B. Rs. 11,100
• C. Rs. 12,000
• D. Rs. 12,100

Explanation: The amount after two years is calculated as Rs. 10,000 × 1.10 × 1.10, which equals Rs. 12,100. The option of Rs.

• A. Trade protection
• B. Currency depreciation
• C. Fiscal taxation
• D. Financial intermediation

Explanation: Financial intermediation means transferring funds from savers to borrowers through institutions such as commercial banks.

• A. It decreases purchasing power
• B. It increases purchasing power
• C. It leaves purchasing power unchanged
• D. It converts money into fixed capital

Explanation: When the general price level rises, the same amount of money buys fewer goods and services.

• A. The bond's selling price as a percentage of market value
• B. The bond's annual interest payment as a percentage of face value
• C. The issuer's annual tax rate on profits
• D. The investor's total gain after maturity

Explanation: The coupon rate is the stated annual interest payment divided by the bond's face value.

• A. Guarantees immediate cash receipts
• B. Eliminates every business risk
• C. Adds value to the firm
• D. Requires no initial investment

Explanation: A positive net present value means the present value of expected cash inflows exceeds the present value of cash outflows.

• A. Loans granted to customers
• B. Bank borrowings
• C. Customer deposits
• D. Shareholders' paid-in capital

Explanation: Loans granted to customers are assets because they represent amounts receivable by the bank.

• A. Sharing profit from a lawful business
• B. Charging predetermined interest on a loan
• C. Buying and selling a real asset
• D. Leasing an identified piece of equipment

Explanation: Islamic finance generally prohibits riba, commonly understood in this context as predetermined interest on a loan.

• A. Rs. 860
• B. Rs. 1,060
• C. Rs. 960
• D. Rs. 1,160

Explanation: Simple interest is calculated as principal multiplied by rate and time: 8,000 × 0.06 × 2 = Rs. 960.

• A. Worth less than a rupee received later
• B. Worth equal to every future rupee
• C. Unaffected by the rate of interest
• D. Worth more than a rupee received later

Explanation: A rupee received today can be invested and earn a return, so it is normally more valuable than the same rupee received later.

• A. 2:1
• B. 1:1
• C. 0.5:1
• D. 3:1

Explanation: The current ratio equals current assets divided by current liabilities: 240,000 ÷ 120,000 = 2.

• A. It always pays a higher rate of return
• B. It can usually be withdrawn without waiting for maturity
• C. It cannot be accessed through a bank
• D. It is recorded only in foreign currency

Explanation: A demand deposit can generally be withdrawn when the depositor requests it, subject to banking procedures.

• A. Foreign passports
• B. Corporate buildings
• C. Government securities
• D. Consumer goods

Explanation: Open market operations use purchases or sales of government securities to influence bank reserves and overall monetary conditions.

• A. Its long-term increase in share capital
• B. Its ability to earn the highest profit
• C. Its total ownership of fixed assets
• D. Its ability to meet short-term obligations

Explanation: Liquidity refers to the ability to meet near-term payments and withdrawals without unacceptable loss.

• A. A residual claim on the company's assets
• B. A guaranteed periodic payment
• C. Priority repayment before all creditors
• D. A fixed maturity date for investment

Explanation: An ordinary shareholder receives a residual claim after creditors and preferred claims are satisfied.

• A. Liabilities minus owner's equity
• B. Revenue plus drawings
• C. Liabilities plus owner's equity
• D. Expenses plus owner's equity

Explanation: The basic accounting equation is Assets = Liabilities + Owner's Equity.

• A. A shareholder's certificate of ownership
• B. A customer's ordinary savings account
• C. A government tax collection receipt
• D. A bank's guarantee of a time draft

Explanation: A banker's acceptance is a time draft accepted by a bank, making the bank responsible for payment at maturity.

• A. Reduce the funds available for lending
• B. Increase the funds available for lending
• C. Eliminate the bank's deposit liabilities
• D. Guarantee a rise in bank profits

Explanation: A higher reserve requirement obliges banks to keep a larger share of deposits as reserves, leaving less available for loans and…