Free Business Finance MCQs with Answers
975 Business Finance MCQs from Management Sciences, each with the correct answer and a written explanation of why it is correct. Free and unlimited, with no account needed.
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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975 questions · page 16 of 49
- A. cash mortgage
- B. securitized mortgage
- C. financial mortgage
- D. instrumental mortgage
Explanation: A securitized mortgage represents mortgage cash flows that have been pooled and converted into tradable financial securities.
Correct answer: securitized mortgage- A. global transfer
- B. pension transfer
- C. direct transfer
- D. indirect transfer
Explanation: A direct transfer occurs when savers provide funds directly to borrowers by purchasing their financial instruments, without a financial…
Correct answer: direct transfer- A. payment risk
- B. liquidity risk
- C. income risk
- D. balance risk
Explanation: Liquidity risk occurs when an institution cannot meet sudden withdrawals without selling assets quickly, often at depressed prices.
Correct answer: liquidity risk- A. prospectus
- B. stated document
- C. risk detailed document
- D. exchange commission document
Explanation: A prospectus is the formal disclosure document filed for a securities issue, describing the offering, issuer and associated risks.
Correct answer: prospectus- A. channel risk
- B. globalization risk
- C. state risk
- D. country risk
Explanation: Country risk is the possibility that a foreign government or political environment will prevent or disrupt payments.
Correct answer: country risk- A. money market
- B. capital market
- C. transaction market
- D. global market
Explanation: The money market deals in short-term financial instruments, normally with maturities of one year or less.
Correct answer: money market- A. system risk
- B. technology risk
- C. operational risk
- D. support risk
Explanation: A technology-system malfunction is commonly treated as operational risk because it results from failures in internal systems or processes.
Correct answer: operational risk- A. swap contract
- B. option contract
- C. futures contract
- D. all of the above
Explanation: Swaps, options and futures are all derivatives because their values or payoffs are linked to an underlying asset, rate or index.
Correct answer: all of the above- A. savings associations
- B. savings banks
- C. credit unions
- D. all of the above
Explanation: Thrift or depository institutions commonly include savings associations, savings banks and credit unions.
Correct answer: all of the above- A. linked security
- B. derivative security
- C. payable security
- D. non-issuing security
Explanation: A derivative security has a payoff linked to the value or performance of another security or underlying asset.
Correct answer: derivative security- A. flexible costs
- B. low transaction costs
- C. high transaction costs
- D. constant costs
Explanation: Centralized markets generally reduce search, negotiation and settlement costs by bringing trading into an organized venue.
Correct answer: low transaction costs- A. price risk
- B. profit risk
- C. selling risk
- D. financial risk
Explanation: Price risk is the possibility that an asset’s market price will fall or fail to provide the expected gain when sold.
Correct answer: price risk- A. counter instruments
- B. long term instruments
- C. money market instruments
- D. capital market instruments
Explanation: Federal funds, bankers’ acceptances, commercial paper and repurchase agreements are short-term instruments used for borrowing and lending…
Correct answer: money market instruments- A. junk bonds
- B. deposits
- C. loans
- D. swap bonds
Explanation: Deposits are the principal liabilities of commercial banks because the bank owes these funds to depositors and must repay them on demand…
Correct answer: deposits- A. interest rate risk
- B. channel rate risk
- C. economic risk
- D. issuance risk
Explanation: A maturity mismatch exposes a financial intermediary to interest rate risk because changes in rates can affect the costs of liabilities…
Correct answer: interest rate risk- A. off balance sheet risk
- B. income statement risk
- C. balance of trade risk
- D. balance of payment risk
Explanation: Contingent assets and liabilities arise from commitments that may not appear on the balance sheet until a future event occurs, creating…
Correct answer: off balance sheet risk- A. economies of cost
- B. economies of scale
- C. economies of efficiency
- D. economies of transaction
Explanation: Economies of scale reduce the average cost of transaction services as the volume of operations increases, often through technology and…
Correct answer: economies of scale- A. activity institutions
- B. investment companies
- C. mortgage companies
- D. finance companies
Explanation: Finance companies specialize in providing loans and commonly raise funds by issuing short-term and long-term debt.
Correct answer: finance companies- A. thrifts
- B. state bank
- C. global bank
- D. multinational institutions
Explanation: Thrifts are specialized depository institutions that concentrate their lending in particular areas, traditionally residential mortgages…
Correct answer: thrifts- A. linked security
- B. previous security
- C. payoff security
- D. derivative security
Explanation: A derivative security derives its value or payoff from an underlying security, asset or financial variable.
Correct answer: derivative security