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 18 of 49
- A. interest rate parity theorem
- B. appreciation parity theorem
- C. domestic parity theorem
- D. foreign interest parity theorem
Explanation: Interest rate parity links domestic and foreign interest rates with the expected or forward exchange-rate movement, preventing risk-free…
Correct answer: interest rate parity theorem- A. regulations
- B. prudent individuals
- C. smaller size of assets
- D. all of the above
Explanation: Foreign-exchange exposure may be smaller because of regulatory limits, cautious risk management, and smaller asset bases compared with…
Correct answer: all of the above- A. largest foreign exchange trading
- B. smaller foreign exchange trading
- C. largest bond holder
- D. smaller bond holder
Explanation: JPMorgan Chase is one of the largest foreign-exchange dealers in the United States, with substantial global currency-trading operations.
Correct answer: largest foreign exchange trading- A. net long in currency
- B. net short in currency
- C. net surplus in assets
- D. net surplus in liabilities
Explanation: When assets denominated in a currency exceed liabilities in that currency, the institution has a net long position.
Correct answer: net long in currency- A. domestic rates
- B. forward and spot exchange rates
- C. forward rate
- D. spot rates
Explanation: Interest-rate parity states that the interest-rate differential between two countries corresponds to the differential between the forward…
Correct answer: forward and spot exchange rates- A. law of similar mortgage rate
- B. law of one type manufacturing
- C. law of similar labor rules
- D. law of one price
Explanation: The law of one price states that identical goods should sell for the same price in different markets after allowing for exchange rates and…
Correct answer: law of one price- A. net surplus in assets
- B. net surplus in liabilities
- C. net long in currency
- D. net short in currency
Explanation: When liabilities in a currency exceed assets, the institution has a net short position in that currency.
Correct answer: net short in currency- A. greater liquidity of assets
- B. greater volatility of rates
- C. lesser volatility of rates
- D. lesser liquidity of assets
Explanation: Larger fluctuations in the foreign-exchange portfolio value indicate greater exposure to exchange-rate movements, which is associated with…
Correct answer: greater volatility of rates- A. trade services
- B. investment services
- C. agent services
- D. commercial services
Explanation: When a financial institution facilitates commercial transactions or manages investment positions on behalf of clients, it is performing an…
Correct answer: agent services- A. liquidated power parity
- B. purchasing power parity
- C. selling power parity
- D. volatile power parity
Explanation: Purchasing power parity links exchange-rate changes to differences in inflation rates between countries.
Correct answer: purchasing power parity351. For the other non-price conditions, the increase in equilibrium interest rate leads to ___________?
- A. zero restrictiveness
- B. negative restriction
- C. increase restrictiveness
- D. decrease restrictiveness
Explanation: A higher equilibrium interest rate generally makes credit less restrictive because lenders have a greater incentive to supply funds…
Correct answer: decrease restrictiveness- A. cost of loanable funds is high
- B. cost of loanable fund is low
- C. equilibrium is zero
- D. equilibrium is negative
Explanation: Companies prefer internally generated funds when external borrowing is relatively expensive or difficult to obtain.
Correct answer: cost of loanable funds is high- A. durable goods
- B. non-durable goods
- C. equilibrium goods
- D. non-equilibrium goods
Explanation: Cars and major home appliances provide services over several years and are not consumed in one use, so they are classified as durable…
Correct answer: durable goods- A. global surplus
- B. national debt
- C. international debt
- D. global debt
Explanation: A budget deficit is a yearly shortfall, while the accumulation of past deficits forms the government’s outstanding national debt.
Correct answer: national debt- A. long term fixed assets
- B. short term fixed assets
- C. short term working capital
- D. long term working capital
Explanation: Plant and equipment are used for production over multiple accounting periods and are not normally converted into cash through routine…
Correct answer: long term fixed assets- A. short-term funds
- B. long-term funds
- C. surplus of funds
- D. deficit of funds
Explanation: An interest rate above equilibrium encourages saving and lending while discouraging borrowing, so the quantity of funds supplied exceeds…
Correct answer: surplus of funds- A. shift left
- B. shift right
- C. upside movement
- D. downside movement
Explanation: A rise in the interest rate causes movement along the existing supply-of-funds curve, not a shift of the curve.
Correct answer: upside movement- A. upside
- B. lower
- C. higher
- D. zero
Explanation: A decrease in demand for loanable funds reduces competition among borrowers, so lenders charge a lower borrowing cost.
Correct answer: lower- A. surplus of funds
- B. deficit of funds
- C. short-term funds
- D. long-term funds
Explanation: When the interest rate is below equilibrium, borrowers demand more funds than lenders are willing to supply, creating a deficit or…
Correct answer: deficit of funds- A. remain constant
- B. fluctuate
- C. decreases
- D. increases
Explanation: Lower financial-security risk encourages lenders to supply more funds, shifting the supply curve rightward and downward.
Correct answer: decreases