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 19 of 49
- A. forward rate
- B. backward rate
- C. termed rate
- D. structured rate
Explanation: A forward rate is an interest rate agreed or expected for a period that begins at a future date.
Correct answer: forward rate- A. short term working capital
- B. long term working capital
- C. long term fixed assets
- D. short term fixed assets
Explanation: Accounts receivable and inventory are current assets that normally turn over within the operating cycle, so they form part of short-term…
Correct answer: short term working capital- A. saving fund theory
- B. constant funds
- C. borrowed theory
- D. loanable funds theory
Explanation: The loanable funds theory explains the equilibrium interest rate through the interaction of the supply of and demand for funds in…
Correct answer: loanable funds theory- A. invested interest
- B. simple interest
- C. earned interest
- D. unstated interest
Explanation: Simple interest is calculated only on the original principal, so the interest earned is not added back for further interest.
Correct answer: simple interest- A. down and to the left
- B. down and to the right
- C. up and to the left
- D. up and to the rightAccounting & Auditing
Explanation: Worsening economic conditions usually reduce saving and the supply of loanable funds.
Correct answer: up and to the left- A. investing abroad
- B. investing in domestic markets
- C. increase in sovereign risk
- D. increase in country risk
Explanation: Better economic conditions abroad can make foreign investments more attractive or profitable, encouraging local investors to invest…
Correct answer: investing abroad- A. insurance companies
- B. government
- C. corporations
- D. households
Explanation: Households are generally the main net suppliers of loanable funds because they save more than they borrow.
Correct answer: households- A. financial markets
- B. setting interest arte
- C. setting compounding rate
- D. setting savings rate
Explanation: Suppliers of funds, borrowers or fund consumers, foreign participants, governments, and financial intermediaries all participate in…
Correct answer: financial markets- A. increase in total wealth
- B. decrease in total wealth
- C. increase in future value
- D. decrease in future valueCredit & Lending
Explanation: An increase in total wealth generally increases saving and the supply of loanable funds, shifting the supply curve rightward and lowering…
Correct answer: increase in total wealth- A. increase restrictiveness
- B. decrease restrictiveness
- C. zero restrictiveness
- D. negative restriction
Explanation: When equilibrium interest rates fall, lenders may compensate by imposing stricter non-price conditions, such as tighter collateral or…
Correct answer: increase restrictiveness- A. increase in future value
- B. decrease in future value
- C. increase in total wealth
- D. decrease in total wealthInvesting
Explanation: A decrease in total wealth tends to reduce saving and the supply of loanable funds, shifting the supply curve leftward or upward.
Correct answer: decrease in total wealthInvesting- A. equilibrium goods
- B. non-equilibrium goods
- C. durable goods
- D. non-durable goods
Explanation: Education and medical expenses provide services that are consumed rather than lasting physical assets, so loans financing them are grouped…
Correct answer: non-durable goods- A. tax-ability
- B. covert ability
- C. call ability
- D. inflation premiumFinance
Explanation: Taxability, convertibility, and callability are special bond provisions that can affect the required interest rate.
Correct answer: inflation premiumFinance- A. up and to the left
- B. up and to the right
- C. down and to the left
- D. down and to the right
Explanation: A lower equilibrium interest rate, assuming demand is unchanged, indicates an increase in the supply of loanable funds.
Correct answer: down and to the right- A. decreases
- B. increases
- C. positive
- D. negativeAccounting & Auditing
Explanation: Greater risk makes lenders less willing to supply funds, shifting the supply curve left.
Correct answer: increases- A. effective annual return
- B. ineffective annual return
- C. decrease in return
- D. increase in return
Explanation: An effective annual return includes the effect of compounding during the year, unlike a nominal return that may quote only the stated…
Correct answer: effective annual return- A. down and to the left
- B. down and to the right
- C. up and to the left
- D. up and to the right
Explanation: A decrease in monetary expansion reduces the supply of loanable funds. The resulting leftward supply shift moves the curve up and to the…
Correct answer: up and to the left- A. upside movement
- B. downside movement
- C. shift left
- D. shift rightCredit & Lending
Explanation: On an upward-sloping supply-of-funds curve, a fall in the interest rate reduces the quantity of funds supplied, producing a downward…
Correct answer: downside movement- A. fall in globalization
- B. rise in globalization
- C. rise in demand
- D. inflation
Explanation: Inflation is a sustained rise in the general price level of a selected basket of goods and services.
Correct answer: inflation- A. supply of loan-able funds
- B. demand of loan-able funds
- C. compounded funds
- D. savings funds
Explanation: Users of funds, such as firms borrowing for investment, create demand in the loanable-funds market.
Correct answer: demand of loan-able funds