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 38 of 49
- A. Aggregate risk
- B. Remaining risk
- C. Effective risk
- D. Ineffective risk
Explanation: Unsystematic risk can be diversified away, while systematic market risk remains after diversification.
Correct answer: Remaining risk- A. Pessimistic
- B. Optimistic
- C. Experienced
- D. Inexperienced
Explanation: When book value exceeds market value, investors are valuing the stock below its accounting value, suggesting doubt about its future…
Correct answer: Pessimistic- A. Probability error
- B. Actual error
- C. Prediction error
- D. Random error
Explanation: In a return model, the difference between actual and predicted return is the residual or random error term.
Correct answer: Random error- A. Individual
- B. Collective
- C. Weighted
- D. Linear
Explanation: Beta measures the systematic risk of an individual stock relative to movements in the overall market.
Correct answer: Individual- A. Historical betas
- B. Adjusted betas
- C. Standard betas
- D. Varied betas
Explanation: Because future beta cannot be observed directly, analysts commonly estimate it using the stock's historical beta.
Correct answer: Historical betas- A. Eurodollar market deposits
- B. Commercial loans
- C. Consumer credit loans
- D. Consumer credit loans
Explanation: Loans that banks provide to businesses and corporations for operations, expansion, or other commercial purposes are called commercial…
Correct answer: Commercial loans- A. Stock market
- B. Dealer market
- C. Outcry auction system
- D. Face to face communication
Explanation: In a dealer market, dealers or market makers trade from their own inventory of securities and quote buying and selling prices.
Correct answer: Dealer market- A. Non-financial intermediary
- B. Financial intermediary
- C. Savers intermediary
- D. Discounted intermediary
Explanation: A financial intermediary, such as a bank or mutual fund, channels funds between savers and borrowers or investors.
Correct answer: Financial intermediary- A. Cost of production
- B. Cost of money
- C. Opportunity cost
- D. Inflation risk
Explanation: Federal Reserve policy and government budget surpluses or deficits influence interest rates, which determine the cost of borrowing money.
Correct answer: Cost of money- A. Money market funds
- B. Capital market funds
- C. Money mutual funds
- D. Insurance money funds
Explanation: Money market funds invest in short-term, highly liquid instruments and may provide check-writing or interest-bearing account features.
Correct answer: Money market funds751. Method of matching orders by posting orders of buying and selling is classified as______________?
- A. Electronic communication network
- B. Electronic dealer network
- C. Electronic stock network
- D. Electronic order network
Explanation: An electronic communication network, or ECN, electronically matches posted buy and sell orders.
Correct answer: Electronic communication network- A. Consumer credit loans
- B. Dollar bonds
- C. Eurodollar market deposits
- D. Euro bonds
Explanation: Consumer credit loans are borrowing arrangements used by individuals to purchase goods or services, commonly supplied by banks, credit…
Correct answer: Consumer credit loans753. Markets which deals with high liquid and short-term debt securities are classified as_____________?
- A. Capital markets
- B. Money markets
- C. Liquid markets
- D. Short-term markets
Explanation: Money markets deal in highly liquid, short-term debt instruments such as Treasury bills and commercial paper.
Correct answer: Money markets- A. Customer's acceptance
- B. Banker's acceptance
- C. Federal acceptance
- D. Treasury acceptance
Explanation: A banker’s acceptance is a bank-guaranteed promise to pay, commonly used to finance trade transactions.
Correct answer: Banker's acceptance- A. Physical asset markets
- B. Intangible assets
- C. Competitive markets
- D. Easy markets
Explanation: Wheat, rice, cotton, real estate, and automobiles are tangible goods or assets, so markets dealing in them are physical asset markets.
Correct answer: Physical asset markets- A. Short-term
- B. Long-term
- C. Intermediate term
- D. Capital term
Explanation: Financial instruments maturing in roughly one to five years are commonly classified as intermediate-term instruments.
Correct answer: Intermediate term- A. Future funds
- B. Hedge funds
- C. Retirement funds
- D. Pension funds
Explanation: A hedge fund pools money from investors and deploys it across investment strategies and assets to seek returns.
Correct answer: Hedge funds- A. Market price
- B. Intrinsic price
- C. Extrinsic price
- D. Fundamental price
Explanation: The price at which a stock is currently traded or quoted in the financial market is its market price.
Correct answer: Market price- A. Original trading
- B. Liquidity
- C. Offline trading
- D. Fixed price trading
Explanation: Liquidity is the ability to buy or sell an asset quickly at, or close to, its current market price.
Correct answer: Liquidity- A. Leases
- B. Preferred stocks
- C. Common stocks
- D. Corporate stocks
Explanation: A lease gives a firm the right to use an asset without purchasing it outright or borrowing specifically to buy it.
Correct answer: Leases