Tag: sources of business finance - 1

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Questions Related to sources of business finance - 1

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

Which of the following is true for 'dirty float'?

  1. It is a purely fixed exchange rate system

  2. It is compromise between fixed and floating exchange rate systems

  3. Central banks sometimes intervene in the forex market to curb sharp changes.

  4. Both (B) and (C) above

  5. All of (A), (B) and (C) above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

In order to reduce the inefficiencies in the foreign exchange market central banks generally intervene in the currency markets to smoothen the fluctuations. Though officially the exchange rate may be floating, in reality the central bank  may intervene regularly in the currency market,unofficially keeping it fixed. Such a system is referred to as a 'managed float' or a 'dirty float'.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

Source of funds for an entrepreneur can be _______.

  1. Personal investment

  2. Venture capital

  3. Investment from 'Angels'

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
 Every entrepreneur need some source of funds to implement his idea to run a business. Source of funds for an entrepreneur can be:
a) personal investment
b) venture capital
c) investment from 'Angels': here 'angels' mean investors.
Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

A trading concern for example, may require ____ amount of fixed capital as compared to a manufacturing concern.

  1. Large

  2. Small

  3. Fixed

  4. Half
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A trading concern for example, may require small amount of fixed capital as compared to a manufacturing concern since trading does not involve physical assets for production purpose. Whereas, manufacturing sector requires huge amount of investment.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

Which is of the following is / are false?

  1. In the FIFO method the issue is in the order of receipt.

  2. In the replacement method the current realizable value is taken for pricing the issues.

  3. In the weighted average method issue price is the weighted average of quantity and price and the weight being the percentage of value of each lot in the total stock.

  4. Under inflationary conditions LIFO method will show low value of inventory.

  5. Both (B) and (D) above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

In the Weighted average cost method the pricing of the materials is done on weighted average basis and the weights will be based on the quantity.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

A stock dividend is paid out of ________________.

  1. current earnings

  2. retained earnings

  3. capital surplus

  4. paid-in-surplus
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A stock dividend is a distribution of additional shares to shareholders, which is accounted for by transferring an amount from retained earnings to paid-in capital.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

Which of the following is/are the source(s) of short term finance?

  1. Trade Credit

  2. Cash advance loan

  3. Short term Borrowings

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Short term finance is type of business financing where it is obtained for a year or less. The sources of short term finance are: trade credit, cash advance loan and short term borrowings.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

In each bank, within a credit-rating scale, borrowers are classified into _____________________.

  1. Excellent, Good and Average

  2. Below Average or Unsatisfactory

  3. Excellent and Below Average

  4. Both (a) and (b)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Banks typically categorize borrowers into a spectrum of risk, ranging from excellent/good to below average/unsatisfactory, to determine creditworthiness.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

Which of the following will result into sources of funds?
(i) Increase in current assets
(ii) Decrease in current assets
(iii) Increase in current liabilities
(iv) Decrease in current liabilities

  1. (i) and (iv)

  2. (ii) and (iii)

  3. (i) and (iii)

  4. (ii) and (iv)
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A source of funds occurs when there is a decrease in current assets (releasing cash) or an increase in current liabilities (borrowing cash).

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

The increase in profit return resulting from borrowing capital at a low rate and employing it in a business yielding at a higher rate ____________.

  1. Operating leverage

  2. Trading on equity

  3. Asset leverage

  4. Return on investment leverage
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Trading on equity refers to the strategy of using debt (borrowed capital) to increase the return on equity for shareholders, provided the return on assets exceeds the cost of debt.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

Business incubators (or "accelerators") generally focus on the high-tech sector by providing support for new businesses in various stages of development. 

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Business incubators (or "accelerators") generally focus on the high-tech sector by providing support for new businesses in various stages of development- this is a true statement. Business incubators mainly help start-up companies by providing management and other facilities.