BA1

Answers for Revision Questions

MICROECONOMICS

1) An example of the principle-agent problem in business is where principals such as

__Shareholders_________ delegate control to agents such as ____management________. The
problem is one of the methods to ensure that agents act in the best interest of the principles.
Managerial reporting systems which link pay and bonuses to the improvement in ___
shareholder wealth ______ is one such method. [Choose from: Management, stakeholders,
shareholders, shareholder wealth, efficiency]

2) Kim PLC earned profits before tax and interest of $110,000, interest charge of $45,000 and a tax
bill of $30,000, last year. Preference share dividend of $15,000 were paid out, as were ordinary
shareholders’ dividends worth $5,000. Kim PLC has $125,000 of shares on issue and the shares
each have a nominal value of $0.50

Calculate the earnings per share of Kim Plc. to the nearest cent. ____$0.8________________

3) Which of the following is not a key feature of an organization?

a. Controlled performance
b. Collective goals
c. Social arrangement
d. Creation of a product or service.

4) Which of the following statements is correct?

a. Not for profit (NPO) are only found by the public sector
b. Not for profit (NPO) are only found by the private sector
c. Not for profit (NPO) are only found by both the public sector and private sector
d. Not for profit (NPO) can’t survive without profits

5) Which of the following organizations would be classified as both not for profit and private
sector?
a. Governement departments
b. Partnerships
c. Charities
d. Companies

6) A normal demand curve is downward slopping because,

a. Raising prices causes an expansion in demand
b. Raising prices causes a contraction in demand
c. Companies require lower profit margins as more of an item is produced
d. Companies require higher profit margins as more of an item is produced

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 7) Employees are _Internal______ stakeholders, while fiancé providers are _Connected______
stakeholders. [Fill in the blanks using internal, external, Connected, outsider, Supplier]

8) which of the following is unlikely to be a cause of conflict between direct shareholders?

a. ‘Fat Cat’ Salaries
b. Maximization of short term profitability
c. Maximization of long term cash-flows
d. Mergers and acquisitions

9) One of the main benefits of corporate governance is improved access to capital markets. True or
False. ___True_______

10) Under the principles of good corporate governance, the CEO and chairman of the board will
normally be the same person. True or False? ____False____

11) The main benefit of specialization of labor to a company is that it;

a. Creates economies of scale
b. raises productivity of labor
c. Reduces boredom involved with manual work
d. Generates product differentiation

12) Raising price of an elastic product will lead to increase in total revenue. True or false?
__False____

13) Public goods are produced by the public sector because they are non-excludable and non-
exclusive. True or False? ___True____

14) Which of the following is an example for merit goods?

a. Health care
b. Pollution
c. Road congestion
d. Diseases

15) 45> Which of the following are categorized as external economies of scale for a business;
a. Locally available trained labor force
b. Technical economies of scale
c. Bulk buying
d. Financial economies of scale

FINANCIAL CONTEXT
16) Coupon bearing securities have a fixed maturity and a specified interest rate. True or False?
___True______

17) In the discount market, funds are raised by issuing bills at a discount to their eventual
redemption or maturity value. True or false? _True_________

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 18) Which of the following are money market instrument??
a. Certificate of deposit
b. Corporate bonds
c. Commercial papers
d. Treasury bills

19) If the reserve asset ratio was 25%, how much money could a bank create from a initial deposit
of $100?
a. $100
b. $200
c. $300
d. $500

20) ChimChim Co has made a new issue of redeemable bonds. If the market rate of interest falls,
how will the price of the bonds react?
a. Rise
b. Fall
c. Stay the same
d. Could go up or down

21) Lenders normally want to lend funds for a short period of time but most borrowers want to
borrow funds for a long period of time. How would you describe the solving of this mis-match?
a. Pooling
b. Aggregation
c. Risk reduction
d. Maturity transformation

22) Which of the main ways to distinguish between capital and money market?
a. Transaction costs
b. The amounts involved
c. The time to maturity
d. The amount of risk

23) What is the main reason that borrowers and lenders are unlikely to contact each other directly?
a. Lack of communication system
b. High cost
c. Financial intermediaries are only open for a limited amount of time each day
d. They are unlikely to have assets that can be traded

24) If the Central bank pursues an expansionary open market operations policy, which of the
following will be true?
a. Sell securities on the open market
b. Buy securities from non-government holders
c. Increase the reserve assets ratio
d. Decrease the reserve assets ratio

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 25) which of the following is never as asset of a clearing bank?
a. Cash
b. Loans made to a company
c. A customer’s deposit account
d. Balances held with the bank of England

26) A devaluation in the exchange rate for Japanese Yen will normally result in;
a. A reduction in the current account deficit
b. Improvement in the countries terms of trade
c. Reduction in the domestic cost of living
d. An increased level of domestic activity

27) Which of the following is not a benefit of single currency?

a. Reduced transaction cost
b. Lower interest rates
c. Reduced exchange rate uncertainty
d. Increased price transparency

28) which of the following is unlikely to affect the demand for sterling?
a. An increase in UK exports
b. An increase in UK imports
c. Government intervention to support the exchange rate
d. overseas investors making investments in UK

29) Duty Free PLC is a Uk company that imports furniture from a Canadian supplier and sells it
throughout Europe. Duty Free PLC has just received a shipment of furniture, invoiced in
Canadian Dollars, for which payment is to be made in two months’ time. Neither Duty free PLC
nor the Supplier use hedging techniques to cover their exchange risk.

If the pound sterling were to weaken substantially against the Canadian Dollar, what would be
the foreign exchange gain or loss effects upon Duty Free PLC and Canadian supplier? (Put a tick)

Gain Loss No effect

Duty Free PLC X
Canadian Supplier X

30) An Annual rent of $2,000 is to be received for ten successive years with the first payment due
tomorrow. The relevant rate of interest is 8%. Calculate the present value of this stream of cash
flows.
a. $15,420
b. $13,420
c. $12,500
d. $14,494

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 31) Lemon co has determined that the net present value of an investment project is $17,706 when
using a 10% discount rate and $(4,317) hen using a discount rate of 15%.
What is the IRR to the nearest 1%? ___14%_________

32) Gabby is undertaking a project which has a net present value of $(543) when the discount rate
is 20% and $3,802 when it is 15%.

Which of the following statements about the IRR is true?

a. The IRR must be below 10%

b. The IRR must lie between 10% and 15%
c. The IRR must lie between 15% and 20%
d. The IRR must be greater than 20%

MACROECONOMICS

33) Which of the following are included in the aggregate demand? Tick the appropriate box.

Included Excluded
Consumption X
Income X
Savings X
Investment X

34) A leftward shift in the supply curve while demand is held constant would lead to ;
a. Rising price and lower output
b. Rising price higher output
c. Falling prices and higher output
d. Falling prices and lower output

35) Which of the following situations would lead to a deflationary gap?

a. There has been a general fall in prices
b. Planned expenditure exceeds the full employment level of output
c. Planned expenditure below the full employment level of output
d. The time it takes for a government deflationary policy to work

36) Which of the following groups do not lose out from inflation?
a. Those on fixed income
b. Who have index linked income
c. Who hold on to cash
d. Who invest in non-financial assets

37) a downturn in the level of economic activity is likely to lead to which of the following
unemployment?
a. Seasonal
b. Frictional

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 c. Structural
d. Cyclical

38) The major impact of an increase in the reserves asset ratio would be;
a. To push up interest rates
b. To reduce interest rates
c. To reduce the liquidity level in the banking sector
d. To raise the liquidity level in the banking sector

39) Which of the following is not an economic advantage of international trade?

a. It encourages international specialization
b. Consumer choice is widened
c. It enables industries to secure economies of large scale production
d. Trade surpluses can be used to finance the budget deficit

40) Which of the following will appear in the financial account of the balance of payment for South
Korea?
a. The export of Whisky
b. The purchase of Euros to go on a European Holiday
c. Interest received on a United states bond
d. Inflow of investments by a hi-tech multinational in Korea.

41) a deficit on a country’s balance of payments current account can be financed by a surplus;
a. Of exports over imports
b. Of invisible exports over invisible imports
c. On the capital account
d. Of taxes over expenditure

42) Jell-O is a national chain of bars and night clubs considering extending their operations overseas.
Match up the following macroeconomic factors with the heading they would be analyzed under
the PESTEL analysis.

The age at which people are allowed to drink alcohol Legal

Government taxes on sales of Alcohol Political
The level of disposable income people have economical
People’s religious beliefs and attitudes towards alcohol Social

Political Social Economic technological Legal Environmental

INFORMATION ANALYSIS.

43) If the regression equation (in$ ‘000) linking sales (Y) to advertising expenditure (X) is given by
Y=4000 + 12X, what is the forecast sales when $150,000 is spent on advertising to the nearest $?
___$5,800,000__________

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 44) IF there is a perfect positive correlation between two variables then the value of r, the
correlation coefficient, is,
a. Greater than 1
b. Equal to 1
c. Equal to 0
d. Equal to -1

45) The correlation Coefficient (r ) for measuring the correlation between 2 variables (X and Y) has
been calculated as 0.6.

How much of the variation in the dependent variable (Y) is explained by the variation in the
independent (X)?

a. 36%
b. 40%
c. 60%
d. 64%

46) if takings at Mr. Kim Shi’s takeaway for the 1st quarter of 2020 were $25,000. The underlying
trend at this point was $23,000 takings and the seasonal factor is 0.78. Assuming a multiplicative
model for seasonal adjustment, what is the seasonally-adjusted figure for that quarter?
a. $19,500
b. $20,500
c. $32,051
d. $34,051

47) Unemployment numbers actually recorded in a town for the second quarter of 2019 were 2,200.
The underlying trend at this point was 2000 people and the season factor is 0.97. Using the
Multiplicative model for the seasonal adjustment, what is the seasonally-adjusted figure for that
quarter?
a. 1940
b. 2061
c. 2134
d. 2268

48) In data with a 4-year cycle, the cyclical components using the additive model was given;

Year 1 Year 2 Year 3 Year 4

10 15 25 220

If 2015 is year 1 of the cycle and if the trend for 2019 is predicted to be 70, what is the predicted
actual value for 2019. ______80___________

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 49) If there is a perfectly negative correlation between two variables then the value or r, will be;
a. Greater than 1
b. Equal to 1
c. Equal to 0
d. Equal to -1

50) It was found that the Netflix viewers and the performance at examination has no correlation at
all. What would the value of r be?
a. Greater than 1
b. Equal to 1
c. Equal to 0
d. Equal to -1

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