CERTIFICATE LEVEL

Subject Fundamentals of Business Economics (BA1)

Tharindu Ameresekere MBCS(UK),ACMA(UK),CGMA, Masters in Project Mgmt.(USQ)(Aus),
Lecturer PQHRM(IPM-SL),BSc(Hons) Computing(UK),BCS-PGD(UK), Cert.coach ABNLP

Module Finance Systems & Information Analysis Questions

Code

4
 Finance Systems
1) Indicate whether the following statements are true or false

Statement True False

Coupon bearing securities have a fixed maturity and a specified rate
of interest

In the discount market, funds are raised by issuing bills at a

discount to their eventual redemption or maturity value

2) Which three are key roles played by money markets?

A. Providing short term liquidity to companies, banks and the public sector
B. Providing short term trade finance
C. Allowing an organization to manage its exposure to foreign currency risk and interest rate risk
D. Dealing in long term funds and transactions

3) Which of the following are money market instruments?

1. Certificates of deposits
2. Corporate bond
3. Commercial paper
4. Treasury bill

A. 1, 2 and 4 only
B. 1 and 3 only
C. 1, 3 and 4 only
D. 1, 2, 3 and 4

4) Which of the following is a difference between primary and secondary capital markets?

A. Primary capital markets relate to the sale of new securities, while secondary capital markets are
where securities trade after their initial offering
B. Both primary and secondary capital markets relate to where securities are traded after their
initial offering
C. Both primary and secondary capital markets relate to the sale of new securities
D. Primary markets are where stocks trade and secondary markets are where loan notes trade

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 5) If a central bank pursues an expansionary open market operations policy, it will carry out which of the
following?
A. Sell securities on the open market
B. Buy securities from non-government holders
C. Increase the reserve asset ratio
D. Decrease the reserve asset ratio

6) Which of the following is never an 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

7) If the reserve asset ratio was 25%, how much money could a bank create from an initial deposit of
$100?
A. $100
B. $200
C. $300
D. $400

8) Lenders normally want to lend funds for a short time period but most borrowers want to borrow funds
for a long time period. How would you describe the solving of this mismatch?

A. Pooling
B. Aggregation
C. Risk reduction
D. Maturity transformation

9) The main advantage of a system of flexible or floating exchange rate is that it:

A. Provides certainty for those engaged in international trade

B. Provides automatic correction of balance of payments
C. Reduces international transaction cost
D. Provides discipline for government economic management

10) A devaluation of the exchange rate for a country’s currency will normally result in which TWO of the
following?
A. A reduction in the current account deficit
B. An improvement in the country’s terms of trade
C. A reduction in the domestic cost of living
D. An increased level of domestic economic activity

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 11) Which is not a benefit of a single currency?

A. Reduced transaction cost

B. Lower interest rates
C. Reduced exchange rate uncertainty
D. Increased price transparency

12) The current exchange rate between UK and US is £1 = $1.50. The sterling price of a Jaguar car is
£100,000. If the exchange rate moves to £1 = $1.40 what will be the new $ price?

13) Which 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 the UK

14) ‘There is a risk that the value of our foreign currency denominated assets and liabilities will change
when we prepare our accounts’. To which type of risk does this statement refer?

A. Translation risk
B. Economic risk
C. Transaction risk
D. Interest rate risk

15) In comparison to forward contracts, which of the following are true in relation to futures contracts?

I. They are more expensive

II. They are only available in a small amount of currencies
III. They are less flexible
IV. They are probably an imprecise match for the underlying contract

A. (i), (ii) and (iv) only

B. (ii) and (iv) only
C. (ii) and (iii) only
D. All of the above

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 16) Edted plc has to pay a Spanish supplier 100,000 euros in three months’ time. The company’s finance
director wishes to avoid exchange rate exposure, and is looking at four alternatives.

1. Do nothing for 3 months and then buy euros at the spot rate
2. Pay in full now, buying the euros at today’s spot rate
3. Buy euro’s now, put them on deposit for 3 months, and pay the debt with these euros plus
accumulated interest
4. Arrange a forward exchange rate contract to buy the euros in 3 months’ time

Which of these alternatives would provide cover against the exchange rate exposure theta Edted
would otherwise suffer?

A. 4 only
B. 3 and 4 only
C. 2, 3 and 4 only
D. 1, 2, 3 and 4

17) A credit card company is charging an annual percentage rate of 25.3%. This is equivalent to a monthly
rate of ( to one decimal place )

18) A bank offers different bank accounts with different interest rates. Which account gives the highest
annual effective interest rate?

A. 10% flat interest per year, interest calculated quarterly

B. 12% flat interest per year, interest calculated monthly
C. 1.2% interest per month
D. 3% interest per quarter

19) A company is expecting an income stream of $10,000 over the next 4 years. If a discount rate of 10% is
to be applied, the level of income in year 4 should be worth in today’s terms

A. $9,090
B. $8,260
C. $7,510
D. $6,830

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 20) An annual rent of $2,000 is to be received for 10 successive years with the first payment due
tomorrow. The relevant interest rate is 8%. Calculate the present value of this cash flow.
A. $15,420
B. $13,420
C. $12,500
D. $14,494

21) A building society adds interest monthly to investors’ accounts even though interest rates are
expressed in annual terms. The current quoted rate of interest is 6% per annum. An investor deposits
$1,000 on 1 January. How much interest will have been earned by 30 June?

A. $30.00
B. $30.38
C. $60.00
D. $61.68

22) How much would FGH need to invest now at 5% to yield an annual income of $8,000 in perpetuity?

A. $12,000
B. $140,000
C. $160,000
D. $200,000

23) How much would need to be invested today at 6% pa to provide an annuity of $5,000 pa for 10 years
commencing in 5 years’ time?

A. $5,000
B. $19,000
C. $29,150
D. $39,420

24) Assume that the current market rate of interest is 5%. The government is issuing new bonds at $100
each offering a yield at 5%.
If the market interest rate fell to 2%, what would be the maximum price a rational investor would pay
for the bond?

A. $40
B. $100
C. $200
D. $250

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 25) Gerber 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 is correct6 about the IRR value?

A. IRR must be below 10%

B. IRR must lie between 10% and 15%
C. IRR must lie between 15% and 20%
D. IRR must be greater than 20%

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 Information analysis

1) Which of the following graphs would best be used to illustrate that two variables are uncorrelated

A. Bar chart
B. Pie chart
C. Line graph
D. Scatter graph

2) The following table shows that the typical salary of part qualifies accountants in five different
regions in a country.

Area Typical salary $

South-east 21,500
midlands 20,800
North-east 18,200
North-west 17,500
South-west 16,700

Which diagram would be best to highlight the difference between areas?

A. Pie chart
B. Multiple bar chart
C. Percentage component bar chart
D. Simple bar chart

3) XYZ produces 3 main products. Which would be the most appropriate chart to show total revenue
analyzed into product revenue month by month?

A. Scatter graph
B. Line graph
C. Pie chart
D. Component bar chart

4) A histogram uses a set of rectangles to represent a grouped frequency table. To be correctly

represented, the histogram must show the relationship of the rectangles to the frequencies by
reference to which of the following?

A. Height of each rectangle

B. Area of each rectangle
C. Width of each rectangle
D. Diagonal of each rectangle

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 5) Which one is not necessarily a quality of good information?

A. Relevant
B. Understandable
C. Worth more than the cost to produce
D. Available quickly

6) Which one would be classified as data?

A. Number of purchase requisitions

B. Analysis of wages into direct and indirect costs
C. Table showing variances from budget
D. Graph showing the number of labor hours worked

7) Which one describes ‘information’?

A. Data that consists of facts and statistics before processing

B. Data that consists of numbers, letters, symbols, events and transactions which have been
recorded but not yet processed into a form that is suitable for decision making
C. Facts that have been summarized but not yet processed into a form that is suitable for
decision making
D. Data that has been processed in such a way that it has a meaning to the person who
receives it, who may then use it to improve tye quality of decision making

8) Which TWO statements relating to big data are true?

A. Big data refers to any financial data over $1 billion

B. Managing big data effectively can lead to increased competitive advantage
C. The term Big data means ‘data that comes from many sources’
D. Big data contains both financial and non-financial data

9) If an index of average gross earning with base year 2011 and at constant 2011 prices is calculated
to be 107 by 2016, which statement is correct about changes in average gross earnings over this 5
year period?

A. A total of 1.07% more goods and services can be bought by average earnings
B. A total of 7% more goods and services can be bought by average earnings
C. Earnings have risen by 1.07%
D. Average price of goods and services has risen by 7%

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 10) How could a price index of 235 be interpreted?

1. There has been a 35% increase since the base year

2. here has been a 135% increase since the base year
3. here has been a 235% increase since the base year
4. prices now are 2.35 times what they were in the base year

A. 1 only
B. 2 only
C. 2 and 4 only
D. 3 and 4 only

11) An inflation index and index numbers of a company’s sales ($) for the last year are given below.

quarter 1 2 3 4
Sales ($) index 109 120 132 145
Inflation index 100 110 121 133

Which statement is true? ‘Real’ sales, i.e. adjusted for inflation, are:

A. Approximately constant and keeping up with inflation

B. Growing steadily and not keeping up with inflation
C. Growing steadily and keeping ahead of inflation
D. Falling steadily and not keeping up with inflation

12) Details of an index number are given below. What is the ‘all items’ index number?

Group Base weight index

Food and drink 100 50 140
Travel and leisure 100 30 130
housing 100 20 120
All items 100 100 ?

13) The price index for a commodity in the current year is 87 ( base year = 100 ) and the current price is
$490 per unit. What was the price in the base year, to the nearest cent?

14) Magnetise uses material X in their production process daily. Two years ago the price index
appropriate to the cost of material X had a value of 120. It now has a value of 160. If material X
costs $2,000/kg today, what would its cost/kg have been 2 years ago?
A. $1,500
B. $1,667
C. $2,667
D. $3,200]

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 15) A company uses regression analysis to establish its selling overhead costs for budgeting purposes.

Month Number of Sales overheads costs

salesmen
1 3 35,100
2 6 46,400
3 4 27,000
4 3 33,500
5 5 41,000
21 183,000

The gradient of the regression line is 4,200. Using regression analysis, what would be the budgeted
sales overhead costs for the month, in $000, if there are two salesmen employed?

A. 27,360
B. 39,960
C. 41,000
D. 56,760

16) An organization is using linear regression analysis to establish an equation that shows a relationship
between advertising expenditure and sales revenue. It will then use the equation to predict sales
revenue for given levels of advertising expenditure. Data for the last 5 years are as follows.

Period number Advertising Sales revenue

expenditure ($) ($)

1 17,000 108,000
2 19,000 116,000
3 24,000 141,000
4 22,000 123,000
5 18,000 112,000

What are the values of ‘Σx’ , ‘Σy’ and ‘n’ ?

Σx Σy n

A $600,000 $100,000 5
B $100,000 $600,000 5
C $600,000 $100,000 10
D $100,000 $600,000 10

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 17) Having analyzed data from a 1000 customer loyalty cards, F plc believes it has found a link between
how much is typically spent annually on average on product X (x variable) and how much is spent
on product Y by the same customer (y variable)
The correlation coefficient for a 1000 pairs of x and y values, with x ranging from $500 to $700, is
calculated to be 0.79 and the regression equation is y = 620 + 4.3x
Which 2 statements are correct?

A. When x = $600, the estimate of y = $3,200

B. When x = $550, the estimate of y from the regression equation is likely to be reliable
C. When x = 0, the estimate of y from the regression equation is likely to be reliable
D. When x increases by $1, y increases by $0.79
E. 79% of the differences in money spent on product Y and be explained by the differences in
the spending on product X

18) The correlation coefficient (r) for measuring the connection between 2 variables (x and y) has been
calculated as 0.6
How much of the variation in y is explained by the variation in x?

A. 36%
B. 40%
C. 60%
D. 64%

19) The coefficient of determination (r2) explains the

A. Percentage variation in the coefficient of correlation

B. Percentage variation in y which is explained by x
C. Percentage variation in x which is explained by y
D. Extent of the casual relationship between 2 variables

20) Unemployment numbers actually recorded in a town for the second quarter of 2015 were 2,200.
The underlying trend at this point was 2,000 people and the seasonal factor is 0.97. using the
multiplicative model for seasonal adjustment, what is the seasonally-adjusted figure for the
quarter?
A. 1,940
B. 2,061
C. 2,134
D. 2,268

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 21) If takings at Mr Li’s takeaway for the first quarter of 2015 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 the quarter?

A. $19,500
B. $20,500
C. $32,051
D. $34,051

22) Over an 18 month period, sales of Parrot’s best selling product have been found to have an
underlying linear trend of y = 7.112 + 3,949x where y is the number of items sold and x represents
the month. Monthly deviations from trend have been calculated and month 19 is expected to be
1.12 times the trend value. What is the forecast number of items to be sold in month 19?

A. 88
B. 90
C. 92
D. 94

23) In data with a 4 year cycle, the cyclical components using the additive model are given to be:

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?

24) H is forecasting its sales for next year using a combination of time series and regression analysis
models. An analysis of past sales units has produced the following equation for the quarterly sales
trend:
Y = 26x + 8,850
Where the value of x represents the quarterly accounting period and the value of y represents the
quarterly sales trend in units. Q1 of next year will have a value for x of 25.
The quarterly seasonal variations have been measured using the multiplicative (proportional)
model and are:
Q1 -15%
Q2 -5%
Q3 +5%
Q4 +15%

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 Production is planned to occur at a constant rate throughout the year. The company does not hold
inventories at the end of any year.
The difference between the budgeted sales for Q1 and Q4 next year are:

A. 78 units
B. 2,850 units
C. 2,862 units
D. 2,940 units

25) Monthly sales of product R follow a linear trend of y = 9.72 + 5.816x, y = number of units sold, x =
number of the month. Monthly deviations from the trend follow an additive model.
The forecast number of units of product R to be sold I month 23, which has a seasonal factor of
+6.5 is, to the nearest whole unit is:

A. 134
B. 137
C. 143
D. 150

26) Z plc has found that it can estimate future sales using time series analysis and regression
techniques. The following trend equation has been derived:
Y = 25,000 + 6,500x
Where, y = total sales units per quarter
X = time period reference number
Z has also derived the following set of seasonal variation index values for each quarter using a
multiplicative (proportional) model:

Q1 70
Q2 90
Q3 150
Q4 90

Assuming that the Q1 of Y1 is time period reference number 1, the forecast for sales units for the
Q3 of Y7, is in units?

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 Answers
Finance system Information analysis
1) Both are true 1) D
2) A, B and C 2) D
3) C 3) D
4) A 4) B
5) B 5) D
6) C 6) A
7) D 7) D
8) D 8) B and D
9) B 9) B
10) A and D 10) C
11) B 11) A
12) $140,000 12) 133
13) B 13) $563.22
14) A 14) A
15) D 15) A
16) C 16) B
17) 1.9% 17) A and B
18) C 18) A
19) D 19) B
20) D 20) D
21) B 21) C
22) C 22) C
23) C 23) 80
24) D 24) D
25) C 25) D
26) 300,750 units

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