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CIMA BA1 Sample Question Answers
Question # 1
If real rates of interest are positive and rising, then
A. The average level of saving will be decreasing B. Lenders are gaining at the expense of borrowers C. The rate of inflation must be increasing D. The desire to hold cash balances will be increasing
Answer: D
Question # 2
All of the following were contributory causes of the banking crisis of 2008 (the 'credit crunch') except one. Which ONE is the exception?
A. Large scale default in the in the US sub-prime mortgage market B. Over- capitalization of commercial and investment banks C. The bundling of mortgages into collateralized debt obligations which were sold onto banks D. Erroneous credit rating of collateralized debt obligations by credit rating agencies
Answer: B
Question # 3
Regulatory offices have been established after the privatization of some nationalized industries because
A. some industries retain significant monopoly power B. the number of new producers entering the industry must be controlled C. these privatized industries produce public goods D. government regulations make monopolies in the private sector illegal.
Answer: A
Question # 4
Identify in the following list the statement that does not describe a function of a financial intermediary:
A. Aggregation of funds B. Maturity transformation C. Risk transformation D. Transfer payments
Answer: D
Question # 5
In a system of freely floating exchange rates the central bank and government will
A. Not need to engage in exchange equalization B. Allow market forces to determine the exchange rate within a strictly limited band C. Have less ability to control the money supply than in a fixed exchange rate system D. Have to intervene in foreign exchange markets in order to maintain the system
Answer: A
Question # 6
All of the following are sources of finance for business except which one?
A. Retained profits B. Certificates of deposit C. New share issues D. Mortgages
Answer: B
Question # 7
Financial intermediation is the process by which
A. Net savers and net borrowers are brought together. B. Banks create credit on the basis of their liquid assets. C. The central bank acts as a link between commercial banks and the government. D. Banks provide commercial services for their customers.
Answer: A
Question # 8
Central banks inspect and sometimes set minimum limits on the reserves held by commercial banks. Which ONE of the following statements is NOT a reason that centralbanks seek to influence the reserves of commercial banks?
A. To influence commercial banks' ability to create credit B. To avoid the commercial banks running out of liquidity C. To regulate the profits of commercial banks D. To prevent the collapse of the banking system
Answer: C
Question # 9
Real GDP per capita in an economy is directly affected by(i). The quantity of resources located in the economy(ii). How efficiently the economy uses resources when producing goods and services(iii). The size of the working population(iv). The flow of investment income from abroad
A. (i) and (iv) only B. (i) and (ii) only C. (ii), (iii) and (iv) only D. (i), (ii) and (iii)
Answer: D
Question # 10
The stock market fulfils all of the following functions except which one?
A. A market for government bonds. B. A market for foreign exchange. C. A market for company shares. D. A market for short term loans.
Answer: D
Question # 11
Which of the functions of a financial intermediary is described by the following statement 'converts a flow of short-term deposits into a supply of long term loans'?
A. Aggregation B. Risk management C. Maturity transformation D. Introducing borrows and lenders
Answer: C
Question # 12
Which of the following is NOT achieved by the price mechanism in a market economy?
A. Signaling of consumers' requirements B. Allocation of adequate resources for future investment C. Rationing of scarce resources between potentially unlimited demands D. Setting of rewards to factors of production
Answer: B
Question # 13
All of the following are functions of a central bank except one. Which ONE is the exception?
A. Lender of the last resort B. Banker to the commercial banks C. The conduct of fiscal policy D. Regulation of the banking system
Answer: C
Question # 14
Which of the following might be regarded as benefits of the single currency, the Euro?(i). Greater freedom for member countries to set their own interest rates(ii). It is easier to compare prices of consumer goods in all countries using the Euro(iii). A reduction in transactions costs for trade between countries using the Euro(iv). Increased economic growth resulting from a more efficient common market
A. (i) and (ii) only B. (i), (ii) and (iv) only C. (iii) and (iv) only D. (ii), (iii) and (iv) only
Answer: D
Question # 15
When central banks adopt a policy of 'quantitative easing' this means that they:
A. Lift quantitative restrictions on bank lending B. Lower the capital adequacy requirements for banks C. Buy government bonds from the banks D. Ease the liquidity ratios banks need to hold
Answer: C
Question # 16
Which ONE of the following financial instruments is NOT issued for long term borrowing by the issuer?
A. Treasury bills B. Equities C. Treasury bonds D. Mortgages
Answer: A
Question # 17
Identify which of the following features does not distinguish redeemable debt apart from equity:
A. It has a face value which shows its value at redemption B. It will pay a regular set sum of interest C. It will have a maturity date when it will mature D. It will never be traded on an investment market
Answer: D
Question # 18
Which of the following is not a reason for a firm to issue bonds rather than ordinary shares to raise additional finance?
A. Cheaper borrowing because the interest payments on bonds qualify for tax relief whereas dividend payments do not B. Cash flow advantages because dividends are discretionary but interest payments are not C. To avoid diluting the votes of existing shareholders as a consequence of issuing shares to strangers D. Lower risk because bond holders cannot liquidate a firm for non-payment of interest whereas shareholders can
Answer: D
Question # 19
Which ONE of the following would tend to make the demand for a product price inelastic?
A. Expenditure on the product accounts for a large part of total household spending B. There are many close substitutes for the product C. The product is regarded as a luxury D. The price changed a short while ago
Answer: D
Question # 20
All of the following statements about a firms total revenue curve are true except which ONE?
A. Because the price of a product falls as more is supplied to the market the curve is not a straight line B. Price elasticity of demand for the product = 1 at the highest point of the curve C. If price of the product rose the curve would pivot upwards D. The curve would be a horizontal straight line if demand for the product were perfectly price elastic
Answer: D
Question # 21
Which of the following are external stakeholders for an organization?i. Shareholdersii. Customersiii. Governmentiv. Trade Unionsv. Pressure groupsvi. Employees
A. (i), (ii) and (iii) only B. (ii), (iii) and (iv) only C. (iii), (iv) and (v) only D. (i), (v) and (vi) only
Answer: C
Question # 22
Which ONE of the following would tend to make the demand for a product price inelastic?
A. Expenditure on the product accounts for a large part of total household spending B. There are many close substitutes for the product C. The product is regarded as a luxury D. The price changed a short while ago
Answer: D
Question # 23
Which ONE of the following circumstances is essential if producer incomes are to rise following the imposition of a price floor (minimum price) in a market?
A. Market supply is price inelastic B. Market demand is price inelastic C. Market supply is price elastic D. Market demand is price elastic
Answer: B
Question # 24
Firms may suffer from X-inefficiency because of organizational slack. All of the following would lead to organizational slack except which one?
A. Uncertainty about future demand B. Managers become more cautious C. A complex organizational structure in the firm D. The number of rival firms increases
Answer: D
Question # 25
Which of the following statements most accurately describes the role of an agent as defined in principal-agent theory?
A. An employee of the organization B. An owner of the organization C. One who is paid by the owners of the organization D. One who is responsible for ensuring the organization pursues the interests of its owners
Answer: D
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