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FM (Test) > A Rote > Flashcards

A Rote Flashcards

1
Q

What does minimising the company’s cost of capital maximise?

A

Present value of future operating cash flows, thereby maximising value of the company

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2
Q

What if shareholders delegate running businesss to managers

A

Managers take decisions counter-productive ot wealth maximisation

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3
Q

What are agency costs?

A

Loss in potential shareholder return due to shareholders delegating to management

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4
Q

What is the best indicator of shareholder wealth?

A

Market price of the share

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5
Q

What effect does company’s operating cycle becoming longer affect shareholder wealth?

A

Decreases it

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6
Q

Does currency translation risk need to be hedged?

A

No

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7
Q

Is market share a financial or non-financial objective?

A

Non-financial

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8
Q

Are the shareholders the agents of debt-holders?

A

Yes, as debt-holders entrust their money to shareholders through company management

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9
Q

What is the main objective of financial management?

A

Efficient acquisition and deployment of financial resources to ensure achievement of objectives

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10
Q

Which two would be associated with financial objective of shareholder wealth maximisation?

A

Share price AND dividend payment

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11
Q

Which of the 3Es does total medical staff salary cost measure?

A

Economy

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12
Q

Which of the 3Es does cost per journey to hospital measure?

A

Efficiency

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13
Q

What does corporate governance aim to do?

A

Aim to manage risk to desired and controlled levels, not to minimise it

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14
Q

Is maximising market share a financial objective?

A

NO

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15
Q

What is the primary objective for a company listed on a stock exchange?

A

Shareholder wealth maximisation

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16
Q

What should financial objectives be?

A

Quantitative so their achievement can be measured

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17
Q

How is return on equity calculated?

A

(Profit before interest and tax) / shareholders’ funds

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18
Q

When gearing has decreased, will shareholders be concerned?

A

No, as interest cover is more than sufficient

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19
Q

What is meant by satisficing?

A

Company managers doing just enough to satisfy the shareholders (not an objective of maximising shareholder wealth)

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20
Q

Why is financing a company via equity alone not consistent with maximising shareholder wealth?

A

Deprives shareholders of the benefits of debt finance, which is cheaper than equity

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21
Q

Why are costs of obtaining a listing on the stock exchange not considered to be agency costs?

A

It is not dependent on the relationship between shareholders and managers

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22
Q

What are restrictive covenants in loan notes used for?

A

To reduce the agency problem between shareholders and the providers of debt finance

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23
Q

What is meant by achieving Value for Money

A

Effectiveness
Economy
Efficiency

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24
Q

Which Islamic financial instrument involves a bank voluntarily paying its customers a gift on savings account balances?

A

Hibah

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25
Q

What is the purpose of supply-side government policy?

A

Improve the ability of the economy to produce goods and services

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26
Q

What happens if consumers increase the proportion of income that they save?

A

They will demand less goods and services

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27
Q

What are crawling pegs used for?

A

To provide stability

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28
Q

What if share prices reflect all information currently available?

A

Share prices cannot be predicted and gains through insider dealing are not possible

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29
Q

Are rules against insider dealing less important in a strong-form efficient market?

A

Yes, as insider dealing is not possible as market already knows everything

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30
Q

What is a firm’s primary financial objective?

A

To maximise the wealth of its ordinary shareholders

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31
Q

Is maximisation of market share a financial or non-financial objective?

A

Non-financial

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32
Q

Is earnings growth a financial or non-financial objective?

A

Financial

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33
Q

Are sales revenue growth a financial or non-financial objective?

A

Financial

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34
Q

Is achieving a target level of customer satisfaction a financial or non-financial objective?

A

Non-financial

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35
Q

Is achieving a target level of ROCE of financial or non-financial objective?

A

Financial

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36
Q

Dealing honestly and fairly with customers on all occasions (financial or non-financial)

A

Non-financial

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37
Q

Provision of good working conditions and industrial relations (financial or non-financial)

A

Non-financial

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38
Q

Earning above a particular level of return on capital employed (financial or non-financial)

A

Financial

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39
Q

Producing environmentally friendly products (financial or non-financial)

A

Non-financial

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40
Q

Restricting the level of gearing to below a specified target level (financial or non-financial)

A

Financial

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41
Q

Economy in value for money example?

A

Keeping costs down without sacrificing quality

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42
Q

Efficiency in value for money example?

A

About effective resource utilisation (such as decreasing waste levels)

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43
Q

Effectiveness in value for money example?

A

Overall objectives of the organisation being achieved

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44
Q

Why produces variance reports comparing actual to budget?

A

Management accountant, not the financial manager

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45
Q

Is financial management is concerned with the long-term raisingof finance and the allocation and control of resource true or false?

A

True

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46
Q

Is management accounting concerned with providing information for the more day-to-day functions of control and decision-making true or false?

A

True

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47
Q

Is financial accounting is concerned with providing information about the historical results of past plans and decisions true or false?

A

True

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48
Q

Who carries out evaluating proposed expansion plans?

A

Financial management team

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49
Q

Who carries out review of overtime spending and apportioning overheads to cost units?

A

Management accounting team

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50
Q

Who carries out depreciation of non-current assets?

A

Financial accounting team

51
Q

What is the purpose of corproate governance?

A

To facilitate effective management of organisations and to make organisations morevisibly accountable to a wider range of stakeholders

52
Q

What does the separation of ownership and control cause an agency problem for who?

A

Managers

53
Q

Is maximising market share a financial objective?

A

NO

54
Q

FInancial objectives should be quantitiative so that their achievement can be measured?

A

YES

55
Q

Examples of efficiency targets that a not for profit organisation might put in place?

A

Reduction of wastage of paper

Staff utilisation

56
Q

What should managerial reward schemes be?

A

Clearly defined and impossible to manipulate

57
Q

Should managerial reward schemes be focused on long-term and short-term aims of shareholders?

A

YES

58
Q

When directors exercise their options, they tend to sell the shares almost immediately to cash in on their profit. Is this typical criticism of executive share option schemes?

A

Yes

59
Q

If the share price falls when options have been awarded, andthe options have no value, they cannot act as an incentive. Is this typical criticism of executive share option schemes?

A

Yes

60
Q

Directors may distort reported profits to protect the shareprice and the value of their share option. Is this typical criticism of executive share option schemes?

A

Yes

61
Q

Which are the only type of directors permitted to sit on a company’s audit committee?

A

Independent non-executive directors

62
Q

Who produces annual accounts?

A

Financial accountants

63
Q

Who produces monthly management accounts?

A

Management accountants

64
Q

Who advises on investment in non-current assets?

A

Financial manager

65
Q

Who decides pay rates for staff?

A

Line managers and HR

66
Q

What does a cum dividend mean?

A

Buyer of the share is entitled toreceive the dividend shortly to be paid

67
Q

What does dividend payout ratio compare?

A

The dividend to the profit before the dividend

68
Q

What is the main issue with the agency problem?

A

Shareholder wealth is not being maximised

69
Q

Is share price associated with the financial objective of shareholder wealth maximisation?

A

Yes

70
Q

Is dividend payment associated with the financial objective of shareholder wealth maximisation?

A

Yes

71
Q

Is reported profit associated with the financial objective of shareholder wealth maximisation?

A

No

72
Q

Is earnings per share associated with the financial objective of shareholder wealth maximisation?

A

No

73
Q

Is weighted average cost of capital associated with the financial objective of shareholder wealth maximisation?

A

No

74
Q

What does reducing WACC create?

A

Would increase businessvalue and therefore shareholder wealth

75
Q

What part of 3Es is cost per journey to hospital?

A

Efficiency

76
Q

What part of 3Es is percentage of members who re-use the service?

A

Effectiveness

77
Q

What part of 3Es is a comparison of actual operating expenses against the budget?

A

Economy

78
Q

What part of 3Es is number of communities served?

A

Effectiveness

79
Q

Number of patients admitted per year measures what in the 3Es?

A

Effectiveness

80
Q

Total medical staff salary cost measures what in the 3Es?

A

Economy

81
Q

Cost per successfully treated patient measures what in the 3Es?

A

Efficiency

82
Q

Average waiting time for patient admission to hospital measures what in the 3Es?

A

Effectiveness

83
Q

Does a stock market listing involve a loss of control?

A

Yes, to a wider circle of investors

84
Q

What is the principal objectives of macroeconomic policy typically be?

A

Achieve balanceof payments (imports versus exports) equilibrium

85
Q

Benefit for local operating units over head office?

A

Have a better feel for lcoal conditions and can respond more quickly to local developments

86
Q

When does a funding gap often arise for SMEs?

A

When SMEs want to expand beyond their available funds but arenot yet ready for a listing on the stock market

87
Q

Is commercial paper for money market or stock market?

A

Money market

88
Q

Are convertible loan notes for money market or stock market?

A

Stock markets

89
Q

Are treasury bills for money market or stock market?

A

Money market

90
Q

Are certificates of deposit for money market or stock market?

A

Money market

91
Q

What leads to increased aggregate demand (taxation)

A

Decreasing taxation and increasing government expenditure would lead to increased aggregate demand

92
Q

Can reducing interest rates increase aggregate demand?

A

Yes, as this reduces the incentive to save

93
Q

Which activities are carried out by a financial intermediary?

A

Transforming maturity and risk

94
Q

Why may a government want to weaken its country’s exchange rate?

A

To eliminate a balance of payments deficit

95
Q

What can a weak currency cause for imports and exports for foreign buyers?

A

Makes imports expensive and exports appear cheaper to foreign buyers

96
Q

Why does high inflation weaken a home currency?

A

Makes local product more expensive and less attractive to foreign buyers

97
Q

Is management of interest rates part of monetary or fiscal policy?

A

Monetary policy

98
Q

How are discounted instruments originally sold for?

A

A price below their face value and do not payinterest

99
Q

Do discounted instruments pay coupon instrument?

A

No

100
Q

Is commercial paper unsecured or secured?

A

Unsecured

101
Q

Are treasury bills a discounted instrument?

A

Yes

102
Q

Are commercial bills a discounted instrument?

A

Yes

103
Q

Are commercial papers a discounted instrument?

A

Yes

104
Q

Are bankers acceptances a discounted instrument?

A

Yes

105
Q

What does the difference between issue price and redemption price imply?

A

An implicit interest rate

106
Q

What does disintermediation allow for investors?

A

To conduct transactions directly but at increasedrisk when compared to the use of intermediaries

107
Q

When does the value of STOs come from?

A

Being tied to assets with a real monetary value

108
Q

Where are STO transactions recorded?

A

On a blockchain ledger

109
Q

Is ensuring minimum amounts of price increases a macroeconomic policy?

A

Yes

110
Q

Is increasing national income and living standards a macroeconomic policy?

A

Yes

111
Q

Is ensuring a balanced ratio of imports to exports a macroeconomic policy?

A

Yes

112
Q

Is maintaining interest rates at minimum levels a macroeconomic policy?

A

No

113
Q

Is balancing government spending with tax receipts a macroeconomic policy?

A

No

114
Q

Is ensuring a stable and fully employed labour force a macroeconomic policy?

A

Yes

115
Q

Amby Co needs to convert foreign currency into domestic currency (foreign exchange market OR euro currency market)

A

Foreign exchange market

116
Q

Which market are new shares sold and loan notes issued?

A

On the primary capital market

117
Q

Which market are OTC derivatives purchased?

A

On primary market

118
Q

Which market are long-term loan notes sold?

A

Capital marketmar

119
Q

Duration for the money markets?

A

Less than a year

120
Q

Issue with using accounting profit?

A

It is affected by accounting policy choices

121
Q

How is return of equity calculated?

A

Net profit margin * net asset turnover

122
Q

How is dividend yield calculated?

A

Dividend per share / ex-dividend share price

123
Q

How is return on equity calculated?

A

PBIT / shareholders’ funds

FM (Test) (8 decks)

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