Mock question learnings

Question 1

What of introducing singe currency in an economic union for its member states?

Answer 1

Member states lose the ability to implement monetary policy.

The introduction of a single currency would mean that a new central bank responsible for the monetary policy affecting all members would be established, meaning there would be no way for individual members of the currency union to implement

Question 2

What can member states of a single currency economic union still do?

Answer 2

The governments of members could still implementsfiscal policy in the form of budgets

Single currencies eliminate transaction costs incurred through transactions between member states

Question 3

Gross National Product definition

Answer 3

the Gross Domestic Product (GDP) + the net income received by residents from overseas investments

GNP is a measure of national income

Question 4

What is Unsystematic risk?

Answer 4

Unsystematic risks are ones which affect particular companies due to factors that are specific to them.

e.g. A strongly unionised workforce - can be a risk for the company as they may demand for higher pay

Location of where the company is - if it is based in a deprived area it suggest that it will be difficult for the company to find a skilled workforce

Question 5

In terms of the trade cycle - what some some features of the economy when its in middle of a boom phase?

Answer 5

Low unemployment and a budget surplus (tax revenues increased due to the high employment rate).

Question 6

What are characteristics of a depression phase?

Answer 6

unemployment is extremely high and prices begin to fall due to very low demand

Question 7

What are characteristics of a recession phase?

Answer 7

high unemployment 
Lower Taxes (to encourage spending)
Lower interest rates (to encourage spending)
A move in the balance of payments current account towards a surplus - due to a lower demand for imports during a recession

Question 8

What are characteristics of a Recovery phase?

Answer 8

• unemployment begins to lower again following recession or depression.
• demand and consumer confidence gradually increases
• Increase employment rate will cause an increase in productivity int he economy
• prices will remain constant until beginning to rise gradually, caused by increasing demand

Question 9

What is the impact on investments in businesses if the rate of income tax is increased?

Answer 9

A decrease in investments in businesses - An increase in income tax would impact higher earners.
As Higher earners are more likely to invest in business/property, this would likely drop if a higher income tax is applied to their earning bracket.

Question 10

Why would someone choose to save vs. invest when they usually would invest each month?

Answer 10

• Interest rates on savings account have increased

- they cannot afford to lose the money that month

Question 11

Country X has left an economic union and has failed to negotiate new tariffs for imports/exports with the union.

Which organisation would be responsible for setting tariffs for country X in terms of its trade with the economic union?

Answer 11

The World Trade Organisation

-The WTO sets guidelines for tariffs applied to trade between countries, unless tariffs are agreed between members of an economic union or another international organisation.

Question 12

What does the G20 do?

Answer 12

20 largest economies

discuss matters of FINANCES and the GLOBAL ECONOMY

Question 13

What does the G8 do?

Answer 13

smaller org than G20
focuses on ECONOMIC issues + issues of ENVIRONMENT
the HEALTH and LAW enforcement

Question 14

What are characteristics of GOOD INFORMATION?

Answer 14

Targeted - info that is delivered to the right person at the right time
Relevant
Accurate
Clear
Cost-efficient

Question 15

Felton Inc. need to pay a supplier based in italy approx 4,000EUR in 6 months time

Why would arranging a forward exchange contract be more suitable vs. a futures contract?

Answer 15

Arranging a futures contract would likely me (more) expensive to take out

Question 16

What does the cash ratio of a bank determine?

Answer 16

is the ratio of cash/liquid assets to the deposits held by the bank (customer deposits are liabilities to the bank).

Eg. if a bank is operating a cash ratio of 24.8%, and a company deposited £13,500 - the bank would need to retain 24.8% of the deposit, but they may lend out the reamainder

Question 17

Which of the following would explain why Country T has a deficit on the current account of its balance of payments?

Answer 17

*A deficit on the current account of balance of payments = imports > exports

1. Rapid economic growth in the country’s trading partners.
2. An undervalued exchange rate for the country’s currency.
3. Low aggregate demand in the economy.
4. Low price competitiveness of industry in the economy.

ANSWER: 4. Poor/low price competitiveness of industry would depress exports and raise imports.

Question 18

What is the PESTEL Framework designed to do?

Answer 18

‘Identify and assess the external influences that operate on a business in a particular economy or market.’ is the standard definition of the PESTEL framework.

Question 19

How does positive info about impacts its share price?

Answer 19

-it has a positive effect/increase share price.

Explanation: Share price is linked to the net present value of expected future cashflows. Based on positive info such as market expansion, share price should increase.

Question 20

Which of the following schemes is least likely to mitigate the principal-agent problem between managers and shareholders?

Answer 20

1. Introduction of a share option scheme for managers.
2. Introduction of a bonus scheme for managers tied to the sales performance of the company.
3. Introduction of a bonus scheme for managers tied to the profit performance of the company.
4. Introduction of a flat compensation scheme for managers.

Answer: 4 - the flat compensation scheme does not tie the manager’s remuneration to the company’s profits (directly or indirectly)

Question 21

Which of the following is an argument in favour of privatisation?

Answer 21

1. It secures economies of scale.
2. It guarantees fewer services and lower prices.
3. It improves efficiency.
4. It achieves a more equal distribution of wealth.

Answer: 3 - Improved efficiency is one of the arguments for privatisation.

Question 22

Which THREE of the following statements fulfill the characteristics of good information?

1. Reports should always be accurate to the nearest cent.
2. Technical language and jargon should be used freely in a report.
3. Information should be complete but not excessive in amount.
4. Information within a report should be relevant.
5. The value of information within a report should be lower than the cost of producing it.
6. Information within a report needs to be delivered to the appropriate person in time for them to make a decision.

Answer 22

ANSWER:

3. Information should be complete but not excessive in amount.
4. Information within a report should be relevant.
5. Information within a report needs to be delivered to the appropriate person in time for them to make a decision.

Question 23

Which TWO of the following are applications of big data?

1. A marketing company combining tracked day to day movements of 30,000 individuals with billboard locations to provide fairer advertising pricing.
2. A supermarket summarising till receipts using a standard accounting software package in order to produce management information.
3. An airline providing a mobile application which has allowed one million customers to track luggage over a year.
4. A spreadsheet analysis of the average cost of production of one type of chocolate bar over one day in a confectionery factory.
5. A list of all the purchase invoices received by a company over a month.

Answer 23

Answer: 1. A marketing company combining tracked day to day movements of 30,000 individuals with billboard locations to provide fairer advertising pricing.

3.An airline providing a mobile application which has allowed one million customers to track luggage over a year.

In each case, large amounts of data from different sources is combined and analysed and used for a distinct purpose. For example, the information regarding luggage movements is being combined for all flights and then being analysed to allow customers to track their luggage.

Question 24

Definition of Big data

Answer 24

Big data is data that is too large to analyse and interpret using standard reporting tools

Question 25

Which of the following would NOT promote the process of globalisation?

1. Lower barriers to the international movement of factors of production.
2. Reductions in the tariff levels imposed by governments.
3. Reduced price differentials between countries.
4. Lower international freight costs for businesses.

Answer 25

ANSWER:

3.Reduced price differentials between countries.

The answer is a reduction in international price differentials, which is a consequence of the process, not a factor promoting it.

Question 26

A fall in interest rates in the economy would lead to which TWO of the following?

1. A rise in share prices on stock markets.
2. A rise in government expenditure.
3. A rise in demand for expensive consumer durable goods.
4. A higher level of personal savings.
5. A fall in business confidence.

Answer 26

1. A rise in share prices on stock markets.
2. A rise in demand for expensive consumer durable goods.

The answers are ‘relationship between asset prices and interest rates’ and ‘rise in credit based sales’.

Question 27

A dealer produces a research report, which includes the following:

Spot Rate Expected Spot Rate in Six Months
€1 = $1.0872 €1 = $1.1047

Based on the information provided, the Euro is expected to:

1. appreciate by 1.61% against the U.S. dollar over the next six months.
2. depreciate by 1.58% against the U.S. dollar over the next six months.
3. appreciate by 1.58% against the U.S. dollar over the next six months.
4. depreciate by 1.61% against the U.S. dollar over the next six months.

Answer 27

Appreciate by 1.61% against the U.S. dollar over the next six months.

Explanation

The euro is appreciating (in six months, it will cost more USD to buy one EUR). Mathematically (1.1047 - 1.0872) / 1.0872 – 1 = 1.61%

Question 28

with payment expected in 30 days.

Country Q’s currency is the Qui (Q) and Country D’s is the Dollar ($). The Q:$ exchange rate at the date of the contract was Q1:$1.09.

If the exchange rate at the date of payment was Q1:$1.07, which of the following is correct?

1. There would be an exchange loss of Q20,000.
2. There would be an exchange loss of Q17,148.
3. There would be an exchange gain of Q17,148.
4. There would be an exchange gain of Q20,000.

Answer 28

1. There would be an exchange loss of Q20,000 (for company B)
2. There would be an exchange gain of Q17,148. (for company A)

Question 29

Identify which of the following are sources of short-term finance and which are sources of long-term finance.

Overdraft, Preference shares, Commercial paper, Mortgage, Bills of exchange, Mezzanine finance

Answer 29

Overdrafts; commercial paper and bills of exchange are short term finance methods as they have maturities under 1 year, remaining items have maturities over 1 year and therefore should be included in long term finance.

Question 30

The ability of a commercial bank to create credit depends on which TWO of the following?

1. The size of the bank’s deposits in its account at the central bank.
2. The ratio between the bank’s assets and its liabilities.
3. The required ratio of liquid assets to total assets.
4. The amount of cash and liquid assets held by the bank.
5. The willingness of the central bank to sell bonds to the bank.

Answer 30

3. The required ratio of liquid assets to total assets.
4. The amount of cash and liquid assets held by the bank.

The question is testing understanding of the credit creation process. Credit creation depends on the ratio between cash/liquid assets and total deposits and the size of the credit multiplier.

Question 31

Cash ratio

Answer 31

The ratio of cash or liquid assets to the deposits held by the bank. Maybe set down as part of the regulatory system for the banks n any particular country.

Question 32

What is the formula for calculating the maximum amount of money that could be created from an initial deposit?

Answer 32

Change in total deposits = 1/Cash ratio x initial cash deposit

*The increase in the amount if cash shows the credit multiplier effect

Question 33

What 2 factors determine the credit multiplier effect?

Answer 33

• The value of the deposits into the bank

- The cash ratio to be held

Question 34

How do you calculate the coupon rate of a bond?

Answer 34

Coupon rate = yield without inflation / Nominal bond value

Question 35

How does VAT differ from a sales tax?

Answer 35

VAT is added at every stage of the production process of a particular good