Module 3: Finance & Accounting (Practice Test Questions)

Question 1

Who is the head of the IMF?

Answer 1

Christine Lagarde

Question 2

Who is the Secretary of the US Treasury?

Answer 2

Steven Mnuchin

Question 3

What is a business cycle?

Answer 3

the pattern of short-term ups and downs in an economy

Question 4

Bennequin Accounting has been hired by XYZ Manufacturing to help plan its merger with ABC Distribution. Which of the following terms BEST describes the capacity for which Bennequin has been hired?

A) regulatory accounting
B) corporate bookkeeping
C)company auditing
D) fraud investigation
E) management advisory

Answer 4

E) management advisory

Question 5

What is the return on equity if…

Average stockholders' equity = $10,000 
Net income = $ 3,000
Average total assets = $25,000 
Net sales = $30,000 
Current assets = $10,000 
Total liabilities = $15,000 
Current liabilities = $5,000

Answer 5

RoE = net income/equity = 3000/10000 = 30%,

Question 6

What is the financial leverage if…

Average stockholders' equity = $10,000 
Net income = $ 3,000
Average total assets = $25,000 
Net sales = $30,000 
Current assets = $10,000 
Total liabilities = $15,000 
Current liabilities = $5,000

Answer 6

Financial Leverage Ratio = Average Total Assets/Average Stockholders’ Equity = 25,000/10,000 = 2.5

Question 7

Which of the following statements BEST describes why U.S. Treasury securities are considered to be risk-free investments?

A) They are backed by the U.S. government.
B) They have a guaranteed rate of return.
C) They are easily sold.
D) They are readily available for purchase.

Answer 7

A) The other reasons here are all true, but only because of the backing of the U.S. government.

Question 8

When thinking about exchange rates, an expensive dollar relative to the Japanese Yen is best for

a) European tourists visiting the USA
b) US exporters selling into Japan
c) Japanese companies seeking to sell imports into the USA
d) Japanese tourists visiting Europe

Answer 8

C) because a given number of dollars buys more in yen

Question 9

Which of the following reasons is the primary motivator for a commercial bank to acquire new depositors?

A) A new deposit account will make more funds available to pay the interest on other deposit accounts.
B) A new deposit account will make more funds available to pay the bank’s employees.
C) A new deposit account will make more funds available to give out in loans.
D) A new deposit account will make more funds available to give out in dividends to its investors.
E) A new deposit account will make more funds available to facilitate brokerage transactions.

Answer 9

C) A commercial bank makes its profits from investments and loans derived from its depositors’ cash.

Question 10

Which of the following statements BEST describes why an increase in the discount rate often results in a decrease in the money supply?

A) An increase in the discount rate will lower the overall values of loans from the Federal Reserve Banks to individual banks.
B) An increase in the discount rate will lower the overall values of loans from individual banks to other financial institutions.
C) An increase in the discount rate will lower the overall number of banks issuing loans to individuals.
D) An increase in the discount rate will lower the overall number of loans from the Federal Reserve Banks to individual banks.
E) An increase in the discount rate will lower the overall number of loans from the Federal Reserve Banks to individuals.

Answer 10

A) An increase in the discount rate increases the amount of money each local bank
will pay to the Federal Reserve bank to borrow money, so they will borrow less thus tightening money supply.This in turn drives lower lending from banks to other institutions (B) and individuals (C). Since money supply is measured in dollars it is the value of the loans which is more relevant than the number (D) of loans. E is incorrect as the Fed does not lend to individuals.

Question 11

What is the federal government agency that regulates U.S. securities markets?

Answer 11

Securities and Exchange Commission

Question 12

A person invests $100 for 2years at the prevailing interest rate of 10%. The future value of the investment is closest to….

Answer 12

100 x 1.1 = 110; 110 x 1.1 = $121

Question 13

Which of the following statements is true about treasury bonds as investments?

A) Bonds are among the riskiest of all investments.
B) Bonds are suitable for investors who seek security.
C) Bonds will never become worth less than their purchase price.
D) Treasury bonds are sensitive to individual company performance.

Answer 13

B) Bonds are quite secure but can fall in value (negating C) if interest rates rise

Question 14

The following are all uses of cash in the Capsim finance screen except

a) Paying Dividends
b) Retiring Debt
c) Retiring Stock
d) Issuing Stock

Answer 14

D) Issuing Stock

Question 15

Alonzo is an experienced CPA who has been hired for a professional position at PWC to advise corporations on mergers. Which of the following terms BEST describes Jose’s capacity as an accountant?
A) noncertified public accountant
B) private accountant
C) forensic accountant
D) accountant providing management advisory services
E) management accountant

Answer 15

D) accountant providing management advisory services

Question 16

As common practice, a prospective equity investor in a firm receives information from…

Answer 16

the firm’s financial accounting system. The financial accounting system is concerned with external users.

Question 17

Suppose General Motors owns an automobile plant in Brazil. How much of the total value of goods and services produced by the plant will be included in US GNP?

Answer 17

The profits earned by the plant. Inclusion in GNP depends on ownership of the factors -the US ownership of GM leads to the product of the capital factor (profit) to be included.

Why not all of the value of goods and services? Because Brazilian resources are used too.

Question 18

Fitley Inc recorded net income of $5000 in 2014. However, stockholders equity increased by only $2000. If there were no new investments in the equity, what must be true about dividends?

Answer 18

$3000 dividends were repaid. $2000 of the income was retained, which means that $3000 must have been paid as dividends.

Question 19

The focus company Tesla, when considered within the framework of the DuPont Formula, is characterized by…

Answer 19

???

Question 20

The FDIC insures bank deposits up to $250,000 per depositor, per insured bank. Lady Margaret Hattis a wealthy individual who has $250,000 in a checking account at Wells Fargo and $500,000 in a checking account at Chase Bank. She also has a savings account at Chase Bank with $200,000 in it. What total dollar amount is insured by the FDIC?

Answer 20

$500,000

Chase Bank was mentioned twice - she had $700,000 in one bank, but only the first $250,000 is insured.

Question 21

In 2002 the rate of exchange for one euro was $0.87 and in 2011 it was $1.45. Which group of people would have most benefited from this change in exchange rates?

a) French vacationers visiting the US
b) French innkeepers
c) US vacationers visiting France
d) French exporters selling goods into the US

Answer 21

a) French vacationers visiting the US

The Euro became much more valuable so French holiday-makers could convert their holiday money into more dollars to pay for hotels, attractions and meals in dollars. US vacationers in France suffered the reverse effect. French exporters’ product becomes much more expensive for people spending dollars. The effect on French innkeepers is less marked, but they have more difficulty attracting US and other non-Eurozone tourists, so they are somewhat disadvantaged.

Question 22

Which of the following is NOT part of the M-1 money supply?
A) money market funds
B) currency amount of written checks
C) currency at hand 
D) currency in checking accounts
E) currency value of demand deposits

Answer 22

A) money market funds

M-1 includes cash, checks and demand deposits. Checking accounts are a type of demand deposit. Money market funds are customarily available overnight.

Question 23

Because businesses engage in thousands of transactions, ensuring consistent dependable financial information is mandatory. This is the job of the…

Answer 23

accounting information system (AIS)

Not just people! (like auditors)

Question 24

As common practice, a sales representative for a firm receives information from the firm’s…

Answer 24

managerial accounting system.

Question 25

Assume that an 8% reserve requirement has been imposed on banks. A client of Wells Fargo gets a $100 bill from her wallet. She deposits the $100 in a checking account. What is the effect on the M-1 money supply of her depositing the $100?

Answer 25

There is no change in the M-1 Money supply. At this point, cash in the hands of members of society has been decreased by $100 but the checking account balance has been increased. Since both are part of M-1, there is no net effect. The money supply can increase when the bank lends out the money.

Question 26

M-2 incorporates everything in…

Answer 26

M-1.

Question 27

Who is President of the European Central Bank?

Answer 27

Mario Draghi

Question 28

What is the formula for measuring a firm’s working capital?

Answer 28

working capital = current assets - current liabilities

Subtracting current liabilities from current assets lets you know how much money a firm has to work with.

Question 29

Which of the following is considered by many to be the BEST single indicator of the U.S. equities market?

Answer 29

Standard & Poor’s 500

Question 30

Earnings Per Share Formula

Answer 30

Net Income / Number of Shares Outstanding

Question 31

GDP depends on the ___ ___ of the production.

Answer 31

physical location

Question 32

Which are the two major fields of accounting?

Answer 32

financial and managerial

Question 33

Profit Margin Equation

Answer 33

Net Income / Sales

Question 34

What is an example of a non-deposit institution?

Answer 34

Pension Fund

Not commercial banks, mutual savings banks or credit unions

Question 35

Revenue Growth Equation

Answer 35

(Rev(t) / Rev(t-1))-1