Business Finance and Fiscal Policy Quiz
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Questions and Answers

What is the primary role of financial management function in a business?

  • To make decisions relating to marketing
  • To make decisions relating to operations
  • To make decisions relating to finance (correct)
  • To make decisions relating to human resources

    • What is the likely effect on demand in an economy if a government increases its spending by borrowing more?

  • Demand will remain unchanged
  • Demand will fluctuate
  • Demand will increase (correct)
  • Demand will decrease

    • What is the impact on a company's cash operating profit cycle if it offers an early settlement discount?

  • It will increase the cash operating profit cycle
  • It will fluctuate
  • It will remain unchanged
  • It will reduce the cash operating profit cycle (correct)

    • Why is working capital management important for a business?

    <p>It ensures smooth day-to-day operations</p> Signup and view all the answers

    What is overtrading?

    <p>When a business grows too rapidly</p> Signup and view all the answers

    What is the likely impact on reported profits if a company offers an early settlement discount?

    <p>Reported profits will increase</p> Signup and view all the answers

    What is overtrading?

    <p>Suffering liquidity issues as a result of growing too quickly</p> Signup and view all the answers

    What is the main difference between accounting profit and economic profit?

    <p>Accounting profit can be manipulated by managers</p> Signup and view all the answers

    What happens to a shareholder when a company goes bankrupt?

    <p>They will not be called on to pay anything</p> Signup and view all the answers

    What happens to Chinese exporters to the US if the US dollar weakens against the Chinese RMB?

    <p>They will benefit and Chinese importers to the US will suffer</p> Signup and view all the answers

    What is the effect of an increase in the cash operating cycle on profitability?

    <p>It will decrease profitability</p> Signup and view all the answers

    Who determines the market price of a share of common stock?

    <p>Investors buying and selling the stock</p> Signup and view all the answers

    Which of the following is a characteristic of money markets?

    <p>Operated by banks and other financial institutions</p> Signup and view all the answers

    Which of the following actions would most likely lengthen the working capital cycle?

    <p>Delaying payments made to suppliers</p> Signup and view all the answers

    Which of the following would be the LEAST likely to increase shareholder wealth?

    <p>The annual report declares full compliance with the corporate governance code</p> Signup and view all the answers

    What would be the likely effect on businesses if the National Bank of Cambodia follows an expansionary monetary policy?

    <p>Higher demand from customers, lower interest rates on loans and increased availability of credit</p> Signup and view all the answers

    Which of the following statements about monetary policy is correct?

    <p>Monetary policy seeks to influence aggregate demand by increasing or decreasing the money supply</p> Signup and view all the answers

    What type of security is Sihanoukville Autonomous Port (PAS) likely to issue if it borrows money from investors with 180 days to maturity?

    <p>Commercial paper</p> Signup and view all the answers

    What is the main objective of a corporate governance best practice framework?

    <p>To minimize risk and maximize shareholder wealth</p> Signup and view all the answers

    What is the correct formula to calculate return on equity?

    <p>Profit before interest and tax divided by shareholder's fund</p> Signup and view all the answers

    What is the correct definition of net working capital?

    <p>Current assets minus current liabilities</p> Signup and view all the answers

    Which of the following would result in an increase in the money supply in Cambodia?

    <p>Increase in government expenditure and reduction in tax collection</p> Signup and view all the answers

    What is the correct ranking of investment options from highest risk to lowest risk from the investor's perspective?

    <p>Ordinary share, preference share, corporate bond, Treasury bill</p> Signup and view all the answers

    Why is profit after interest and tax used for shareholder ratio calculations?

    <p>Because it is the profit available for distribution to shareholders</p> Signup and view all the answers

    Which of the following statements is NOT a correct objective of working capital management?

    <p>Maximizing shareholder value</p> Signup and view all the answers

    Which of the following actions would be most likely to increase a company's refinancing risk?

    <p>Switching from long-term fixed rate finance to short-term variable rate finance</p> Signup and view all the answers

    Which of the following stakeholders would be most affected if a company's financial position weakens?

    <p>Managers and employees</p> Signup and view all the answers

    Which of the following is a characteristic of corporate governance?

    <p>Seeks to maximize shareholder value</p> Signup and view all the answers

    Which of the following is a limitation of the payback period method of investment appraisal?

    <p>It ignores the time value of money</p> Signup and view all the answers

    Which of the following is a fiscal policy action?

    <p>Reducing taxation while maintaining public spending</p> Signup and view all the answers

    What is the primary purpose of calculating the return on capital employed (ROCE)?

    <p>To evaluate the company's profitability from shareholders' perspective</p> Signup and view all the answers

    Which of the following statements is true about the weighted average cost of capital (WACC)?

    <p>It is the minimum return required by investors</p> Signup and view all the answers

    What is the effect of an increase in the market interest rate on a company's cost of debt?

    <p>It increases the cost of debt</p> Signup and view all the answers

    Which of the following is a limitation of the capital asset pricing model (CAPM)?

    <p>It assumes that beta is a perfect measure of risk</p> Signup and view all the answers

    What is the purpose of calculating the dividend yield?

    <p>To determine the return on investment from holding the company's shares</p> Signup and view all the answers

    Which of the following statements is true about the earnings per share (EPS)?

    <p>It is a measure of a company's profitability</p> Signup and view all the answers

    What is the effect of an increase in a company's debt on its weighted average cost of capital (WACC)?

    <p>It decreases the WACC</p> Signup and view all the answers

    Which of the following is a characteristic of the cost of equity?

    <p>It is a variable cost</p> Signup and view all the answers

    What is the purpose of calculating the price-to-earnings (P/E) ratio?

    <p>To assess the company's profitability from shareholders' perspective</p> Signup and view all the answers

    Which of the following statements is true about the beta coefficient?

    <p>It is a measure of a company's systematic risk</p> Signup and view all the answers

    Study Notes

    Financial Management

    • Financial management involves making decisions related to finance, such as financial planning, investment, and funding.

    Fiscal Policy

    • Fiscal policy is used to influence the economy and economic growth by increasing or decreasing government spending and taxation.
    • Expansionary fiscal policy involves increasing government spending and/or reducing taxes to stimulate the economy.
    • Contractionary fiscal policy involves reducing government spending and/or increasing taxes to slow down the economy.

    Working Capital Management

    • Working capital management involves managing the company's current assets and liabilities to ensure liquidity and profitability.
    • The twin objectives of working capital management are profitability and liquidity.
    • Overtrading occurs when a company grows too quickly and suffers from liquidity issues.
    • Undercapitalization, also known as overtrading, occurs when a company does not have sufficient capital to support its growth.

    Financial Performance

    • Accounting profits may not be the best measure of a company's performance because they are affected by accounting policies and do not take into account risk.
    • Economic profit takes into account the opportunity cost of capital and is a better measure of a company's performance.

    Stakeholders

    • Shareholders are the owners of a company and have a stake in its performance.
    • Managers and employees are also stakeholders and have a vested interest in the company's success.
    • Creditors, suppliers, and customers are also stakeholders and have an interest in the company's financial performance.

    Corporate Governance

    • Corporate governance involves the management of a company's resources and activities to ensure that it is operating in the best interests of its stakeholders.
    • Good corporate governance involves separating the roles of the chairman and CEO, establishing audit and remuneration committees, and minimizing risk.

    Capital Investment Appraisal

    • Capital investment appraisal involves evaluating the costs and benefits of proposed investments in operating assets.
    • The payback period method is a drawback because it does not measure potential impact on shareholder wealth.
    • The net present value (NPV) method is a better way to evaluate investments because it takes into account the time value of money.

    Risk Management

    • Risk management involves identifying and managing risks to minimize their impact on the company.
    • A company's risk profile is affected by its business risk, financial risk, and liquidity risk.

    Financial Instruments

    • Financial instruments include stocks, bonds, and derivatives.
    • Stocks represent ownership in a company and offer a potential for long-term growth.
    • Bonds represent a debt obligation and offer a fixed return.
    • Derivatives are used to manage risk and can be used to hedge or speculate.

    Weighted Average Cost of Capital (WACC)

    • WACC is the minimum return that a company must earn on its existing asset base to satisfy its investors.
    • WACC is calculated by weighting the cost of debt and equity by their proportion of the company's capital structure.
    • An increase in the market interest rate environment or a reduction in the company's credit rating will increase WACC.
    • A decrease in the applicable corporate tax rate will decrease WACC.

    Capital Asset Pricing Model (CAPM)

    • CAPM is a model that describes the relationship between risk and expected return.
    • The CAPM formula is: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate)
    • The beta coefficient is adjusted to account for the systematic risk of a stock.

    Financial Markets

    • Financial markets include money markets, bond markets, and stock markets.
    • The money market is a market for short-term capital.
    • The bond market is a market for long-term debt.
    • The stock market is a market for equity.

    International Finance

    • International finance involves managing financial transactions across borders.
    • Exchange rates are the prices of currencies in terms of other currencies.
    • A country's balance of payments is the sum of its current account and capital account.

    Monetary Policy

    • Monetary policy is used to control the money supply and interest rates in an economy.
    • Expansionary monetary policy involves increasing the money supply and reducing interest rates to stimulate the economy.
    • Contractionary monetary policy involves reducing the money supply and increasing interest rates to slow down the economy.

    Cambodia-Specific Topics

    • The National Bank of Cambodia (NBC) is the central bank of Cambodia.
    • The NBC uses monetary policy to control the money supply and interest rates in the economy.
    • The Royal Government of Cambodia uses fiscal policy to influence the economy and economic growth.
    • The General Department of Taxation (GDT) is responsible for tax collection in Cambodia.

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    Test your knowledge of business finance and fiscal policy with these multiple-choice questions. Topics include financial management, financial accounting, and government economic policies.

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