Exam practice paper 1 - Financial Markets & Risk Management - July 2024 - Selected for circulation.docx

**CCCU -- Accounting/Finance 2024/25** **Saegis Campus** **Financial Markets and Risk Management** **Practice paper 1 for the Assessment 1** 1. The boarders two sectors in the economy are A. Services sector and the manufacturing sector B. Local sector and the government sector C. Real sec...

**CCCU -- Accounting/Finance 2024/25** **Saegis Campus** **Financial Markets and Risk Management** **Practice paper 1 for the Assessment 1** 1. The boarders two sectors in the economy are A. Services sector and the manufacturing sector B. Local sector and the government sector C. Real sector and the financial sector D. Foreign sector and the local sector 2. Which of the following is not considered as one of the broadest level markets in an economy. A. Foreign market B. Goods and services market C. Factor market D. Financial market 3. Main four elements of the overall financial sector are, A. Financial markets, money markets, financial regulators and financial infrastructure. B. Capital markets, financial intermediaries, financial regulators and financial infrastructure. C. Financial markets, financial intermediaries, financial infrastructure and financial regulators. D. Equity markets, bond markets, financial intermediaries and financial regulators. 4. Three main types of financial markets are A. Money market, equity market and bond markets. B. Money markets, capital markets are derivatives markets C. Equity market, bills market and bonds market. D. Derivatives market, cash market and foreign currency market. 5. Gross Domestic Product measures the value of A. All the goods and services produced within the economy. B. Interim goods and services produced within the economy. C. Final goods and services produced within the economy. D. Both final and interim goods produced within the economy. 6. Equity market and bond market are sub categories of A. Money market. B. Derivatives market C. Government securities market D. Capital markets 7. Which of the following is correct regarding the money market and the capital market A. Money market provides long term funds while capital market provides short term funds. B. Money market provides short term funds while capital market provides long term funds. C. Both provides short term funds D. Both provides long term provides long term funds. 8. Your company plans to fund a short-term funds requirement only upto 9 months. You are considering several methods to mobilize funds. Which of the following method will be suitable for your funding requirement. A. Borrow from a bank through a 3-year term loan. B. Issue a corporate bond with 5 years maturity. C. Issue fresh equity shares. D. Issue a commercial paper. 9. Your company is planning for a capacity expansion project of USD 15 mn. As the financial analyst, you are in the process of making the business plan. Funding mix for the project would most probably include, A. A bank term loan and a corporate bond. B. A bank OD and a commercial paper. C. Retained earnings of the company and a bank OD. D. A Bank term loan and a bank OD. 10. Which of the following will not be one of main four stages of a business cycle. A. Economic peak. B. Economic through C. Economic recession. D. Economic stability. 11. Four main stages of the business cycle are A. Peak, over-heated stage, depression and bottom. B. Peak, decline, through and recovery. C. Peak, recovery, boom and through. D. Peak, depression, recession and growth. 12. Sequence of the stages in the economic cycle A. Recovery, through, recession and peak. B. Peak, through, decline and recovery. C. Through, recovery, peak and decline. D. Recession, through, peak and recovery. 13. Business cycle is recognized as A. A long-term economic phenomenon of the economy within the short run growth. B. Short term economic phenomenon of the economy within the long run trend. C. The long run trend. D. Industry phenomenon. 14. Which of the following schools of economists did not agree of the existence of business cycles. A. Keynesian school of economists. B. Monetary economists. C. Austrian school of economists. D. Neo-classical economists. 15. Which of the following is not a feature during the economic peak. A. Low economic growth B. High inflation. C. Accumulated inventory in business firms D. High demand for heavy machinery from business firms. 16. During the economic peak, A. Consumers will start losing confidence of the future economic status. B. Consumers will continue to demand more and more goods and services. C. Business firms will continue to order heavy machinery. D. Business investments will further increase. 17. During the economic peak, A. Inflation is high and aggregate demand is high. B. Inflation is high and aggregate demand is low. C. Inflation is low and aggregate demand is high. D. Inflation is low and aggregate demand is low. 18. During the latter part of the economic boom, A. GDP growth will accelerated further and inflation will increase. B. GDP growth will decelerated and inflation will increase. C. GDP growth will accelerated and inflation will decline. D. GDP growth will decelerate and inflation will decline. 19. Economic boom is recognized, A. During the latter part of the economic recovery. B. Before the economic recovery. C. Before the economic through. D. After the economic peak. 20. During the economic decline. A. GDP growth rate is negative and inflation is high. B. GDP growth rate is negative and inflation is negative or low. C. GDP growth rate is positive and inflation is negative. D. GDP growth rate is positive and inflation is high. 21. During the economic decline A. Aggregate demand will increase B. Aggregate demand will decline C. Aggregate demand will be stable. D. Aggregate demand will be higher. 22. Increase in aggregate demand will make A. GDP to increase in the short run. B. GDP to decline in the short run. C. GDP to increase in the long run. D. GDP to decline in the long run. 23. A sudden increase in aggregate demand can create A. Inflation in the economy. B. Deflation in the economy. C. No impact to general price level. D. Reduce GDP. 24. The opinion of the Keynesian school of economists is A. Government should intervene with monetary policy to reduce the adverse impact from business cycles. B. Government should not intervene in the economy to management the business cycle effects. C. Government should intervene in the economy to management the business cycle effects through the fiscal policy. D. Government creates the business cycles in the economy. 25. Fiscal policy actions include A. Government expenditure and taxes B. Government expenditure and money supply C. Taxes and interest rates D. Money supply and interest rates. 26. If the government intervenes to the economy during a recessionary situation using the fiscal policy. We can expect the government to A. Reduce its expenditure and increase the tax. B. Increase both its expenditure and the tax. C. Increase its expenditure and reduce tax. D. Reduce both its expenditure and tax. 27. Government just announced that it would increase its expenditure in infrastructure to manage the impending economic adversity. This statement indicates that the economy is A. Leading to a boom B. In a boom. C. Leading to a recession. D. In the recovery stage. 28. A government may adopt an expansionary fiscal policy A. If the economy is in a boom. B. If the economy is recovering C. If the economy is in a recession. D. If the economy in the peak. 29. Government announced that it will increase taxes and reduce its expenditure in infrastructure to manage the impending economic adversity. This statement indicates that the economy is experiencing, A. High inflation. B. Inflation within its target level. C. Deflation. D. Zero inflation. 30. Target inflation for Bank of England is A. Zero B. Negative C. 5% D. 2% 31. A government may adopt an expansionary fiscal policy A. If the economy is in a boom. B. If the economy is recovering C. If the economy is in a recession. D. If the economy in the peak. 32. Monetary economists recommended that the government intervention in the economy, A. Should be very limited. B. Should be very high to manage the business cycle. C. Should be zero. D. Should be very critical in order to manage the inflation. 33. Monetary economists recommended that the government intervention in the economy, A. Should only be through fiscal policy. B. Should only be through monetary policy. C. Should be through both monetary policy and fiscal policy. D. Should not be at all. 34. A reduction in the policy rate of the BOE will lead to A. Increase in the aggregate demand. B. Reduction in the aggregate demand. C. Reduction in the national output. D. Reduction in the inflation. 35. A reduction in the policy rate of the BOE will lead to A. Increase in LIBOR. B. Increase in UK treasury rates. C. Reduction in the market interest rates. D. Reduction in the LSE returns. 36. During a guest lecturer, a senior officer from Central Bank of Sri Lanka stated that an economy having an above average growth rate in nominal GDP does not mean that economic well-being of the people also improved. The underlying reason for his statement can be, A. A higher inflation than the nominal GDP growth rate. B. Higher interest rates than the GDP growth rate. C. Lower interest rates than the GDP growth rate. D. Lower change in exchange rate than the GDP growth rate. 37. The difference between the nominal GDP and the real GDP is A. Local interest B. Exchange rate C. Inflation D. Unemployment rate. 38. Country A has a higher real GDP than the real GDP of Country B. But people in Country B are richer than people in Country A. reason can be, A. Lower nominal GDP in Country A. B. Lower inflation in Country A. C. Lower interest rates in Country A. D. Lower per capita real GDP in Country A. 39. Sobrania recorded an average real GDP growth rate of 2% during last 10 years. Per capita real GDP in 2002 was USD 8,000 while per capita real GDP in 2022 is USD 7,500. The reason can be, A. Long term average inflation is higher than 2%. B. Long term average interest rate is lower than 2%. C. Long term average population growth is higher than 2%. D. Long term average unemployment rate is higher than 2%. 40. As per 2021 data, Per Capita GDP in USA and UK approximate to A. USD 76,000 and USD 13,000 respectively. B. USD 125,000 and USD 46,000 respectively. C. USD 76,000 and USD 46,000 respectively. D. USD 125,000 and USD 13,000 respectively. 41. Real GDP growth in UK and USA during 2022, respectively are, A. Close to 4.1% and 2.1%. B. Close to 2.1% and 4.1%. C. Close to -1.2% and 4.1%. D. Close to 2.2% and -1.1%. 42. Total size of the global economy and UK economy in 2022 approximately are, A. \$100 tn and \$3 tn respectively. B. \$105 tn and \$3 tn respectively. C. \$96 tn and \$26 tn respectively. D. \$96 tn and \$4 tn respectively. 43. Under the financialization, some of the economist argue that A. Real sector is getting more prominent than the financial sector. B. Financial sector activities are generating more profits than the real sector activities. C. Economic crises turning into financial crises. D. Money overtaking the barter system. 44. As per some of the economists, financialization can lead to A. Vulnerability in the economy through severe financial crises. B. Richer economy through more profits generated in the financial sector. C. Increase in GDP through increased financial sector transactions D. Decline in GDP through lower financials sector profits. 45. Which of the following is a leading indicator for the economic status of a country. A. GDP growth rate B. Private consumption C. 10 years bond rates D. Stock market performance. 46. Under an expansionary monetary policy which of the following actions will be taken by the monetary authority of the country. A. Reduce interest rates and reduced money supply. B. Increase interest rates and increase money supply. C. Reduced interest rates and increase money supply. D. Increase interest rates and reduce money supply. 47. BOE increased its policy interest rates several times during second and third quarter of 2023. It was done with a purpose of A. Reducing the GDP growth. B. Increasing the GDP growth C. Reducing the inflation D. Increasing the inflation. 48. The monetary policy tools adopted by BOE are A. Policy rate and quantitative easing B. Policy rate, reserve rate and quantitative easing. C. Policy rate, reserve rate, quantitative easing and open market operations. D. Quantitative easing and verbal suasion. 49. Under the expansionary monetary policy, what actions will be taken by BOE, if it uses quantitative easing. A. Sell Treasury bonds to the banks and designated primary dealers. B. Buy Treasury bonds from banks and the primary dealers. C. Increase the policy rate D. Reduce the policy rate 50. Economy grew at a higher rate during last 5 years. Now inflation has reached higher. The government may announce, A. A reduction of the tax rates. B. Increase in the government expenditure. C. Increase in interest rates. D. Increase transfers 51. During 2022 and 2023, Bank of England increased the policy rate by several times. It was for the purpose of, A. Increase the DGP growth. B. Create more jobs. C. Increasing the aggregate demand. D. Bringing the price stability. 52. What is the current inflation in UK as published by June 2024. A. 11.1% B. 2% C. 5.25% D. 3.2% 53. What is the current BOE policy rate as published by April 2024. A. 11.1% B. 2% C. 5.25% D. 3.2% 54. Two main most primary groups of reasons for inflation to emerge in an economy (The primary sources for the first level shock to the general price level)........................................ 55. Economy grew at an above average rate during last 5 years period. Impact to Aggerate Demand of the economy\...\..... 56. Economy grew at an above average rate during last 5 years period. Impact to general price level of the economy........................ 57. Economy grew at an above average rate during last 5 years period. Impact to the Central Bank objectives...... 58. Expected actions by the Central Bank...................... 59. Impact to the key economic parameters due to the central bank with immediate effect........... 60. Immediate impact to your business due to the central bank actions................. 61. Immediate impact to the value of your investments in the bonds........................... 62. Subsequent impact to the Aggerate Demand in the economy due to the central bank actions.................. 63. Subsequent impact to the inflation in the economy after the central bank actions........................ 64. What will be the impact to the economy subsequently to the decline in the Aggregate Demand...................... 65. What action can be taken by the central bank at the second stage............................ 66. Which of the following would be added to GDP of a developing country in 2023. A. Production and sale of heroine by a leading drug cartel. B. Production of local guns to be used by poachers C. Production of a special gun to be used by the government's special warfare unit. D. None of the above as all are not useful for social well-being of the society. 67. As a financial analyst, you are required to recommend your board of directors the best business opportunity after evaluating 3 businesses. Most likely, which of the following will be recommended by you. A. Business with the highest net profits. B. Business with the highest net profit margin. C. Business with the highest return on total investment. D. Business with the highest return on equity. 68. Which of the following is a monetary policy tool adopted by BOE. A. Reserve ratio B. Verbal suasion C. Quantitative easing D. Taxes 69. Under fractional reserve banking, A. One bank will get only a fraction of your deposits. B. One bank will contribute to a fraction of total reserves in the country. C. One bank will keep only a fraction of the deposits inside the bank D. One bank will loan out only a fraction of deposits. 70. During money creation by the banking sector A. Banking sector will make loans which are several times of their deposits value. B. Banking sector will print notes and coins. C. Banking sector can duplicate notes and coins printed by the central bank. D. Banking sector will keep part of deposits as reserves. 71. Monetary authority recently purchased gilt security for a value of GBP 500 mn from the market. Normally, the UK banking sector maintains a reserve ratio of about 5%. As simple money multiplier indicates, what will be the total increase in money supply in UK. A. GBP 25 mn B. GBP 500 mn. C. GBP 10,000 mn. D. GBP 540 mn 72. Assume that BOE issued gilt securities for a market value of GBP 250 mn. UK banking sector maintains a reserve of about 8%. Reduction is total money supply is, A. GBP 250 mn. B. GBP 3,125 mn. C. GBP 20 mn. D. GBP 270 mn. 73. Which of the following is not a type of a debt security. A. A bill B. A bond C. A note D. Futures. 74. Through a debt instrument, A. The original issuer will borrow funds. B. The investor will borrow funds. C. Original investor will borrow funds. D. The secondary market seller will borrow funds. 75. Which of the following is not a feature of a debt security. A. Represent a liability to the issuer. B. A financial instrument to borrow funds by the issuer. C. Makes the investor to pay some defined cash flow. D. The cost of the financial instrument is tax deductible to the issuer.