D775 Business Finance - PA Test #2 UPDATED ACTUAL
Questions and CORRECT Answers
What is the time orientation of financial decision-making Future projections and planning
in business finance?
How do businesses use financial ratios in their To evaluate and improve business performance
operations?
What is a primary objective of business finance? Maximizing shareholder value
What are corporate bonds used for? Financing operations and expansions
What are financial derivatives based on? Performance of underlying assets, indexes, or rates
What is a future as a type of financial derivative? A standardized contract to buy or sell an asset at a specified future date and price
What distinguishes hedge funds from mutual funds? They employ diverse strategies and are available to sophisticated investors.
How do funds achieve diversification? By pooling money from multiple investors to invest in a variety of assets
What do speculative bonds, or junk bonds, typically offer Higher risk and higher returns
compared to investment-grade bonds?
What is the advantage of investing in exchange-traded They can be bought and sold throughout the trading day like stocks.
funds (ETFs)?
Which market is an example of a dealer market? National Association of Securities Dealers Automated Quotations (NASDAQ)
Which market is an example of an auction market? New York Stock Exchange
What is the primary function of the Securities and To regulate securities markets and protect investors
Exchange Commission (SEC)?
What is the primary focus of the Commodity Futures Overseeing futures and options markets
Trading Commission (CFTC)?
Which role do insurance companies play in the financial Underwriting policies to protect against risks
system?
How do insurance companies generate income? By collecting premiums and investing these funds
What is a key characteristic of private equity raising? It involves securing funds from private investors like venture capitalists.
What does legal compliance ensure in finance? It ensures adherence to laws and regulations.
, What is corporate social responsibility (CSR)? The obligation to contribute positively to society
Which principle should guide business professionals in Upholding honesty, fairness, and accountability
ethical dilemmas?
Why are financial ratios significant in assessing risk? They identify potential economic hazards within the company.
Why might investors use financial ratios for decision- To assess the potential return on investment
making?
What is the key purpose of financial ratios in investment To evaluate the company's profitability and growth prospects
analysis?
What do market ratios evaluate? Stock performance
Why do companies use market ratios? To analyze stock value
What does a low quick ratio indicate about a company's Reliance on inventory
liquidity?
What does a high cash ratio imply about a company's Immediate debt coverage
short-term financial health?
What is the focus of the times interest earned (TIE) ratio? Earnings covering debt payments
Which ratio might the company look at when evaluating Profit margin
its efficacy of the cost-cutting program?
What does a high profit margin suggest? Effective cost control
Which condition would cause a company to have a low Efficient credit policies
average collection period?
Why might the quick ratio be preferred over the current The quick ratio is a more stringent liquidity test.
ratio?
Which ratio would be impacted by the introduction of Fixed asset turnover ratio
new and highly efficient manufacturing equipment?
Which ratio would be most favorably impacted by the Debt-to-assets ratio
retirement of outstanding loans or obligations, such as
bonds?
What should a company do in response to low total asset Invest in new resources to improve operational efficiency
turnover?
Questions and CORRECT Answers
What is the time orientation of financial decision-making Future projections and planning
in business finance?
How do businesses use financial ratios in their To evaluate and improve business performance
operations?
What is a primary objective of business finance? Maximizing shareholder value
What are corporate bonds used for? Financing operations and expansions
What are financial derivatives based on? Performance of underlying assets, indexes, or rates
What is a future as a type of financial derivative? A standardized contract to buy or sell an asset at a specified future date and price
What distinguishes hedge funds from mutual funds? They employ diverse strategies and are available to sophisticated investors.
How do funds achieve diversification? By pooling money from multiple investors to invest in a variety of assets
What do speculative bonds, or junk bonds, typically offer Higher risk and higher returns
compared to investment-grade bonds?
What is the advantage of investing in exchange-traded They can be bought and sold throughout the trading day like stocks.
funds (ETFs)?
Which market is an example of a dealer market? National Association of Securities Dealers Automated Quotations (NASDAQ)
Which market is an example of an auction market? New York Stock Exchange
What is the primary function of the Securities and To regulate securities markets and protect investors
Exchange Commission (SEC)?
What is the primary focus of the Commodity Futures Overseeing futures and options markets
Trading Commission (CFTC)?
Which role do insurance companies play in the financial Underwriting policies to protect against risks
system?
How do insurance companies generate income? By collecting premiums and investing these funds
What is a key characteristic of private equity raising? It involves securing funds from private investors like venture capitalists.
What does legal compliance ensure in finance? It ensures adherence to laws and regulations.
, What is corporate social responsibility (CSR)? The obligation to contribute positively to society
Which principle should guide business professionals in Upholding honesty, fairness, and accountability
ethical dilemmas?
Why are financial ratios significant in assessing risk? They identify potential economic hazards within the company.
Why might investors use financial ratios for decision- To assess the potential return on investment
making?
What is the key purpose of financial ratios in investment To evaluate the company's profitability and growth prospects
analysis?
What do market ratios evaluate? Stock performance
Why do companies use market ratios? To analyze stock value
What does a low quick ratio indicate about a company's Reliance on inventory
liquidity?
What does a high cash ratio imply about a company's Immediate debt coverage
short-term financial health?
What is the focus of the times interest earned (TIE) ratio? Earnings covering debt payments
Which ratio might the company look at when evaluating Profit margin
its efficacy of the cost-cutting program?
What does a high profit margin suggest? Effective cost control
Which condition would cause a company to have a low Efficient credit policies
average collection period?
Why might the quick ratio be preferred over the current The quick ratio is a more stringent liquidity test.
ratio?
Which ratio would be impacted by the introduction of Fixed asset turnover ratio
new and highly efficient manufacturing equipment?
Which ratio would be most favorably impacted by the Debt-to-assets ratio
retirement of outstanding loans or obligations, such as
bonds?
What should a company do in response to low total asset Invest in new resources to improve operational efficiency
turnover?
