ICAEW BTF MOCK EXAM
QUESTIONS AND 100% CORRECT
ANSWERS!!
What is the overarching function, and three sub-functions, of the finance department?
Overarching function of recording financial transactions (ledgers, entry books, etc.)
Sub-functions:
Management accounting (internal audience, pricing, budgeting, decision making, etc.)
Treasury management (getting money for the business, cash budgets, finance decisions,
managing risk, forex, etc.)
Financial reporting (external audience, financial statements, tax, external regulation
How do not for profit organisations measure their performance?
The three Es (efficiency, economy, effectiveness)
What are critical success factors and key performance indicators? Give an example of
a pizza place.
Critical success factors are generic things an organisation must do well to succeed. Key
performance indicators are how we measure the achievement of CSFs.
For example, a pizza place might have the CSF of speed of service, and a KPI may be number of
complaints, mystery shopper results, how many times they had to give free pizza, etc.
How can we distinguish debt holders and equity holders in terms of risk and return?
Debt holders face lower risk but lower returns (debt often secured by fixed/floating charges,
rank higher to receive capital back)
Equity holders face higher risk but can enjoy higher returns
What are key benefits of financial inter-mediation?
,Small amounts deposited by savers can be combined. Short-term savings can be transferred
into long-term borrowings, search costs are reduced and risk is spread.
What are key different forms of money transmission?
General clearing - mainly cheques, takes 3-4 days
Electronic funds transfer (EFT) - mainly debit/credit cards
BACS - type of EFT that deals with salaries, standing orders, diret debits
CHAPS - same day clearing for large payments
SWIFT - similar to CHAPS but for international payments
What is a primary and secondary bank?
Primary: normal retail banks. Operate cheque accounts and deal with clearing.
Secondary: merchant banks, generally deal in debt, do not take part in clearing.
What are the two bodies of the bank of England that ensure financial stability?
Financial Policy Committee - macroprudential responsibility for identifying, monitoring, and
taking action to reduce risk (e.g. bank capital/equity ratios)
Prudential Regulation Authority - supervise safety of regulated firms (deposit taking institutions,
insurers and investment banks)
What is the legal relationship between the bank and its customer? What are the 4
elements?
Receivable/payable relationship
Bailor/bailee relationship
Principal/agent relationship (cheques)
Mortgagor/mortgagee relationship
, What are some key duties and rights of the bank?
Duties: honour cheques, repay amount deposited on demand, provide bank statement,
confidentiality, reasonable notice of account closure
Rights: charge reasonable fees, use customers money in a legal and morally acceptable way,
be repaid overdrawn balances on demand, be indemnified against possible losses
What are some key money market financial instruments?
Treasury bills: very secure and liquid, but low returns
Deposits: slightly higher risk and return than treasury bills (though not much)
CDs (certificates of deposit): large, fixed term, tradable
Gilts: longer term government debt, larger range of maturities and rates based on money
market rates
Bonds: company debt, decent liquidity, higher risk and return
Commercial paper: similar to bonds, but for large companies
How may a business access finance?
- National stock markets
- Banking system (primary and secondary banks)
- Bond market (large organisations, large amounts of money)
- Leasing
- Debt factoring (usually smaller businesses, great for cashflow)
- International markets (can raise money in different currencies, mitigate forex risk)
What are some advantages and disadvantages of sources of debt finance?
QUESTIONS AND 100% CORRECT
ANSWERS!!
What is the overarching function, and three sub-functions, of the finance department?
Overarching function of recording financial transactions (ledgers, entry books, etc.)
Sub-functions:
Management accounting (internal audience, pricing, budgeting, decision making, etc.)
Treasury management (getting money for the business, cash budgets, finance decisions,
managing risk, forex, etc.)
Financial reporting (external audience, financial statements, tax, external regulation
How do not for profit organisations measure their performance?
The three Es (efficiency, economy, effectiveness)
What are critical success factors and key performance indicators? Give an example of
a pizza place.
Critical success factors are generic things an organisation must do well to succeed. Key
performance indicators are how we measure the achievement of CSFs.
For example, a pizza place might have the CSF of speed of service, and a KPI may be number of
complaints, mystery shopper results, how many times they had to give free pizza, etc.
How can we distinguish debt holders and equity holders in terms of risk and return?
Debt holders face lower risk but lower returns (debt often secured by fixed/floating charges,
rank higher to receive capital back)
Equity holders face higher risk but can enjoy higher returns
What are key benefits of financial inter-mediation?
,Small amounts deposited by savers can be combined. Short-term savings can be transferred
into long-term borrowings, search costs are reduced and risk is spread.
What are key different forms of money transmission?
General clearing - mainly cheques, takes 3-4 days
Electronic funds transfer (EFT) - mainly debit/credit cards
BACS - type of EFT that deals with salaries, standing orders, diret debits
CHAPS - same day clearing for large payments
SWIFT - similar to CHAPS but for international payments
What is a primary and secondary bank?
Primary: normal retail banks. Operate cheque accounts and deal with clearing.
Secondary: merchant banks, generally deal in debt, do not take part in clearing.
What are the two bodies of the bank of England that ensure financial stability?
Financial Policy Committee - macroprudential responsibility for identifying, monitoring, and
taking action to reduce risk (e.g. bank capital/equity ratios)
Prudential Regulation Authority - supervise safety of regulated firms (deposit taking institutions,
insurers and investment banks)
What is the legal relationship between the bank and its customer? What are the 4
elements?
Receivable/payable relationship
Bailor/bailee relationship
Principal/agent relationship (cheques)
Mortgagor/mortgagee relationship
, What are some key duties and rights of the bank?
Duties: honour cheques, repay amount deposited on demand, provide bank statement,
confidentiality, reasonable notice of account closure
Rights: charge reasonable fees, use customers money in a legal and morally acceptable way,
be repaid overdrawn balances on demand, be indemnified against possible losses
What are some key money market financial instruments?
Treasury bills: very secure and liquid, but low returns
Deposits: slightly higher risk and return than treasury bills (though not much)
CDs (certificates of deposit): large, fixed term, tradable
Gilts: longer term government debt, larger range of maturities and rates based on money
market rates
Bonds: company debt, decent liquidity, higher risk and return
Commercial paper: similar to bonds, but for large companies
How may a business access finance?
- National stock markets
- Banking system (primary and secondary banks)
- Bond market (large organisations, large amounts of money)
- Leasing
- Debt factoring (usually smaller businesses, great for cashflow)
- International markets (can raise money in different currencies, mitigate forex risk)
What are some advantages and disadvantages of sources of debt finance?
