Financial Management Test Questions And Answers

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1. What effect do some environmental laws have on businesses?
A. Limit equipment purchases C. Control exterior landscapes
B. Require more employees D. Increase operating costs
 2. Limited liability is a characteristic of what form of business ownership?
A. Sole proprietorship C. Corporation
B. Partnership D. Joint proprietorship
 3. An important purpose of full-disclosure laws and regulations is to
A. provide information to investors so they can make informed decisions.
B. allow company employees to use inside information for personal gain.
C. require companies to disclose all information about their operations.
D. prevent a stock's par value from dropping below its market value.
 4. Which of the following has the fiduciary responsibility to make decisions on behalf of a company's
shareholders:
A. The municipal court system C. The company's line staff
B. The industry's professional organization D. The corporation's board of directors
 5. Which of the following is an estate-tax deduction:
A. Property passing directly to the surviving spouse
B. Valuable art and collectibles left to children
C. Charitable contributions that are unqualified
D. Money left to friends or distant relatives
 6. Last year, Mr. McKinney gave a portion of his wages to a local charity and was not required to pay taxes
on the amount of his donation. This is an example of a(n)
A. investment disbursement. C. tax-deferred investment.
B. estate allocation. D. tax deduction.
 7. Michelle is a small business owner who has outdated customer information in her computer files. She
has wasted a lot of time and money sending mail to customers who have moved or have received
multiple copies of her mailings. What type of computer application should Michelle use to update her
customer database?
A. Tabulation analysis C. Data cleansing­
B. Electronic data interchange D. Environmental scanning­
 8. What are potential risks to a business that fails to follow government regulations?
A. Bankruptcy, higher sales, and lower stock values
B. Penalties, higher stock values, and lower credibility
C. Lower stock values, fines, and higher sales
D. Fines, penalties, and bankruptcy
 9. Which of the following reasoning processes does a virtual auditor use to identify financial system
transactions that are very similar to each other but are not exactly alike:
A. Cross-source reasoning C. Temporal reasoning
B. Contextual reasoning D. Comparative reasoning
 10. What type of technology do businesses use to inspect financial transactions and to ensure that they are
in compliance with government regulations?
A. Virtual auditors C. Domain computing
B. Cyber mapping D. Simulation browsers
 11. What type of information is often transmitted through upward communication?
A. Suggestions C. Evaluations
B. Instructions D. Corrections
12. Businesses use technology to build positive customer relations by
A. calling customers at home. C. placing pop-up advertisements on web sites.
B. creating targeted marketing campaigns. D. sending unsolicited e-mails.
 13. A positive result of handling customer complaints properly is that it will
A. increase returns. C. foster objections.
B. promote goodwill. D. increase markdowns.
 14. What do finance professionals need to do to build long-term relationships with their clients?
A. Follow-up with clients every two years C. Be honest, open, and trustworthy
B. Invest all clients' money conservatively D. Require clients to sign a short-term contract
 15. When providing product information to clients, finance professionals should use
A. technical terms. C. financial acronyms.
B. simple explanations. D. standard responses.
 16. Rather than studying individual customer data, First Bell Bank is interested in analyzing groups of
customers. Members of a group should be similar and markedly different from other customer groups.
Which of the following Customer Relationship Management (CRM) activities should be used to prepare
First Bell Bank's customer data for analysis:
A. Regression C. Clustering
B. Estimation D. Prediction
 17. When financial institutions follow government regulations pertaining to the industry, the institutions are
A. being independent. C. in compliance.
B. being ethical. D. in mediation.
 18. By deciding to buy or not to buy, consumers control what goods and services will be produced and at
what price through their
A. capital investment. C. limited wants.
B. gross income. D. economic votes.
 19. What does utility reveal about consumers?
A. Preferences C. Background
B. Income D. Influences
 20. The market price is the actual price that prevails in a market
A. at the beginning of each quarter. C. on the first of each month.
B. at any particular moment. D. at the beginning of the fiscal year.
 21. Businesses that contribute money to local educational, cultural, and training programs are showing social
responsibility to their
A. customers. C. communities.
B. employees. D. stockholders.
 22. Which of the following demonstrates the interrelationship among primary business activities:
A. A new product is introduced, so business advertisements must adjust in response.
B. A business changes its goals, so its strategies and tactics change, too.
C. One business activity changes, so the others must adjust in response.
D. A business manager becomes vice president, so his/her department must adjust to the change.
 23. A higher standard of living is achieved in a country when productivity
A. and population increase at a similar rate. C. increases at a rate faster than population.
B. remains the same and population increases. D. decreases and population remains the same.
24. Which of the following personal traits would be affected by your physical health:
A. Self-confidence C. Gender
B. Cultural background D. Ethnic heritage
 25. One reason why ethics is often a consideration when providing information is because of the issue of
A. respect. C. safety.
B. privacy. D. diversity.
 26. Why do many businesses develop programs and activities to help reduce employee stress?
A. To exhibit empathy C. To eliminate conflict
B. To encourage creativity D. To maintain productivity
 27. A credit plan that requires a signed contract, a down payment, and the balance to be paid over a specific
period of time is called __________ credit.
A. revolving C. open
B. installment D. regular
 28. The amount of interest you earn in a typical savings account is about
A. 11 percent. C. one percent.
B. 10 percent. D. 15 percent.
 29. If you are 17 right now, what is the best age to begin investing?
A. 27 C. 17
B. 32 D. 25
 30. How do finance companies commonly raise capital?
A. Investing deposits from savers
B. Investing funds from premium payments
C. Issuing notes, bonds, and other obligations
D. Establishing mutual funds and investment banks
 31. Mortgages and government bonds are examples of
A. debt instruments. C. unrated investments.
B. equity products. D. interest-free services.
 32. Debt markets buy and sell ___________, and equity markets buy and sell _________.
A. corporate stock, certificates of deposit C. grain, gold
B. government bonds, corporate stock D. gold, government bonds
 33. A primary factor that has led to the consolidation of financial firms is the desire
A. for fewer products. C. to lower costs.
B. for fewer assets. D. to lower risks.
 34. The Money for You Bank recently merged with the Keeping You Safe Insurance Company. The merger is
an example of __________ in the finance industry.
A. consolidation C. tactical planning
B. convergence D. licensing
 35. Falling interest rates typically cause
A. stock prices to increase. C. a stock market to crash.
B. stock prices to decrease. D. no change in stock prices.
36. When an emerging market suffers an economic decline, foreign investors usually
A. help the emerging market to recover economically.
B. use the opportunity to invest more in the emerging market.
C. quickly withdraw their money from the emerging market.
D. pay less for each transaction in the emerging market.
 37. Which of the following has accelerated the globalization of financial markets:
A. An expansion of protectionism practices
B. The reduction of government regulations
C. The movement toward fixed exchange rates
D. A decrease in foreign access to domestic markets
 38. April is a college student who wants to open a bank account for the first time. She has $500 cash to
deposit in the account initially. The bank she chooses is not near her dorm, and it's difficult for her to get
there. She has a part-time job and receives a bi-weekly paycheck that will be directly deposited into her
account. Which of the following types of accounts should she ask for at the bank:
A. Checking C. Money market
B. Savings D. Certificate of deposit
 39. Which of the following is not a standard financial statement:
A. Income statement C. Shareholder sheet
B. Balance sheet D. Cash flow statement
 40. What does an income statement show about a company over a period of time?
A. Profitability C. Equity
B. Reliability D. Liabilities
 41. The numbers listed in a stock table's 52-week high and low column tell you
A. the best prices for the stock.
B. if the stock price is overvalued.
C. the range of prices for the year.
D. the range of where the stock price should be.
 42. Which of the following is a true statement about ticker symbols:
A. They uniquely identify a company.
B. They tell you what kind of stock it is.
C. They are made up of the first three letters of a company's name.
D. They are only given to companies on the New York Stock Exchange.
 43. Which of the following is an example of a lending investment:
A. Stocks C. Antiques
B. Homes D. Bonds
 44. Bennett has just finished college and has moved into her own apartment that is located on a bus line.
She'll be able to take the bus to her new job that she's scheduled to start in a month. In fact, she'll need
to rely on bus transportation until she saves money to buy a car. What insurance coverage should she
have?
A. Renter's insurance and temporary short-term health insurance
B. Health and life insurance
C. Renter's insurance and COBRA
D. Auto insurance and temporary short-term health insurance
 45. A labor strike against a major employer is an example of a(n) __________ risk.
A. human C. economic
B. natural D. internal
46. What type of financial records do businesses need to maintain in order to keep track of their
transactions?
A. Tax identification C. Payroll information
B. Accounts receivable D. Operating procedure
 47. Which of the following is the basic calculation used to analyze an income statement:
A. Assets minus liabilities C. Income minus expenses
B. Revenue plus sales D. Sales plus operating costs
 48. Which of the following is a common financial-information management problem:
A. Multiple financial data sources and systems within an organization
B. Overreliance on a master source and system for financial data
C. Strict organizational data governance policies and processes
D. Insufficient financial information due to compliance regulations
 49. A primary responsibility of financial-information management is to
A. report financial transactions. C. develop new products.
B. negotiate contracts with vendors. D. implement sales policies.
 50. Which of the following is an example of a businessperson exhibiting unethical behavior in relation to a
business's financial information:
A. An unauthorized employee reviews a client's financial information.
B. An auditor verifies the accuracy of a corporation's financial statements.
C. A banker requests financial information from a business to process a loan.
D. A manager examines the business's financial records to develop a budget.
 51. Which of the following is a technological tool that businesses use to archive their financial records:
A. Electronic data interchange C. Digital microfilm scanner
B. Direct-response software D. Web-development programs
 52. Why has online technology's use increased in financial-information management?
A. Recognition that the security of transactions is no longer an issue
B. Removal of electronic information exchange procedures
C. Passage of laws that recognize electronic documents as legally binding
D. Protection of customers' right to privacy
 53. The primary reason that businesses use data mining techniques to obtain various types of financial
information is to
A. manage their working capital effectively.
B. develop their financial goals.
C. identify relationships and patterns among data.
D. analyze the accuracy of their accounting records.
 54. Alyssa is starting a small business out of her home. When she accesses a business “how-to” web site,
Alyssa finds software downloads and printable worksheets that will help her plan and manage her
business's income and expenses. The software and worksheets are types of
A. statistical information. C. budgeting tools.
B. legal data. D. organizational charts.
 55. What is a benefit of managing budgeting data efficiently through budgeting applications?
A. Decreases auditors' ability to trace the numbers used in budgets
B. Increases amount of time that needs to be spent on value-added activities
C. Decreases the need for having an audit trail
D. Increases management's confidence in budgets
56. Businesses often use computer-spreadsheet software for “what-if” financial planning by plugging in
different numerical data into formulas, which provide possible
A. distribution methods. C. financial outcomes.
B. production strategies. D. accounting standards.
 57. In which of the following situations would a firm use cost-analysis applications:
A. To predict sales volume for a certain period of time
B. To determine the number of delinquent accounts
C. To assess income changes over a certain period of time
D. To evaluate the amount of money associated with inventory storage
 58. To obtain specific financial information from a complex database, the user has to set
A. queries. C. tabs.
B. symbols. D. panels.
 59. Because the Keller Company is a public corporation, it must provide its shareholders with accurate
financial information in a(n)
A. accounting portfolio. C. complex memorandum.
B. informal monthly contract. D. annual report.
 60. To ensure compliance with government regulations, an independent auditor is required to verify the
accuracy of a public corporation's
A. financial reports. C. diversification efforts.
B. selling policies. D. accounting philosophies.
 61. Which of the following is a financial report that financial institutions often review to decide if they will
approve applicants' requests for business loans:
A. Payment voucher C. Petty-cash summary
B. Corporation charter D. Cash-flow statement
 62. The accounting system used to report a business's financial position that is intended for internal users is
the __________ accounting system.
A. financial C. computerized
B. management D. manual
 63. In relation to recording business transactions, a primary difference between the cost and accrual
accounting systems is
A. complexity. C. frequency.
B. scope. D. timing.
 64. Which of the following is essential to the identification of trends in financial data for a horizontal analysis:
A. Data in a Statement of Cash Flows
B. Data from the most recent financial report
C. Data in financial reports from multiple time periods
D. Data from a zero-based budget
 65. By analyzing a customer's financial information, a finance professional should be able to
A. protect the security of the customer's financial information.
B. declare Chapter 11 bankruptcy for the customer.
C. develop a financial strategy to help the customer.
D. determine the customer's newest target market.
 66. Before approving a loan application, a bank is likely to analyze the applicant's
A. debt ratio. C. brand preferences.
B. inflation rate. D. performance goals.
67. Which of the following is an example of a businessperson making a business decision by analyzing financial data:
A. William asks the staff accountant to prepare the company's profit-and-loss statement for next
Tuesday's executive board meeting.
B. After reviewing sales forecasts and income statements, Angela determines that the company has enough money to hire a new employee.
C. Timothy obtains a copy of the business's credit rating report from a credit bureau.
D. So she can prepare the company's tax return, Kate obtains the necessary financial documents
and forms.
 68. A financial analysis indicates that a small business's customer base and its profitability have steadily
increased over the past six months. What decision is the business most likely to make with this
information?
A. Obtain a loan for equipment repairs C. Liquidate major assets
B. Hire an additional salesperson D. Monitor industry trends
 69. One of the procedures for orienting new employees often involves
A. providing specialized training. C. developing a compensation package.
B. reviewing previous education. D. scheduling a periodic review.
 70. Overall, what does marketing allow us to do?
A. Limit our spending C. Live our daily lives
B. Stop buying online D. Feel better about shopping
 71. Which of the following is a benefit that businesses receive from using the Internet:
A. Easier use of satellite radio C. Faster connections with suppliers
B. Improved methods of manufacturing D. The ability to call employees on the road
 72. An advantage to a business that uses intranet capabilities is that it allows employees to share the
business's information with
A. customers. C. each other.
B. competitors. D. former employees.
 73. Ingrid is able to access information from her desktop publishing software, word-processing software, and
spreadsheet software at the same time on her personal computer. This is an example of an operating
system with __________ capabilities.
A. multiprocessing C. multitasking
B. multi-user D. multithreading
 74. Melanie is putting a copy of each valuable business record in a building far away from her company. She
is practicing which part of disaster planning?
A. Establish a system for record keeping C. Keep potential lawsuits in mind
B. Store information off site D. Computerize valuable business information
 75. Which of the following is a type of business record that a firm can use to track its customers' buying
habits:
A. Forecast C. Marketing budget
B. Invoice D. Annual report
 76. A main reason that environmental scanning is important is so that businesses can be aware of
A. foreign markets. C. competitors' internal environments.
B. new products. D. potential threats.
 77. Which of the following helps the operations function to control costs and increase productivity:
A. Hiring of employees C. Type of management
B. Use of technology D. Supply of money
78. Which of the following is one way that workplace accidents are costly to employees:
A. Lost income C. Lost sales
B. Lost production D. Lost profits
 79. Who is usually responsible for planning a project?
A. Project coordinator C. Project assistant
B. Project scheduler D. Project manager
 80. Do businesses such as banks and dry cleaners engage in production?
A. No, the services provided by these businesses are intangible.
B. Yes, these businesses produce a line of tangible products.
C. Yes, the services provided by these businesses are their products.
D. No, these businesses do not engage in production.
 81. Which of the following is an example of continuous improvement?
A. Giving managers full responsibility for product quality
B. Minimizing defect levels to 3.4 per million units produced
C. Selecting the best possible supplier
D. Following an annual self-assessment and improvement process
 82. Which of the following is an advantage to a business of a good maintenance program:
A. Fixed costs are increased.
B. Customers are more likely to be satisfied.
C. Maintenance costs can be added to profits.
D. Emergency repairs will be needed more often.
 83. Which of the following aspects of personal appearance would likely have the least harmful effect in the
workplace:
A. Excessively baggy clothes C. Visible tattoos
B. Body piercings D. Tailored clothing
 84. Planning activities in advance, setting priorities, and avoiding nonproductive diversions are important
aspects of
A. accountability. C. productivity.
B. natural ability. D. time management.
 85. As you develop self-understanding, the things you learn about yourself will help you to understand
others. A positive result of this would be that you are able to
A. do what others want you to do. C. get along well with others.
B. get what you want from others. D. help others to become mature.
 86. Employees who have supervisory responsibilities for part or all of the business work in
A. business information technology. C. securities and investments.
B. corporate/general management. D. merchandising.
 87. What is one of the main reasons for sending an interview follow-up letter?
A. To submit personal information C. To show your continued interest
B. To explain your qualifications D. To ask supplemental questions
 88. Which of the following statements about working in the financial-services industry is false:
A. Financial services professionals can be found in all kinds of companies, from large corporations
to sole proprietorships.
B. Someone who works in financial services is limited to working at an investment firm, a bank, or an insurance company.
C. Financial services professionals can expect to earn higher-than-average salaries.
D. The financial-services industry includes real estate brokers, fund managers, and auditors.
89. As an employee of a financial-services firm, Elise helps her clients reduce their debt, build their wealth,
and save for their retirement. Which certification is Elise mostly likely to need to perform her job:
A. Certified Loan Officer (CLO) C. Certified Financial Planner (CFP)
B. Certified Tax Specialist (CTS) D. Chartered Market Technician (CMT)
90. Which of the following is a certification sought by individuals who evaluate companies and industries and
make buy, sell, and hold recommendations for certain securities:
A. Chartered Financial Consultant (ChFC) C. Chartered Financial Analyst (CFA)
B. Certified Financial Planner (CFP) D. Certified Stock Broker (CSB)
 91. Troy is a finance manager for a small firm in town. Last night, he attended a cookout at his neighbor's
house, and met Melissa, who is the owner of a large financial-planning company. Troy and Melissa
exchanged business cards, and they set up an appointment for the following week to discuss business
opportunities. In what type of situation did Troy and Melissa form a professional business relationship?
A. Corporate environment C. Educational setting
B. Formal event D. Social networking



92. Ans: C

93. One way for a company to manage its risk in relation to its employees' workplace behavior is by
A. allowing employees to view all company records.
B. providing employees with the flexibility to change company policies.
C. encouraging employees to report workplace misconduct.
D. permitting employees to use company resources for personal use.
 94. How do ethics relate to risk management?
A. Risk management is all about the ethical treatment of customers.
B. The best form of risk management is adherence to business ethics.
C. Risk management is insurance for lapses in business ethics.
D. The best form of business ethics is risk management.
 95. To reduce the risk of loss due to fire or power outages, a financial business should protect its computer
data by
A. using encryption techniques. C. implementing an authorization process.
B. conducting backup procedures. D. monitoring data-transmission rates.
 96. When businesses continuously monitor the laws and implement changes to remain in compliance, they
are
A. demonstrating negligence. C. interpreting contracts.
B. controlling their risks. D. increasing their liabilities.
 97. Which of the following statements is true regarding risk retention groups:
A. The insurance policy holders are also the company's stockholders.
B. A risk retention group may insure companies from many different industries.
C. Group members control risk by retaining equity and transferring liability to external sources.
D. Risk retention groups tend to pay higher licensing fees than traditional insurance companies.
98. Which of the following situations is an example of a business controlling its internal risks:
A. A law firm allows its malpractice insurance to lapse.
B. A service business hires illegal immigrants and pays them low wages.
C. A manufacturer inspects and maintains its equipment on a regular basis.
D. A retailer sells a particular line of goods below cost.
 99. Why is the choice of a risk measure for internal and external risk of great practical importance?
A. It determines the maximum number of clients that can be served effectively by a financial
institution.
B. It determines the minimum reserve requirements in financial trading.
C. It identifies the types of risks that the financial institution will encounter.
D. It designates the audience that will receive the resulting financial reports.
 100. The management function of business is usually responsible for
A. preparing ads. C. setting policy.

B. serving customers. D. stocking shelves.