Tag: sources of business finance - 1

Questions Related to sources of business finance - 1

Which of the following is true for 'dirty float'?

elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

  1. It is a purely fixed exchange rate system

  2. It is compromise between fixed and floating exchange rate systems

  3. Central banks sometimes intervene in the forex market to curb sharp changes.

  4. Both (B) and (C) above

  5. All of (A), (B) and (C) above

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Correct Option: D
Explanation:

In order to reduce the inefficiencies in the foreign exchange market central banks generally intervene in the currency markets to smoothen the fluctuations. Though officially the exchange rate may be floating, in reality the central bank  may intervene regularly in the currency market,unofficially keeping it fixed. Such a system is referred to as a 'managed float' or a 'dirty float'.

Source of funds for an entrepreneur can be _______.

elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

  1. Personal investment

  2. Venture capital

  3. Investment from 'Angels'

  4. All of the above

Show answer
Correct Option: D
Explanation:
 Every entrepreneur need some source of funds to implement his idea to run a business. Source of funds for an entrepreneur can be:
a) personal investment
b) venture capital
c) investment from 'Angels': here 'angels' mean investors.

A trading concern for example, may require ____ amount of fixed capital as compared to a manufacturing concern.

elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

  1. Large

  2. Small

  3. Fixed

  4. Half

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Correct Option: B
Explanation:

A trading concern for example, may require small amount of fixed capital as compared to a manufacturing concern since trading does not involve physical assets for production purpose. Whereas, manufacturing sector requires huge amount of investment.

Which is of the following is / are false?

elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

  1. In the FIFO method the issue is in the order of receipt.

  2. In the replacement method the current realizable value is taken for pricing the issues.

  3. In the weighted average method issue price is the weighted average of quantity and price and the weight being the percentage of value of each lot in the total stock.

  4. Under inflationary conditions LIFO method will show low value of inventory.

  5. Both (B) and (D) above

Show answer
Correct Option: C
Explanation:

In the Weighted average cost method the pricing of the materials is done on weighted average basis and the weights will be based on the quantity.

A stock dividend is paid out of ________________.

elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

  1. current earnings

  2. retained earnings

  3. capital surplus

  4. paid-in-surplus

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Correct Option: B

Which of the following is/are the source(s) of short term finance?

elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

  1. Trade Credit

  2. Cash advance loan

  3. Short term Borrowings

  4. All of the above

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Correct Option: D
Explanation:

Short term finance is type of business financing where it is obtained for a year or less. The sources of short term finance are: trade credit, cash advance loan and short term borrowings.

In each bank, within a credit-rating scale, borrowers are classified into _____________________.

elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

  1. Excellent, Good and Average

  2. Below Average or Unsatisfactory

  3. Excellent and Below Average

  4. Both (a) and (b)

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Correct Option: D

Which of the following will result into sources of funds?
(i) Increase in current assets
(ii) Decrease in current assets
(iii) Increase in current liabilities
(iv) Decrease in current liabilities

elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

  1. (i) and (iv)

  2. (ii) and (iii)

  3. (i) and (iii)

  4. (ii) and (iv)

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Correct Option: B

The increase in profit return resulting from borrowing capital at a low rate and employing it in a business yielding at a higher rate ____________.

elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

  1. Operating leverage

  2. Trading on equity

  3. Asset leverage

  4. Return on investment leverage

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Correct Option: B

Business incubators (or "accelerators") generally focus on the high-tech sector by providing support for new businesses in various stages of development. 

elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

  1. True

  2. False

Show answer
Correct Option: A
Explanation:

Business incubators (or "accelerators") generally focus on the high-tech sector by providing support for new businesses in various stages of development- this is a true statement. Business incubators mainly help start-up companies by providing management and other facilities.