Free Sources of Business Finance 02 Practice Test - 11th Grade - Commerce
Question 1
What are the two important sources from where the owner's funds can be obtained?
Retained earnings and issue of equity shares
Retained earnings and issue of preference shares
Retained earnings and debentures
None of the above
SOLUTION
Solution : A
Owner's funds are the funds that are provided by the owners of an enterprise, which may have sole trader or partner or shareholder of a company. The owner's capital is invested for a long period of time. Such capital forms the basis on which owners acquire their right of control of management. An issue of equity shares and retained earnings are the two important sources where owner's funds can be obtained.
Question 2
The directors of a famous I.T company have decided to set up a new firm in Pune, with an estimated cost of rupees of eight crores. Which of the following sources of finance would be most suitable?
Public deposits, Short-term loans from commercial banks, Trade credit
Equity shares, Preference shares, Debentures
Trade credit, Factoring, Banks
Commercial papers, Debentures, Equity shares
SOLUTION
Solution : B
Setting up of a plant means funds are required for investment in long-term assets. There are various sources of long-term finance, such as equity shares, preference shares, and debentures.
Question 3
Retained earnings are called self-financing.
True
False
SOLUTION
Solution : A
True: Retained earnings are called self-financing, because the firm itself generates the funds.
Question 4
Which of the sources of finance is expensive when the invoices are numerous and smaller in amount?
Retained Earning
Factoring
Equity Shares
Trade Credit
SOLUTION
Solution : B
Factoring: It is an expense when the invoices are numerous and smaller in amount. The factor (the funding source) buys the right to collect on that invoice by agreeing to pay the invoice's face value less a discount--typically 2 to 6 percent. The factor pays 75 percent to 80 percent of the face value immediately and forwards the remainder (less the discount) when the customer pays.
Question 5
Financial institutions may not have their nominees on the Board of Directors of the borrowing company.
True
False
SOLUTION
Solution : B
False. Financial institutions may have their nominees on the Board of Directors of the borrowing company, thereby restricting the powers of the company.
Question 6
Items such as trolleys and cabinets are an example of
Fixed Capital
Working Capital
SOLUTION
Solution : A
Items such as trolleys and cabinets are required for long-term use in the business and are an example of fixed capital.
Question 7
The difference between non-recourse as opposed to recourse factoring is that the company has no liability with any uncollected invoices.
True
False
SOLUTION
Solution : A
True. The difference between non-recourse as opposed to recourse factoring is that the company has no liability with any uncollected invoices. The factor absorbs all the risk.
Question 8
NBFCs do not have a banking license.
True
False
SOLUTION
Solution : A
True. Non-banking financial companies (NBFCs) are financial institutions that offer various banking services, but do not have a banking license.
Question 9
Depositary receipts that are traded in an international market other than the United States are referred to as
Global Depositary Receipts
International Depositary Receipts
Open market depositary receipts
None of the above
SOLUTION
Solution : A
Depositary receipts that are traded in an international market other than the United States are referred to as Global Depositary Receipts.
Question 10
A Global Depository Receipt is a bank certificate that is basically issued in more than one country for shares in a foreign company.
True
False
SOLUTION
Solution : A
True. A Global Depository Receipt is a bank certificate that is basically issued in more than one country for shares in a foreign company. These shares are held by a foreign branch of an international bank. These shares trade like domestic shares, but these are offered for sale globally through various branches of the banks.