CIMA BA1 Exam Dumps

CIMA BA1 Sample Question Answers

Question # 1

Which of the following is most likely to lead to a rise in the exchange rate of country's currency and a fall in the price of stocks shares?

A. An increase in the deficit in the country's balance of payments on current account 
B. Foreign investors purchasing shares on the country's capital markets 
C. An increase in the country's money supply 
D. An increase in rates of interest within the country 

Show Answer

Question # 2

The real rate of interest is 

A. The rate of interest charged by banks on loans. 
B. The nominal rate of interest adjusted for inflation. 
C. The compound rate of interest. 
D. The rate of interest charged on loans plus administrative charges. 

Show Answer

Question # 3

Which of the following is not a source of long-term capital for a company?

A. Retained profits 
B. Dividends 
C. Term loans 
D. Issuing corporate bonds 

Show Answer

Question # 4

According to the purchasing power parity theory, if a country's inflation rate is 5% higher than the inflation rates of the country's competitors in the world economy

A. The country's exchange rate will fall by 5% to restore the terms of trade 
B. The domestic purchasing power of the currency must fall 
C. The country's firms must reduce their export prices to remain competitive 
D. The overseas demand for the country's exports will be price elastic 

Show Answer

Question # 5

Which of the following provide possible explanations for the existence of a structure of interest rates?(i). Borrowers having different risk profiles(ii). Lenders wishing to lend for different time profiles(iii). The market for loanable funds being perfectly competitive(iv). The existence of margins between borrowing and lending rates

A. (i) and (iv) only 
B. (ii) and (iii) only 
C. (i), (ii) and (iv) only 
D. (i), (ii) and (iii) only 

Show Answer

Question # 6

All of the following are appropriate policies to deal with the problem of industries which cause pollution except which one?

A. Taxes on the consumption of the product 
B. Subsidies to the producers 
C. The auctioning of pollution permits 
D. Legal controls to limit pollution levels 

Show Answer

Question # 7

The linking of net savers with net borrows is known as:

A. financial intermediation 
B. the savings function 
C. money transfer 
D. credit creation 

Show Answer

Question # 8

What is meant by a 'Eurobond'?

A. A bond denominated in Euros 
B. A bond issued to markets anywhere in Europe 
C. A bond denominated in a currency that differs from the domestic currency of the country where the bond was issued 
D. A bond issued by the European Central Bank 

Show Answer

Question # 9

Which ONE of the following would be expected to reduce the net present value of a proposed investment project? A rise in

A. the expected cash flows from the project 
B. the scrap value of the capital at the end of the project's life 
C. interest rates 
D. the net present value of alternative projects 

Show Answer

Question # 10

All of the financial instruments are traded on the long term capital market except one.Which ONE is the exception?

A. Shares 
B. Certificate deposit 
C. Government undated stock 
D. Long dated bonds 

Show Answer

Question # 11

All of the following are examples of not-for-profit organizations except one. Which ONE is the exception?

A. Mutual savings societies 
B. Charities 
C. Partnerships 
D. Trade Unions 

Show Answer

Question # 12

Why was the Global Banking Crisis of 2007 followed by a credit crunch of low lending?

A. Governments sought to reduce aggregate demand to avoid a boom 
B. Households and firms were unwilling to borrow 
C. Banks had lost reserves and could not support high lending 
D. Households had stop saving due to loss of confidence in commercial banks 

Show Answer

Question # 13

Which one of the following would lead to a fall (depreciation) in the exchange rate for a country's currency?

A. A fall in interest rates in that country 
B. An inflation rate below that of the country's trading partners 
C. A fall in that country's imports 
D. A fall in the export of capital from that country 

Show Answer

Question # 14

A business could meet a short term financial need by all of the following except one. Which ONE is the exception?

A. Using its cash reserves 
B. A bank overdraft 
C. Issuing shares 
D. Factoring 

Show Answer

Question # 15

Identify the source of funds most appropriate for a growing company to use which wishes to borrow funds long-term to pay for initial marketing research and promotion?

A. A debenture 
B. A commercial bill 
C. Ordinary shares 
D. Overdraft 

Show Answer

Question # 16

Diseconomies of scale

A. are the result of the operation of the law of diminishing returns 
B. occur because all firms face a U shaped short run average cost curve 
C. cause the long run average cost curve to rise 
D. are the result of businesses adopting a divisional structure 

Show Answer

Question # 17

Which of the following is NOT a suitable way for a manufacturing company to finance buying assets?

A. Certificates of deposit 
B. Commercial bills 
C. Commercial bonds 
D. Leases 

Show Answer

Question # 18

£100 of new cash is issued, which is then deposited in a bank which is part of a banking system operating a cash ratio of 10%. The maximum possible increase in the moneysupply which can follow from this transaction, additional to the initial deposit, is

A. £90 
B. £190 
C. £900 
D. £1000 

Show Answer

Question # 19

Which of the functions of a financial intermediary is described by the following statement 'Bundles small deposits of liquidity into larger loans'?

A. Aggregation 
B. Risk management 
C. Maturity transformation 
D. Introducing borrows and lenders 

Show Answer

Question # 20

All of the following are functions of central banks except which one?

A. Banker to the commercial banks 
B. Holder of the foreign exchange reserves 
C. Banker to the government 
D. Determination and conduct of fiscal policy 

Show Answer

Question # 21

A government can finance a budget deficit by:i. increasing taxation rates.ii. Reducing government expenditure.iii. Selling long term government bonds.iv. Issuing Treasury Bills.v. Raising interest rates.vi. Reducing transfer payments.

A. (i), (ii) and (iii) only 
B. (ii), (v) and (vi) only 
C. (ii) and (vi) only 
D. (iii) and (iv) only 

Show Answer

Question # 22

Which one of the following methods of government borrowing is most likely to be inflationary? The sale of:

A. Treasury bills to the banking sector 
B. Long-term securities to insurance companies and pension funds 
C. National savings securities to the general public 
D. Long-term securities to the banking sector 

Show Answer

Question # 23

All of the following were features of the financial crisis of 2008 except one. Which ONE is the exception?

A. A rise in the volume of mortgage defaults 
B. A chronic shortage of liquidity in the banking system 
C. A severe contraction in inter-bank lending 
D. A sharp fall in rate of interest on inter-bank lending 

Show Answer

Question # 24

Which of the functions of a financial intermediary is described by the following statement 'Invests across a wide range of assets to reduce the loss of capital value if a particular borrower defaults'?

A. Aggregation 
B. Risk management 
C. Maturity transformation 
D. Introducing borrows and lenders 

Show Answer

Question # 25

Calculate the yield to an investor available from the following commercial bill: Face value$100,000 Market price$98,500 Maturity90 days time

A. 1.5% 
B. 4.5% 
C. 6.1% 
D. $1,500 

Show Answer

Question # 26

Which of the following describes a 'spot rate' in foreign currency dealing?

A. It is a short term rate that may change in the immediate future 
B. It is the price for a currency that is to be delivered immediately 
C. It is the exchange rate minus any commissions or transactions charges 
D. It is the exchange rate minus the inflation rate 

Show Answer

Question # 27

Which of the following is not a function of a central bank?

A. Banker to the banking system 
B. Supervision of the banking system 
C. Banker to the government 
D. Regulation of the taxation system 

Show Answer

Question # 28

All of the following are advantages of a system of floating (flexible) exchange rates except one. Which ONE is the exception?

A. They provide automatic correction of imbalances in the balance of payments 
B. Countries no longer need to hold foreign exchange reserves to manage the currency 
C. Countries with inflationary problems can avoid losing international price competitiveness 
D. They encourage international trade by eliminating foreign exchange transactions costs 

Show Answer

Question # 29

A promoter has arranged a large outdoor concert. All the costs are fixed and there are no variable costs associated with the number of spectators attending.Which of the following statements about the profit maximizing price is FALSE?

A. It is the price at which Marginal Revenue is zero 
B. At this price, the price elasticity of demand will be unity (i.e. equal to 1) 
C. This price will ensure the promoter covers the cost of the concert 
D. This is the price which maximizes the revenue the promoter earns from the concert 

Show Answer

Question # 30

Select the best definition of the corporate governance of a company from the list below.

A. The structure and functions of the Board of a firm 
B. The systems by which companies are directed and controlled
C. The composition and duties of the management of a company 
D. The financial and non-financial performance of a company 

Show Answer

Question # 31

If real rates of interest are positive and rising, then

A. The average level of saving will be decreasing 
B. Lenders are gaining at the expense of borrowers 
C. The rate of inflation must be increasing 
D. The desire to hold cash balances will be increasing 

Show Answer

Question # 32

All of the following were contributory causes of the banking crisis of 2008 (the 'credit crunch') except one. Which ONE is the exception?

A. Large scale default in the in the US sub-prime mortgage market 
B. Over- capitalization of commercial and investment banks 
C. The bundling of mortgages into collateralized debt obligations which were sold onto banks 
D. Erroneous credit rating of collateralized debt obligations by credit rating agencies 

Show Answer

Question # 33

Regulatory offices have been established after the privatization of some nationalized industries because

A. some industries retain significant monopoly power 
B. the number of new producers entering the industry must be controlled 
C. these privatized industries produce public goods 
D. government regulations make monopolies in the private sector illegal. 

Show Answer

Question # 34

Identify in the following list the statement that does not describe a function of a financial intermediary:

A. Aggregation of funds 
B. Maturity transformation 
C. Risk transformation 
D. Transfer payments 

Show Answer

Question # 35

In a system of freely floating exchange rates the central bank and government will

A. Not need to engage in exchange equalization 
B. Allow market forces to determine the exchange rate within a strictly limited band 
C. Have less ability to control the money supply than in a fixed exchange rate system 
D. Have to intervene in foreign exchange markets in order to maintain the system 

Show Answer

Question # 36

All of the following are sources of finance for business except which one?

A. Retained profits 
B. Certificates of deposit 
C. New share issues 
D. Mortgages 

Show Answer

Question # 37

Financial intermediation is the process by which

A. Net savers and net borrowers are brought together. 
B. Banks create credit on the basis of their liquid assets. 
C. The central bank acts as a link between commercial banks and the government. 
D. Banks provide commercial services for their customers. 

Show Answer

Question # 38

Central banks inspect and sometimes set minimum limits on the reserves held by commercial banks. Which ONE of the following statements is NOT a reason that centralbanks seek to influence the reserves of commercial banks?

A. To influence commercial banks' ability to create credit 
B. To avoid the commercial banks running out of liquidity 
C. To regulate the profits of commercial banks 
D. To prevent the collapse of the banking system 

Show Answer

Question # 39

Real GDP per capita in an economy is directly affected by(i). The quantity of resources located in the economy(ii). How efficiently the economy uses resources when producing goods and services(iii). The size of the working population(iv). The flow of investment income from abroad

A. (i) and (iv) only 
B. (i) and (ii) only 
C. (ii), (iii) and (iv) only 
D. (i), (ii) and (iii) 

Show Answer

Question # 40

The stock market fulfils all of the following functions except which one?

A. A market for government bonds. 
B. A market for foreign exchange. 
C. A market for company shares. 
D. A market for short term loans. 

Show Answer

Question # 41

Which of the functions of a financial intermediary is described by the following statement 'converts a flow of short-term deposits into a supply of long term loans'?

A. Aggregation 
B. Risk management 
C. Maturity transformation 
D. Introducing borrows and lenders 

Show Answer

Question # 42

Which of the following is NOT achieved by the price mechanism in a market economy?

A. Signaling of consumers' requirements 
B. Allocation of adequate resources for future investment 
C. Rationing of scarce resources between potentially unlimited demands 
D. Setting of rewards to factors of production 

Show Answer

Question # 43

All of the following are functions of a central bank except one. Which ONE is the exception?

A. Lender of the last resort 
B. Banker to the commercial banks 
C. The conduct of fiscal policy 
D. Regulation of the banking system 

Show Answer

Question # 44

Which of the following might be regarded as benefits of the single currency, the Euro?(i). Greater freedom for member countries to set their own interest rates(ii). It is easier to compare prices of consumer goods in all countries using the Euro(iii). A reduction in transactions costs for trade between countries using the Euro(iv). Increased economic growth resulting from a more efficient common market

A. (i) and (ii) only 
B. (i), (ii) and (iv) only 
C. (iii) and (iv) only 
D. (ii), (iii) and (iv) only 

Show Answer

Question # 45

When central banks adopt a policy of 'quantitative easing' this means that they:

A. Lift quantitative restrictions on bank lending 
B. Lower the capital adequacy requirements for banks 
C. Buy government bonds from the banks 
D. Ease the liquidity ratios banks need to hold 

Show Answer

Question # 46

Which ONE of the following financial instruments is NOT issued for long term borrowing by the issuer?

A. Treasury bills 
B. Equities 
C. Treasury bonds 
D. Mortgages 

Show Answer

Question # 47

Identify which of the following features does not distinguish redeemable debt apart from equity:

A. It has a face value which shows its value at redemption 
B. It will pay a regular set sum of interest 
C. It will have a maturity date when it will mature 
D. It will never be traded on an investment market 

Show Answer