International Commerce Olympiad

1. Funds required for purchase of current assets are an example of:

(a) Fixed Capital requirement (b) Ploughing back of profits

Ans: (c) Working Capital requirement

2. What are the equity shareholders called?

(a) Owners of the company (b) Partners of the company

Ans: (a) Owners of the company

3. Debentures represent:

(a) Fixed Capital of the company

(b) Permanent Capital of the company

(d) Loan Capital of the company

Ans: (d) Loan Capital of the company

4. Which of the following is NOT a feature of Inter-corporate Deposits?

(a) The market for Inter-Corporate Deposit depends crucially on personal contacts.

(b) The market for Inter-Corporate Deposits does not maintain secrecy.

(d) The lending corporation can invest its short-term idle funds in inter- corporate deposits and earn interest thereon.

Ans: (b) The market for Inter-Corporate Deposits does not maintain secrecy.

5. Which of the following statements is true of IDR (Indian Depository Receipts)?

(a) The IDR is an instrument denominated in Indian Rupees.

(b) The issuing company can be listed in any country.

(d) The issuing company’s track record of compliance with securities market regulations in its home country does not matter.

Ans: (a) The IDR is an instrument denominated in Indian Rupees.

6. Which of the following statements is true of Trade Credit as a source of Business Finance:

(a) It is a long term source of business finance.

(b) It requires a provision of tangible asset as security with the supplier.

(d) The buyer is not required to pay any extra interest up to the agreed period of credit. She/he only loses cash discount.

Ans: (d) The buyer is not required to pay any extra interest up to the agreed period of credit. She/he only loses cash discount

7. Which of the following is true about loans from financial institutions

(development Banks)?

(a) Financial Institutions provide only short term Business Finance.

(b) Besides providing funds, many of these institutions provide financial, managerial and technical advice and consultancy to business firms.

(d) Financial Institutions are not allowed to have any nominees on the Board of Directors.

Ans: (b) Besides providing funds, many of these institutions provide financial, managerial and technical advice and consultancy to business firms.

8. Public deposit can be used as a source of finance by

(a) Sole Proprietor (b) Hindu undivided family business

Ans: (c) Joint Stock company

9. Which of the following statements is true about preference shares?

(a) Preference shares provide reasonably steady income in the form of fixed

rate of return and safety of investment.

(b) Preference shares are useful for those investors who want flexible rate of

return with comparatively low risk.

(d) Equity shareholders have a preferential right over preference shareholders in the event of liquidation of a company.

Ans: (d) Equity shareholders have a preferential right over preference shareholders in the event of liquidation of a company.

10. Which of the following statements is true about Business Finance?

I. Working Capital is used to finance the purchase of Fixed Assets.

II. Fixed Capital is used to finance the Purchase of Stock.

III. Working Capital is used for day to day business.

IV. Fixed Capital remains invested in business for a long period of time. Choose from the following options:

(a) I only (b) I and II only

Ans: (d) III and IV only

11. Which of the following is an example of Owner’s Funds?

(a) Retained Earnings (b) Debentures

Ans: (a) Retained Earnings

12. Which of the following statements is true?

I. Equity Shares do not carry a fixed rate of Dividend.

II. Preference Shares carry a Variable rate of Dividend.

III. Equity Share holders do not have voting rights in the Annual General

meeting of the Company.

IV. Preference Share holders do not have a voting right in the Annual General

meeting of the company.

Choose from the following options:

(a) III and IV only (b) I and III only

Ans: (c) I and IV only

13. Which of the following statements is true about Global Depository Receipts (GDR’s)?

I. The local currency shares of a company are delivered to the depository bank.

II. The depository bank issues depository receipts against these shares which are denominated in US $.

III. It can be traded as a negotiable instrument freely like any other security.

IV. They also carry voting rights. Choose from the following options:

(a) I, II and IV (b) I, II, and III

Ans: (b) I, II, and III

14. Trade Credit is a preferred source of short term finance because:

(a) It creates a charge on the assets of the firm while providing funds.

(b) Unlimited amount of funds can be generated through trade credit.

and financial standing.

(d) It is a convenient and continuous source of funds.

Ans: (d) It is a convenient and continuous source of funds.

15. Loans from commercial banks is a preferred source of finance because:

(a) It is a flexible source of finance as the loan amount can be increased according to business needs and can be repaid in advance when the funds are not needed.

(b) Many formalities are to be complied with.

(d) Funds are seldom available for long periods.

Ans: (a) It is a flexible source of finance as the loan amount can be increased according to business needs and can be repaid in advance when the funds are not needed.

16. Which of the following statements is true about a debenture?

(a) Debentures offer a flexible rate of interest.

(b) Debenture holders have voting rights at the Annual General Meeting of

a company.

(d) Interest paid on debentures by the company is not tax deductible.

Ans: (c) Debenture is an acknowledgement of a debt by the company.

17. Which of the following statements is true about Inter Corporate Deposits?

(a) It is a short term assistance provided by general public to a company.

(b) It is a short term assistance provided by one company to another.

(d) It is a short term assistance provided by a government to a company.

Ans: (b) It is a short term assistance provided by one company to another.

18. Which of the following statements is TRUE about equity capital?

(a) It is the main risk capital of the company.

(b) It carries a rate of interest.

(d) It does not give benefits of ownership.

Ans: (a) It is the main risk capital of the company.

19. Which of the following is TRUE of Retained Earnings as a source of business

finance?

(a) It carries interest liability.

(b) It carries voting power.

(d) It does not give operational flexibility.

Ans: (c) It is a permanent source of capital for a company.

20. Many Indian companies are raising capital abroad. Identify from the following, the source of capital, which is used by them?

(a) Equity Capital (b) GDR

Ans: (b) GDR

21. Which of the following is the correct merit of Debenture as a source of

business finance?

(a) It is preferred by investors who like taking risks.

(b) Debentures carry a flexible charge and take part in the profits of the

company.

stable.

(d) Financing through debentures is costly as compared to equity capital.

Ans: (c) The issue of debentures is suitable when sales and profits are relatively

stable.

22. Which of the following is the Correct demerit of ‘loans from commercial

banks’ as a source of business finance?

(a) Funds are generally available for a short period and its extension or renewal is uncertain.

(b) The procedure of obtaining loans from banks is easy and they ask only brief questions.

(d) Loans are available for very large amounts also.

Ans: (c) HARD terms and conditions are imposed by banks.

23. Which of the following correctly describe ‘Trade Credit’ as a source of Business Finance?

(a) It is advance granted by buyer to seller.

(b) Credit allowed by seller to buyer for short term.

(d) It is credit allowed by buyer to seller.

Ans: (b) Credit allowed by seller to buyer for short term.

24. Which of the following is a correct merit of ‘Public Deposits’ as a source of

business finance?

(a) The terms and conditions for issue of public deposits contain restrictive conditions.

(b) Cost of Pubic Deposits is generally lower than the costs of borrowing from banks.

(d) Depositors have voting rights.

Ans: (b) Cost of Pubic Deposits is generally lower than the costs of borrowing from banks.

25. A company’s profit that is distributed to shareholders is called .

(a) Interest (b) Dividend

Ans: (b) Dividend

26. ‘A company requires funds for long term purposes and does not want to pay any fixed charges for the same’. Which of the following would be the best source of funds in this case?

(a) Debentures (b) Equity Share Capital

Ans: (b) Equity Share Capital

27. Which of the following source of finance is freely available anytime without

much formalities?

(a) Retained Earnings (b) Equity Share Capital

Ans: (a) Retained Earnings

28. Which source of surplus fund is made available by one corporate to another?

(a) Public Deposits (b) Trade Credit

Ans: (c) Inter Corporate Deposits

29. ‘A business manages its funds requirements through its normal business operations without going to public or any financial institution’. Which source of funds being referred to in this statement?

(a) Inter Corporate Deposits (b) Retained Earnings

Ans: (b) Retained Earnings

30. In terms of tax benefit, which of the following will be preferred by an

organization?

(a) Preference share (b) Retained Earnings

Ans: (d) Debentures and Loans

31. A company can meet its working capital requirements by raising:

(a) Preference Shares (b) Debentures

Ans: (d) Public Deposits

32. Who are the primary risk bearers of the company?

(a) Debenture holders (b) Equity share holders

Ans: (b) Equity share holders

33. Which of the following statements correctly explains the distinction between equity shares and preference shares?

(a) Equity shareholders have the priority to receive dividend over preference shares.

(b) Equity shares don’t enjoy voting rights over preference shares.

(d) Equity shareholders are paid before the payment to preference shareholders.

Ans: (c) Equity dividend keeps on fluctuating and preference dividend remains fixed.

34. Which of the following is NOT the part of owners’ funds?

(a) Retained Earnings (b) Inter Corporate Deposits

Ans: (b) Inter Corporate Deposits

35. The funds required by ‘Snap deal’ to advertise in the newspapers is an example of:

(a) Fixed Capital Requirements (b) Working Capital Requirements

Ans: (b) Working Capital Requirements

36. For which of the following source of finance, a company is required to

mortgage its assets?

(a) Equity Shares (b) Preference Shares

Ans: (c) Debentures

37. Excellent Company Limited made a 3-Month ICD in Fiesta Company Limited for ₹ 40,00,000. Calculate the interest to be paid by latter to former, given rate of interest to be 12% p.a.

(a) 1,20,000 (b) 4,80,000

Ans: (a) 1,20,000

38. Which of the following is not an advantage of borrowed funds?

(a) The tax payable is reduced because of borrowed funds

(b) The borrowed funds are costlier than equity, for the company

(d) None of the above

Ans: (b) The borrowed funds are costlier than equity, for the company

39. Which of the following statements is correct?

(a) Cost of equity shares is greater than cost of debt and cost of preference shares.

(b) Debt is riskier security than equity and preference, for a company.

preference shares or equity shares.

(d) All of the above

Ans: (a) Cost of equity shares is greater than cost of debt and cost of preference shares.

40. Which reason is true for the below mentioned statement? “There is no tax saving in case of preference share dividend”.

(a) The Preference dividend is paid before equity dividend.

(b) The Preference shareholders have no voting rights

(d) None of the above

Ans: (d) None of the above

41. A company sells goods on 2 months credit however it purchases goods on 1

month credit. What can be commented on the working of the company?

(a) The company requires less Working capital

(b) The company requires more Fixed capital

(d) The company requires less Fixed capital

Ans: (c) The Company requires more Working capital

42. Some of the features of the different methods of raising long-term capital are given below. Identify the features that relate to preference shares

(a) In case of winding up of the company, the capital is refunded after payment of debentures but before payment to equity shareholders.

(b) Their holders are creditors of the company for a fixed period.

(d) They bear high degree of risk-in case of losses they do not get dividend and in case of winding up of the company, they are the last to get refund of their invested money.

Ans: (a) In case of winding up of the company, the capital is refunded after payment of debentures but before payment to equity shareholders.

43. Identify feature(s) common in Retained Earnings and equity shares, as source

of finance.

I .There is a no dilution of control

II. There is no requirement for keeping security for raising funds

III .The cost of raising funds is less

IV. Permanent capital is procured

(a) I and III are common (b) I and IV are common

Ans: (c) II and IV are common

44. Shaktimaan Mills, needs funds for meeting its day to day expenses like wages, rent, telephone expenses etc. The business decides to approach its supplier viz. Shinchan and Sons. Shinchan and Sons refused to give any loan but agreed to supply raw material without immediate payment to be made by Shaktimaan Mills. What is this form of assistance by Shinchan and Sons to Shaktimaan Mills called as?

(a) Social responsibility (b) Business ethics

Ans: (c) Trade credit

45. Madhur Ltd raised finance for a period of one and half years, of ₹ 50,00,000 offering ROI of 12.5%, higher than bank interest. A receipt is issued to the lender and terms and conditions are mentioned on its back. The company is happy in raising such type of finance, as it does not involve restrictive conditions as required in other loan agreement. Identify the source of finance:

(a) Equity Shares (b) Preference Shares

Ans: (c) Public Deposits

46. Such source of finance increases the borrowing capacity and credit worthiness

of a company. Identify

(a) Equity Shares (b) Preference Shares

Ans: (c) Debentures

47. I want to invest in Stock market, I am a young person who aspires to earn higher returns on investment and for this I am ready to take risks. However I should know about the affairs of the company where I am investing. Which security should I buy?

(a) Equity Shares (b) Preference Shares

Ans: (a) Equity Shares

48. Name the source of funds, which can be termed as “tax saving securities”.

(a) Equity Shares (b) Public Deposits

Ans: (b) Public Deposits

49. Reliance Industries plans to raise ₹ 25,000 crore for its aggressive expansion strategy in the telecom space so that they are able to take the advantage of tax deduction. Identify the source of Funds to be issued by Reliance Industries.

(a) Equity Shares (b) Preference shares

Ans: (c) Debentures

50. Retention of Profits method of raising finance, is referred to in which of the

following statements:

(a) To raise funds through this method, an advertisement is generally given through the newspapers.

(b) They offers flexibility and the funds can be refunded when not required.

(d) Management is less careful about utilization of funds raised by this method.

Ans: (d) Management is less careful about utilization of funds raised by this method.

51. XYZ Ltd. issues 10,000 units of securities of ₹ 500 each, to public. The company mortgages its assets and promises to pay a fixed return to subscribers of those securities regularly, irrespective of its earnings In which category such securities can be classified?

(a) Owners’ Funds (b) Borrowed Funds

Ans: (b) Borrowed Funds

52. The following is not a source of Working Capital Finance:

(a) Loans from financial institutions

(b) Inter-corporate Deposits

(d) Public Deposits

Ans: (a) Loans from financial institutions

53. I want to invest in Stock market, I am an old retired person who aspires to earn fixed returns on investment. Moreover, my hard earned money should not be put on stake and if the company even shuts down my money should be safe. Which security should I buy?

(a) Equity Shares (b) Preference Shares

Ans: (b) Debentures

54. Instruments issued by a Japanese Company to raise funds from India, giving Indian investors dividend, but restricting voting rights, will be called as:

(a)GDRs (b) ADRs

Ans: (c) IDRs

55. Choose the odd one out from the following, keeping ‘Tax Savings’ as the Limitation of Sources of Finance:

(a) Preference Shares (b) Debentures

Ans: (a) Preference Shares

56. Dhoom Enterprises wishes to expand its operations. For expansion purposes, it needs to import modern machinery. The production manager compares various models and brands of machineries available from different importers. He discusses with supervisors and workers, compares the initial cost, maintenance cost and other overheads before taking decision about purchase of machinery.

Which source of finance will not be suitable for raising the required finance

for the above purpose?

(a) Trade Credit (b) Equity Shares

Ans: (a) Trade Credit