Mock Exam for Accounting and Finance

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Mock Exam for Accounting and Finance

BSc/MSc Fashion Management Y1

Multiple Choices

1. The value of £100 today is greater than £100 one week after. This indicates

A. The money has time value

B. Growth of economics

C. Currency depreciation  

D. Higher demand in currency

Answer: A

2. Suppose a fashion company has £100 and save it in the commercial bank. The interest is compounded semi-annually, and the annual interest rate is 8%. How much money the fashion company could receive after one year?

A. £116

B. £108

C. £104

D. £108.16

              Answer: D

             

3. A fashion company invests in a project and this project could generate £1000 revenue in the first year and £2000 revenue in the second year. The annual interest rate is 5%. What is the total present value for these two cash inflows from this project?

A. £2811.79

B. £2721.08

C. £2766.44

D. £2857.14

              Answer: C

             

4. Which of the following are economic functions of a financial system?

i. The operation of a payment system

ii. Providing the means of risk adjustments between deficit and surplus units

iii. Helping to reduce unemployment

iv. Channelling funds between lenders and borrowers

v. Helping speculators to bet on price movements

A. i , ii, and iv

B. i and v

C. ii, iii, and v

D. ii, iii, iv, and v

       Answer: A

5. A gold wholesaler is seeking a bank loan to finance its purchasing gold from market.

Suppose current gold market price is $600 per ounce and the wholesaler has opportunity to enter in a forward market, with pre-determined price of $800 per ounce after one year. The interest rate of borrowing the money from bank is 10% annually. There is no cost to storage the gold. Which strategy this wholesaler could make the profits for one ounce of gold from its spot and forward markets?

A. Buy gold and short one-year gold forward contract today

B. Sell gold and long one-year gold forward contract today

C. Buy gold and long one-year gold forward contract today

D. Sell gold and short one-year gold forward contract today

Answer: A

If the wholesaler borrows the money today $600 to buy one ounce of gold, the total cost to borrow the money is: . If the wholesaler could short the forward contract at the same time with predetermined price $800, which means after one year, you could sell one ounce of gold at $800. The total profit will be: $800-$660=$140

6. A financial intermediary receives funds from many surplus agents can pool these funds for on-lending to several long-term loans to different economic sectors. This economic function for financial intermediary is:

A. Maturity transformation

B. Risk transformation

C. Liquidity

D. Information and transparency

      Answer: A

7. Money market securities have all the following characteristics except they are not

A. Long term

B. Liquidity

C. Low risk

D. Commonly used between large financial institutions  

Answer: A  

8. Which of the following statements is true regarding the differences between the primary market and the secondary market?

A. New issued shares are distributed to investors in the primary market while existing securities are traded in the secondary market

B. New issued shares are traded in the secondary market while existing securities are also traded in the secondary market

C. Existing securities are traded in the primary market while new issued shares are distributed to investors in the secondary market

D. Existing securities are distributed to investors in the primary market while new issued shares are also traded in the primary market

Answer: A

9. Which of the following are deposit-taking institutions?

i. Building societies

ii. Investment Banking

iii. Ventral Capital

iv. Retail banks

v. Pension funds

A. ii and v

B. i and iv

C. i, iv, and v

D. ii, iii, iv, and v

Answer: B

10. If your investment goal is simply to match the market, should buy a(n)_______.

A. Hedge fund

B. Money market fund

C. ETF market index fund

D. Equity fund

Answer: C

11. Suppose there are two choices in the market.

i. You could receive £900 after two years with interest rate 8%, semiannual compounded

ii. You could receive £1000 after two years with interest rate 10%, annual compounded

Which one has the higher present value?

A. Option ii, because the present value is £822.70

B. Option i, because the present value is £771.60

C. Option i, because the present value is £769.32

D. Option ii, because the present value is £826.44  

Answer: D

For the option i:

For the option ii:

12. A business could obtain assets without the need to pay a large lump sum up front however the business will never actually own the items. This is called ______ for the business

A. Hire purchase

B. Leasing

C. Franchise

D. Issuing shares

Answer: B

13. If the interest rate is 10% and you have £1000, how long will it take you to double the savings?

A. 4 years

B. 9 years

C. 7 years

D. 5 years

Answer: C

72/10=7.2 years, approximately 7 years

14. The information of share showed as below:

Beta of Burberry: β=0.7

Expected market return:

Risk-free rate:

       What is the required rate of return for Burberry’s share?

A. 2.8%

B. 4.8%

C. 6.2%

D. 3.4%

Answer: B

       CAPM=2%+0.7*(6%-2%)=4.8%

15. The share information showed as below:

Burberry current share price: 2000 pence

The last dividend: 50 pence

Dividend growth rate: 3%

The required rate of return by market: 5%

Is the Burberry share price undervalued, overvalued, or fair priced?

A. Undervalued

B. Overvalued

C. Fair priced

D. Not known

Answer: A

Next dividend: 50*(1+3%)=51.5 pence

Gordon growth model: 51.5/(5%-3%)=2575 pence

2575 pence is higher than 2000 pence, thus undervalued

16. A business  invested a portfolio as below:

 

Next

Ted Baker

Weights of the share

70%

30%

Expected rate of return

10%

30%

What is the expected return for this portfolio?

A. 24%

B. 16%

C. 20%

D. 14%

Answer: B

16%

17. You buy one silver future contract at £50 per ounce. Assume the contact size is 1000 ounces and there are no transactions costs. The initial margin is 10% and the maintenance margin is 25% of the initial margin. According to the silver daily price , when you probably receive the margin call from clearing house?

Day

Silver price  

1

£50

2

£49

3

£46

4

£44

5

£48

A. Day 2

B. Day 3

C. Day 4

D. Day 5

Answer: B

The total value of the futures: £50*1000=£50,000

The initial margin: £50,000*10%=£5000

The maintenance margin: £5000*25%=£1250

Day 1:

Account: £5000

P&L=0

Day 2:

(£49-£50)*1000=-1000

Day 2 Account you left: £4000

Day 3:

(£46-£49)*1000=-£3000

Day 3 account you left: £4000-£3000=£1000

Below £1250

Receive margin call

18. If a fashion company is seeking for a medium-term financing, this fashion company could_____

A. Overdraft

B. Use trade credit

C. Get 2-year bank loan

D. Use leasing

Answer: D

19. According to Table 1, answer the question:  

Table 1

Currency  

US $ Equivalent  

EUR (Euro)  

1.3517 

GBP (British Pound)  

1.60565 

JPY (Yen) 

0.001173 

Ted Baker placed an order with a manufacturing firm based in Spain to buy 30,000 units of clothes for EUR 250,000. How much GBP for one unit of cloth?  

a) £7 

b) £4 

c) £18 

d) £12 

Answer: a

1 Euro=$1.3517

1 GBP=$1.60565

1 GBP=1.188 Euros

250,000 Euros=£210,438

£210,438/30,000=£7

20. You observe the exchange rate in bank in the UK. According to table 1 and answering the question: 

Table 1

Currency  

Buy  

Sell  

Euro 

1.19 

1.15 

New Zealand 

2.17 

2.05 

USA 

1.58 

1.52 

Turkey 

2.75 

2.6 

If you have an investment in US and gains $20,000 and would like to invest this in a fashion company in New Zealand. According to Table 1, how much could you invest in New Zealand Dollar?  

a) $15414.63 

b) $14009.22 

c) $25949.37 

d) $28552.6 

Answer: c

Convert USA to GBP first:

The bank buys the USA dollar: $20,000/1.58=£12,658.22

Then the bank sells the New Zealand dollar: £12,658.22*2.05=$25,949.37

21. There is a 3-year coupon bond with a face value of £1,000 and coupon rate of 4% annually. The market interest rate is 6% compounded annually. What is the price for this 3-year coupon bond?

a) £946.53

b) £1073.2

c) £948.78

d) £950.13

Answer: a

 

2023-06-10