Question Tag: Financial Markets

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  • 1 Marks

BMF – MAY 2016 – L1 – SA – Q12 – Basics of Business Finance and Financial Markets

Multiple choice question on the functions of a stock exchange.

Which of the following is NOT a function of a stock exchange?

A. Provide a system in which shares can be traded in a regulated manner
B. Enforce rules of business conduct on market participants
C. Ensure availability of shares and bonds to be traded by investors
D. Ensure that there is an efficient system for providing new financial information about companies to investors in the market
E. Provide a system for recording information about the prices at which shares are bought and sold and making them available to participants

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  • 1 Marks

BMF – MAY 2016 – L1 – SA – Q12 – Basics of Business Finance and Financial Markets

Multiple choice question on the functions of a stock exchange.

Which of the following is NOT a function of a stock exchange?

A. Provide a system in which shares can be traded in a regulated manner
B. Enforce rules of business conduct on market participants
C. Ensure availability of shares and bonds to be traded by investors
D. Ensure that there is an efficient system for providing new financial information about companies to investors in the market
E. Provide a system for recording information about the prices at which shares are bought and sold and making them available to participants

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  • 1 Marks

BMF – May 2015 – L1 – SA – Q2 – Basics of Business Finance and Financial Markets

This question tests knowledge on the process of channeling funds between economic units within a financial system.

The channelling of funds from one economic unit to the other is known as:

A. Financial market
B. Financial intervention
C. Financial restructuring
D. Financial intermediation
E. Money market intervention

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  • 20 Marks

FM – MAY 2017 – L2 – Q1 – Financial markets

Discuss value for money concepts and compare them with corporate value maximization, and explain various financial markets.

a) Bhim is a not-for-profit non-governmental organization aimed at supporting alleged witches to have an empowered livelihood. The organization is developing a proposal to the Ministry of Gender and Social Protection to secure funding to improve basic healthcare and sanitation at three alleged witches’ camps. They have consulted you to help them develop the section on value for money (VfM) in their proposal.

Required: i) Briefly explain the following value for money concepts:

  • Economy
  • Efficiency
  • Effectiveness
    (6 marks)

ii) Compare and contrast value for money and corporate value maximization.
(4 marks)

b) One of the important sustainability requisites for the accelerated development of an economy is the existence of a dynamic financial market. Financial markets can be found in nearly every nation in the world. Some are very small, with only a few participants, while others, like the New York Stock Exchange (NYSE) and the forex markets, trade trillions of dollars daily.

Required:
What is a financial market?
(1 mark)

c) Explain the difference between the following financial markets:
i) Debt market and Equity market.
(3 marks)
ii) Money market and Capital market
(3 marks)
iii) Forex market and Interbank market
(3 marks)

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  • 20 Marks

FM – March 2023 – L2 – Q4 – DCF: taxation and inflation | Introduction to Investment Appraisal

Explain the stages in the capital investment decision-making process, compute the discounted payback period and Return on Capital Employed for an investment proposal, and describe categories of financial markets with examples.

a) Explain the stages in the Capital Investment decision-making process. (5 marks)

b) Dragon Ltd is evaluating an investment proposal to manufacture a product called “Chiputronic” and the information below has been provided by the Research and Development team:

  • Initial Investment: GH¢4 million
  • Selling Price (current price terms): GH¢40 per unit
  • Expected Selling Price Inflation: 3% per annum
  • Variable Operating Cost (current price terms): GH¢16 per unit
  • Fixed Operating Cost (current price terms): GH¢340,000
  • Expected Operating Cost Inflation: 4% per annum
Year Annual Demand (units)
1 70,000
2 90,000
3 130,000
4 50,000

It is expected that whatever is produced will be sold with no stock left, and there will be no scrap value expected at the end of the four years. The discount rate used in the company is 15%.

Required:
i) Compute the discounted payback period. (5 marks)
ii) Calculate the Return on Capital Employed (Accounting Rate of Return) based on average investment. (5 marks)

c) Financial markets facilitate the interaction between those who need funds and those who have funds to invest.

Required:
Explain TWO (2) categories of financial markets and give TWO (2) examples of each. (5 marks)

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  • 20 Marks

FM – NOV 2021 – L2 – Q4 – Financial markets

Explanation of capital investment decisions, NPV calculation for a new project, and differentiation between money and capital markets.

a) Companies spend money in various ways through their annual budgets, which are usually planned. These spending cover both operational and investment-related decisions.

Required:
i) What are Capital Investment decisions? (2 marks)
ii) State THREE (3) areas that will be considered as capital investment spending or decision. (3 marks)

b) Mamaga Ltd manufactures household utensils in Ghana and is considering investing in a new aluminium smelting and moulding plant. This plant will have a useful life of 5 years but will cost GH¢400,000 to acquire and install, with a residual value of GH¢20,000. The plant will produce 100,000 units per year. Other estimates are given below:

  • Selling price: GH¢30 per unit
  • Direct cost: GH¢20 per unit
  • Fixed cost (including depreciation): GH¢160,000 per annum
  • Marketing and promotion cost: GH¢20,000 (Year 1) and GH¢32,000 (Year 2)
  • Investment in debtors and stocks will increase in Year 1 by GH¢30,000 and GH¢40,000, respectively
  • Creditors will also increase by GH¢20,000 in Year 1
  • Debt, stocks, and creditors will be recouped at the end of the machine’s life
  • The cost of capital is 18%
  • Corporate tax is 25% and is paid in the year in which profits are made
  • Depreciation is tax-deductible

Required:
Compute the Net Present Value of this project and advise Mamaga Ltd whether the plant should be acquired. (10 marks)

c) Financial markets provide platforms or mediums through which holders of surplus funds invest their funds. Those with financial deficits could raise funds or capital, enabling both parties to achieve their objectives.

Required:
Distinguish between money markets and capital markets giving an example of financial instruments traded in each type of market. (5 marks)

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  • 10 Marks

FM – Nov 2017 – L2 – Q2b – Sources of finance: debt

Discuss the problems small firms encounter in raising capital in the Ghanaian financial markets.

Many small firms encounter a lot of problems in obtaining funds from the entire financial market to run their businesses. This problem has always accounted for their low performance in business.

Required:
What problems do small firms encounter in their efforts to raise capital in the Ghanaian financial markets? (10 marks)

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  • 20 Marks

FM – NOV 2018 – L2 – Q1 – Introduction to Financial Management

Explains objectives of non-profit organizations, financial markets, and roles of a finance manager.

a) Choosing a corporate objective of a firm is extremely important and has a determinant factor to the success or failure of a corporation in controlling the market.

Required:
Explain FOUR (4) objectives of not-for-profit organizations.
(4 marks)

b) Financial markets are the markets where individuals and organizations lend funds to other individuals and organizations.

Required:
Explain the following under financial markets:

i) Over the counter market (OTC)
ii) Dealers market
iii) Auction market
(6 marks)

c) Identify and explain FOUR (4) essential roles performed by a Finance Manager in order for a corporate body to achieve its objectives.
(10 marks)

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  • 4 Marks

FM – NOV 2015 – L2 – Q1d – Financial markets

Explain the concepts of financial intermediation and financial disintermediation.

Explain the following terms:
i. Financial intermediation (2 marks)
ii. Financial disintermediation (2 marks)

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  • 6 Marks

FM – NOV 2015 – L2 – Q1c – Financial markets

Discuss government revenue mobilization policies and explain financial intermediation and disintermediation.

The quarterly report of the treasury unit of Buruwa Limited contains a paragraph on government policy targets and progress towards achievement of the targets. The Technical Director has expressed disagreement about the time spent discussing these policies as wasteful because the policies have no relevance to the business activities of the confectionery company.

Required:
As Head of Finance, you have been tasked to discuss SIX (6) points on government revenue mobilization policies to agree or disagree with the Technical Director’s position. (6 marks)

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  • 1 Marks

BMF – MAY 2016 – L1 – SA – Q12 – Basics of Business Finance and Financial Markets

Multiple choice question on the functions of a stock exchange.

Which of the following is NOT a function of a stock exchange?

A. Provide a system in which shares can be traded in a regulated manner
B. Enforce rules of business conduct on market participants
C. Ensure availability of shares and bonds to be traded by investors
D. Ensure that there is an efficient system for providing new financial information about companies to investors in the market
E. Provide a system for recording information about the prices at which shares are bought and sold and making them available to participants

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  • 1 Marks

BMF – MAY 2016 – L1 – SA – Q12 – Basics of Business Finance and Financial Markets

Multiple choice question on the functions of a stock exchange.

Which of the following is NOT a function of a stock exchange?

A. Provide a system in which shares can be traded in a regulated manner
B. Enforce rules of business conduct on market participants
C. Ensure availability of shares and bonds to be traded by investors
D. Ensure that there is an efficient system for providing new financial information about companies to investors in the market
E. Provide a system for recording information about the prices at which shares are bought and sold and making them available to participants

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  • 1 Marks

BMF – May 2015 – L1 – SA – Q2 – Basics of Business Finance and Financial Markets

This question tests knowledge on the process of channeling funds between economic units within a financial system.

The channelling of funds from one economic unit to the other is known as:

A. Financial market
B. Financial intervention
C. Financial restructuring
D. Financial intermediation
E. Money market intervention

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  • 20 Marks

FM – MAY 2017 – L2 – Q1 – Financial markets

Discuss value for money concepts and compare them with corporate value maximization, and explain various financial markets.

a) Bhim is a not-for-profit non-governmental organization aimed at supporting alleged witches to have an empowered livelihood. The organization is developing a proposal to the Ministry of Gender and Social Protection to secure funding to improve basic healthcare and sanitation at three alleged witches’ camps. They have consulted you to help them develop the section on value for money (VfM) in their proposal.

Required: i) Briefly explain the following value for money concepts:

  • Economy
  • Efficiency
  • Effectiveness
    (6 marks)

ii) Compare and contrast value for money and corporate value maximization.
(4 marks)

b) One of the important sustainability requisites for the accelerated development of an economy is the existence of a dynamic financial market. Financial markets can be found in nearly every nation in the world. Some are very small, with only a few participants, while others, like the New York Stock Exchange (NYSE) and the forex markets, trade trillions of dollars daily.

Required:
What is a financial market?
(1 mark)

c) Explain the difference between the following financial markets:
i) Debt market and Equity market.
(3 marks)
ii) Money market and Capital market
(3 marks)
iii) Forex market and Interbank market
(3 marks)

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  • 20 Marks

FM – March 2023 – L2 – Q4 – DCF: taxation and inflation | Introduction to Investment Appraisal

Explain the stages in the capital investment decision-making process, compute the discounted payback period and Return on Capital Employed for an investment proposal, and describe categories of financial markets with examples.

a) Explain the stages in the Capital Investment decision-making process. (5 marks)

b) Dragon Ltd is evaluating an investment proposal to manufacture a product called “Chiputronic” and the information below has been provided by the Research and Development team:

  • Initial Investment: GH¢4 million
  • Selling Price (current price terms): GH¢40 per unit
  • Expected Selling Price Inflation: 3% per annum
  • Variable Operating Cost (current price terms): GH¢16 per unit
  • Fixed Operating Cost (current price terms): GH¢340,000
  • Expected Operating Cost Inflation: 4% per annum
Year Annual Demand (units)
1 70,000
2 90,000
3 130,000
4 50,000

It is expected that whatever is produced will be sold with no stock left, and there will be no scrap value expected at the end of the four years. The discount rate used in the company is 15%.

Required:
i) Compute the discounted payback period. (5 marks)
ii) Calculate the Return on Capital Employed (Accounting Rate of Return) based on average investment. (5 marks)

c) Financial markets facilitate the interaction between those who need funds and those who have funds to invest.

Required:
Explain TWO (2) categories of financial markets and give TWO (2) examples of each. (5 marks)

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  • 20 Marks

FM – NOV 2021 – L2 – Q4 – Financial markets

Explanation of capital investment decisions, NPV calculation for a new project, and differentiation between money and capital markets.

a) Companies spend money in various ways through their annual budgets, which are usually planned. These spending cover both operational and investment-related decisions.

Required:
i) What are Capital Investment decisions? (2 marks)
ii) State THREE (3) areas that will be considered as capital investment spending or decision. (3 marks)

b) Mamaga Ltd manufactures household utensils in Ghana and is considering investing in a new aluminium smelting and moulding plant. This plant will have a useful life of 5 years but will cost GH¢400,000 to acquire and install, with a residual value of GH¢20,000. The plant will produce 100,000 units per year. Other estimates are given below:

  • Selling price: GH¢30 per unit
  • Direct cost: GH¢20 per unit
  • Fixed cost (including depreciation): GH¢160,000 per annum
  • Marketing and promotion cost: GH¢20,000 (Year 1) and GH¢32,000 (Year 2)
  • Investment in debtors and stocks will increase in Year 1 by GH¢30,000 and GH¢40,000, respectively
  • Creditors will also increase by GH¢20,000 in Year 1
  • Debt, stocks, and creditors will be recouped at the end of the machine’s life
  • The cost of capital is 18%
  • Corporate tax is 25% and is paid in the year in which profits are made
  • Depreciation is tax-deductible

Required:
Compute the Net Present Value of this project and advise Mamaga Ltd whether the plant should be acquired. (10 marks)

c) Financial markets provide platforms or mediums through which holders of surplus funds invest their funds. Those with financial deficits could raise funds or capital, enabling both parties to achieve their objectives.

Required:
Distinguish between money markets and capital markets giving an example of financial instruments traded in each type of market. (5 marks)

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  • 10 Marks

FM – Nov 2017 – L2 – Q2b – Sources of finance: debt

Discuss the problems small firms encounter in raising capital in the Ghanaian financial markets.

Many small firms encounter a lot of problems in obtaining funds from the entire financial market to run their businesses. This problem has always accounted for their low performance in business.

Required:
What problems do small firms encounter in their efforts to raise capital in the Ghanaian financial markets? (10 marks)

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  • 20 Marks

FM – NOV 2018 – L2 – Q1 – Introduction to Financial Management

Explains objectives of non-profit organizations, financial markets, and roles of a finance manager.

a) Choosing a corporate objective of a firm is extremely important and has a determinant factor to the success or failure of a corporation in controlling the market.

Required:
Explain FOUR (4) objectives of not-for-profit organizations.
(4 marks)

b) Financial markets are the markets where individuals and organizations lend funds to other individuals and organizations.

Required:
Explain the following under financial markets:

i) Over the counter market (OTC)
ii) Dealers market
iii) Auction market
(6 marks)

c) Identify and explain FOUR (4) essential roles performed by a Finance Manager in order for a corporate body to achieve its objectives.
(10 marks)

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  • 4 Marks

FM – NOV 2015 – L2 – Q1d – Financial markets

Explain the concepts of financial intermediation and financial disintermediation.

Explain the following terms:
i. Financial intermediation (2 marks)
ii. Financial disintermediation (2 marks)

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  • 6 Marks

FM – NOV 2015 – L2 – Q1c – Financial markets

Discuss government revenue mobilization policies and explain financial intermediation and disintermediation.

The quarterly report of the treasury unit of Buruwa Limited contains a paragraph on government policy targets and progress towards achievement of the targets. The Technical Director has expressed disagreement about the time spent discussing these policies as wasteful because the policies have no relevance to the business activities of the confectionery company.

Required:
As Head of Finance, you have been tasked to discuss SIX (6) points on government revenue mobilization policies to agree or disagree with the Technical Director’s position. (6 marks)

Login or create a free account to see answers

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