Sources Of Finance MCQ Test: Quiz!

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Sources Of Finance MCQ Test: Quiz! - Quiz

Are you looking for some informative finance MCQs? Then this sources of finance MCQ quiz is for you. The quiz contains various questions that will not only enhance your financial knowledge but will also provide you with valuable information. Do you know what share capital is? What is debenture? Get answers to all this and much more in this informative quiz. If you like this quiz, share it with your friends. All the best!


Questions and Answers
  • 1. 

    Government grants are generally offered to businesses in:

    • A.

      Prosperous areas

    • B.

      Economically deprived areas

    • C.

      Areas with high employment

    • D.

      Cold areas

    Correct Answer
    B. Economically deprived areas
    Explanation
    Government grants are generally offered to businesses in economically deprived areas. This is because these areas often lack economic opportunities and face higher levels of unemployment and poverty. By providing grants to businesses in these areas, the government aims to stimulate economic growth, create jobs, and improve the overall well-being of the community. These grants can help businesses overcome financial barriers and invest in infrastructure, technology, and workforce development, ultimately contributing to the revitalization and development of economically deprived areas.

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  • 2. 

    Banks require collateral as security for their loans.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Banks require collateral as security for their loans because it helps mitigate the risk of default. Collateral is an asset or property that a borrower pledges to the bank in case they are unable to repay the loan. This provides the bank with a form of security, as they can seize and sell the collateral to recover their funds in the event of non-payment. By requiring collateral, banks can feel more confident in lending money and offer lower interest rates to borrowers who can provide valuable assets as security.

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  • 3. 

    A business uses hire purchase because:

    • A.

      This allows a business to acquire assets to keep by paying for them over a period

    • B.

      This allows them to use an asset when they want

    • C.

      They can use it without paying for it

    • D.

      This allows a business to use assets and by paying for them over a period

    Correct Answer
    A. This allows a business to acquire assets to keep by paying for them over a period
    Explanation
    Hire purchase is a financing arrangement where a business can acquire assets by paying for them over a period of time. This allows the business to obtain and keep the assets while spreading out the payments, which can be beneficial for managing cash flow. By using hire purchase, the business can use the assets immediately without having to pay for them upfront, making it a convenient option for acquiring necessary equipment or machinery.

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  • 4. 

    If a bank thinks lending money to a certain business is risky, it will:

    • A.

      Charge a lower interest rate

    • B.

      Charge a higher interest rate

    • C.

      Send the business packing

    • D.

      Think about it

    Correct Answer
    B. Charge a higher interest rate
    Explanation
    When a bank perceives a certain business as risky, it will charge a higher interest rate. This is because the bank wants to compensate for the higher probability of default or non-payment by charging more for the loan. By increasing the interest rate, the bank aims to protect itself from potential losses and ensure that it is adequately compensated for taking on the additional risk associated with lending to that particular business.

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  • 5. 

     Short term finance is usually only available to business for periods of

    Correct Answer
    one year
    5 years
    10 years
    Explanation
    Short term finance refers to the funding options that are typically available for a shorter duration, usually up to one year. This type of financing is commonly used to meet immediate cash flow needs, such as purchasing inventory or covering short-term expenses. On the other hand, long term finance options are available for periods of 5 years or more, which are often used for larger investments like buying property or expanding business operations. Therefore, the correct answer is one year, 5 years, and 10 years, as these are the common durations for short term and long term finance options.

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  • 6. 

    Share capital is

    • A.

      Money given to a company by shareholders in return for a stake in the business

    • B.

      Business borrowing capital from a financial institution

    • C.

      Capital is shared amongst owners.

    • D.

      Capital shared with shareholders.

    Correct Answer
    A. Money given to a company by shareholders in return for a stake in the business
    Explanation
    Share capital refers to the money that is contributed by shareholders to a company in exchange for ownership or a stake in the business. This capital is an important source of funding for the company and helps in financing its operations and growth. Shareholders provide this money as an investment, with the expectation of receiving returns or dividends based on the company's performance. By contributing share capital, shareholders become owners of the company and have certain rights and privileges, such as voting rights and the ability to participate in decision-making processes.

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  • 7. 

    An 'Overdraft' is  where a business is permitted to overspend on its bank account up to an agreed limit.   

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    An overdraft is a financial arrangement where a business is allowed to spend more money than it currently has in its bank account, up to a certain limit. This means that the business can temporarily overspend and have a negative balance in their account. The overdraft limit is agreed upon between the business and the bank. This statement is true as it accurately describes what an overdraft is and how it works.

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  • 8. 

    A 'Debenture' is?

    • A.

      A long-term loan

    • B.

      A short-term loan

    • C.

      An internal source of finance

    • D.

      None of the above

    Correct Answer
    A. A long-term loan
    Explanation
    A debenture is a type of long-term loan that is issued by a company or government entity. It is a form of debt instrument that allows the issuer to borrow money from investors in exchange for regular interest payments and the repayment of the principal amount at maturity. Unlike short-term loans, debentures have a longer repayment period, typically ranging from several years to decades. Therefore, the correct answer is "A long-term loan."

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  • 9. 

    Fixed capitals requirements are used to purchase

    • A.

      Fixed asset

    • B.

       Current asset

    • C.

       Cash

    • D.

      None of the above

    Correct Answer
    A. Fixed asset
    Explanation
    Fixed capital requirements are used to purchase fixed assets. Fixed assets are long-term tangible assets that are used in the production or operation of a business. These assets have a useful life of more than one year and are not easily converted into cash. Examples of fixed assets include buildings, machinery, vehicles, and equipment. By investing in fixed assets, businesses can enhance their production capabilities and generate long-term value.

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  • 10. 

    A capital market is a market for

    • A.

      Long term capital

    • B.

      Short term capital

    • C.

      Fixed Capital

    • D.

      None of the above

    Correct Answer
    A. Long term capital
    Explanation
    A capital market is a market where long-term capital is traded. This means that it is a market where individuals and institutions can buy and sell financial securities with longer maturities, such as stocks and bonds, which represent ownership or debt in a company. Short-term capital refers to funds that are invested for a shorter duration, typically less than a year. Fixed capital refers to the investment in physical assets like machinery and buildings. Therefore, the correct answer is long-term capital as it accurately describes the type of capital that is traded in a capital market.

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  • Current Version
  • Jul 10, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Sep 21, 2011
    Quiz Created by
    Jdoherty78
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