SECTION A
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1.The major financial sectors include
(i) banking.
(ii) insurance.
(iii)securities.
(iv)mutual funds.
A.(i) and (iv)
B.(i), (ii) and (iii)
C.(ii), (iii) and (iv)
D.All of the above
2.The banking sector acts as a ______because it receives deposits from the public and lends the money to borrowers.
A.financial institution
B.financial market
C.financial intermediary
D.financial market regulator
3.A firm plans to purchase a new plant for expansion of production. Which of the following are appropriate ways of financing the purchase?
(i) Obtaining trade credit from suppliers
(ii) Issuing debentures
(iii)Obtaining long-term loans
A.(i) and (ii)
B.(i) and (iii)
C.(ii) and (iii)
D.All of the above
4.In which of the following financial markets will the initial public offering (IPO) of a limited company be launched?
A.bond market
B.futures market
C.money market
D.securities market
5.Which of the following financial products is traded in the money market?
A.Five-year government bonds
B.Shares of a listed company
C.Commercial papers of a listed company
D.Mutual funds
6.Rank the following investment instruments in descending order according to the level of risk to investors who would like to have a stable return.
(1) government bonds
(2) warrants of a public utility
(3)shares of a listed company
A.(1), (3), (2)
B.(2), (3), (1)
C.(3), (1), (2)
D.(3), (2), (1)
7.Edmond invested $6,000 for three years at an annual interest rate of 6%, compounded annually. How much will Edmond have after three years?
A.$6,742
B.$7,080
C.$7,146
D.$7,575
8.Daniels wants to invest in a mutual fund which guarantees an annual return of 10%. Suppose Daniel needs $30,000 in three years and he will make the same annual contribution during the three years. How much should he contribute per year?
A.$8,240
B.$9,063
C.$9,375
D.$10,000
9.Roy is the sole proprietor of a small logistics company. He is considering whether he should buy a truck for his business. Suppose the truck costs $80,000. It is estimated that the truck will be used for three years and sold at the end of the third year for $20,000. The truck can generate a cash inflow of $30,000 each year during the three years it is in use. Assume that the opportunity cost of Roy’s capital is 8%. What is the net present value of purchasing the truck?
A.$13,190
B.$17,312
C.$30,000
D.$10,629
10.The rates on loans of three banks are as follows:
HK Bank offers a stated annual rate of 4.15%, compounded annually
KLN Bank offers a stated annual rate of 4.10%, compounded quarterly
NT Bank offers a stated annual rate of 4.05%, compounded semi-annually
If other factors constant, which bank should investors borrow money from?
A.HK Bank
B.KLN Bank
C.NT Bank
D.Cannot be determined due to insufficient information
Refer to the following case for Question 11 – 12:
Mr Wong has some investment in mutual funds. He had also subscribed for the bonds of Victory Ltd at a premium of 5%. One year later, he received by mail from Victory Ltd a cheque for the 5% interest. As he tried to calculate the rate of return, he found that it was lower than 5%.
11.Which of the following descriptions about Victory Ltd’s bonds is correct?
A.The issue price is net of interest.
B. The issue price is equal to its par value.
C. The issue price is lower than its par value.
D. The issue price is higher than its par value.
12.Mr Wong found that the effective rate of return of the bonds is lower than 5%. Which of the following is the best possible explanation for it? (DSE Sample, 16)
A.The par value of the bonds is higher than the purchase price.
B. The par value of the bonds is lower than the purchase price.
C. The market value of the bonds is higher than the purchase price.
D. The market value of the bonds is lower than the purchase price.
13. Which of the following statements concerning risks is false?
A.Risk is the uncertainty of outcome.
B.Market risks can be diversified.
C.Firm specific risk affects a particular firm only.
D.Different people may have different perceptions about the risk of the same investment.
14.Which of the following statements is correct?
A.A 6-month government bill is an investment instrument in the equity market.
B.An investment instrument with a higher risk may yield a higher return.
C.Market risk can be avoided by investing in various financial products.
D.Investment in the preferred stock is more risky than in the common stock of a company.
15.Rank the investment products below from the highest to the lowest risk level.
ProductGovernment notes
Corporate bonds
International company stocks
A.International company stocks, corporate bonds, government notes
B.Corporate bonds, government notes, international company stocks
C.International company stocks, government notes, corporate bonds
D.Government notes, international company stocks, corporate bonds
16.Risk diversification means that an investor should buy
A. one stock to avoid risk.
B. many different securities in different asset classes.
C. many different securities in one industry.
D. all the stocks in the Hong Kong market and some bonds.
17.Which of following disadvantages to cardholders of using credit cards?
(i)The loss can be huge if the cards are stolen.
(ii)The interest rate charged by banks on unsettled payment is high.
(iii)Banks charge a high fee on cardholders for each purchase.
A.(i) and (ii)
B.(i) and (iii)
C.(ii) and (iii)
D.All of the above
18.Examples of non-revolving consumer credit include
(i)credit card.
(ii)sales credit.
(iii)tax loans.
(iv)car loans.
A.(i) only
B.(i) and (ii)
C.(iii) and (iv)
D.(ii), (iii) and (iv)
19.Consumers should consider the following factors when they choose consumer credit except for
A.comparing interest calculation procedures such as how frequently the interest is compounded and which calculation method is used.
B.checking to see if they are able to repay the loan as scheduled.
C.carefully reading the terms of the loan such as late charges and restrictions on early repayments.
D.comparing the gifts or benefits offered by different loans.
20.Which of the following client information is the least relevant factor for a bank to reject a client’s application for a credit card?
A.record of repayment
B. degree of loyalty to the bank
C. level of outstanding debts
D. record of bankruptcy
21.A well-planned personal budget can help to avoid
(1) overspending.
(2) misuse of consumer credit.
(3)losses in stock investments.
A.(1) and (2) only
B.(1) and (3) only
C.(2) and (3) only
D.(1), (2)and (3)
22.Royis now 43 years old. He is a senior civil servant with a monthly salary of $48,000. His wife stays at home and takes care of their children. Roy’s children are studying in secondary schools. Which of the following should Roy do?
(i)Save for his children’s university education
(ii)Repay his mortgage loans
(iii)Plan his estate
A.(i) only
B.(i) and (ii)
C.(ii) and (iii)
D.All of the above
23.Ms Cheung is working in a long-established grocery store. She plans to resign to establish her own grocery store. Mr Sze, aged 62, is the employer of Ms Cheung. He wants to retire and invites Ms Cheung to take over his store.In the life-cycle context, which of the following is the major financial need of retired people, such as Mr Sze?
A.create and accumulate wealth
B.insure on earning ability
C.arrange for children’s educational fees
D.plan for medical expenses
24.Which of the following statements concerning budgeting is false?
A.By comparing cash inflows and cash outflows, individuals can forecast if there is any cash shortage.
B.A budget allows an individual to know how much he can spend so that the problem of overspending can be avoided.
C.A personal budget is a record of the current income and expenses of an individual.
D.The amounts of cash inflows and cash outflows in the past are useless when an individual is preparing a new budget.
25.Which of the following are required to join a Mandatory Provident Fund (MPF) scheme in Hong Knog?
(1)Self-employed hawkers
(2)A sold proprietor, or partner of a partnership type business
(3)People from overseas who work for a 2-year contract as domestic helpers
(4)People aged between 18 and 65 and working under an employment contract for a continuous period of not less than 60 days on a part-time basis
A.(1) and (3) only
B.(2) and (3) only
C.(2) and (4) only
D.(4) only
26.Which of the following statements is false?
A.The Hong Kong Monetary Authority (HKMA) is the licensing authority for all banks and deposit-taking companies in Hong Kong.
B.Under the Banking Ordinance, authorised institutions include licensed banks, restricted license banks and deposit-taking companies.
C.The Linked Exchange Rate System pegs the HK dollar against the Renminbi.
D.HKMA manages the Exchange Fund and keeps the Hong Kong dollar stable by maintaining the Linked Exchange Rate System
27.Which of the following is the main function of the Hong Kong Monetary Authority?
A.regulate securities and futures markets
B.operate securities and derivatives marketplace
C.maintain monetary and banking stability
D.determine the bank deposit interest rate
28.Which of the following statements concerning the Deposit Protection Scheme (DPS) is false?
A.It protects the interests of depositors.
B.It is administered by the Hong Kong Deposit Protection Board.
C.It only covers deposits in Hong Kong dollars.
D.All licensed banks have to participate in the Scheme.
29.Which of the following is not the responsibility of an investor?
A.Check with the relevant authorities if the brokers and financial planners hold proper licences.
B.Understand the features and risk and return characteristics of different investment products before making a choice.
C.Read transaction documents to monitor one’s securities account.
D.Borrow money from financial institutions to make investments.
30.Which of the following concerning the Mandatory Provident Fund scheme are correct?
(i)The self-employed do not need to contribute to the scheme.
(ii)Under the scheme, both the employers and employees are required to make contributions.
(iii)There is no upper limit on the amount of contributions made by employees.
(iv)The scheme provides retirement protection for Hong Kong people after the age of 65.
A.(i) and (ii) only
B.(ii) and (iv) only
C.(ii) and (iii) only
D.(iii) and (iv) only
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