Category: Business Studies

Alex, a financial consultant has made the following statements about venture capital.

•Statement 1 – Venture capitalists may realise their investment by selling their shares following flotation on the stock exchange

•Statement 2 – Venture capitalists never sit on the board of a company

•Statement 3 – Venture capitalists normally expect a company’s existing owners to bear a substantial part of the risk

Which of the statements are true?

Select ONE answer:

1. Statements 1 and 2 only
2. Statements 2 and 3 only
3. Statements 1 and 3 only
4. Statements 1, 2 and 3

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct == > Venture capitalists often will want a place on the board to secure their investment, so (statement 2) is false. They are very likely however to realise their investment by selling their shares following flotation on the stock exchange (statement 1), and they would normally expect a company’s existing owners to bear a substantial part of the risk (statement 3).
4. Not correct

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The directors at Alex plc are considering raising long-term finance by issuing shares in the company.

They have been informed that the way to do this is ‘by accessing the market’ but they are not sure what this means.

A market where new securities are bought and sold for the first time is known as?

Select ONE answer:

1. A futures market
2. A secondary capital market
3. A primary capital market
4. A money market

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct == > The capital markets consist of primary markets and secondary markets. New securities are issued on primary capital markets whilst secondary capital markets allow investors to buy existing securities or sell securities that they hold. Money markets provide short term debt financing and investment. Futures markets provide standardised futures contracts to buy or sell a particular commodity or financial instrument at a pre-determined price in the future.
4. Not correct

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The legal relationship between a bank and its customer can include the bailor/bailee relationship, the mortgagor/mortgagee relationship and the fiduciary relationship.

Alex, a business consultant to banking customers has made the following statements concerning each relationship.

Statement 1 In the fiduciary relationship the bank is expected to act with the utmost good faith towards the customer.
Statement 2 In the mortgagor/mortgagee relationship the bank asks the customer to secure a loan with a charge over the customer’s liabilities.
Statement 3 In the bailor/bailee relationship the bank accepts the customer’s property for storage in its safe deposit boxes and undertakes to take reasonable care to safeguard it against loss or damage.

Identify which of the statements about these relationships are true?

Select ONE answer:

1. Statements 1 and 2 only
2. Statements 2 and 3 only
3. Statements 1 and 3 only
4. Statements 1, 2 and 3

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct == > Statements 1 and 3 accurately describe the fiduciary and the bailor/bailee relationships, respectively. Statement 2 is inaccurate as it states that the charge is over the customer’s liabilities, when in fact it would be over the customer’s assets.
4. Not correct

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If a company moves from a defensive working capital policy to an aggressive working capital policy, it should expect?

Select ONE answer:

1. Liquidity to decrease, whereas expected profitability would increase
2. Expected profitability to increase, whereas risk would decrease
3. Liquidity would increase, whereas risk would also increase
4. Risk and profitability to decrease

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct == > An aggressive policy implies financing long-term needs with short-term funds which would reduce liquidity but increase profitability due to the cheaper short-term debt relative to long-term debt: decreased liquidity = increased risk
2. Not correct
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.