BA1 Fundamentals of Business Economics Dumps

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Sample Question 4

Which of the following is most likely to lead to a rise in the exchange rate of country's currency and a fall in the price of stocks shares?

A. An increase in the deficit in the country's balance of payments on current account 
B. Foreign investors purchasing shares on the country's capital markets 
C. An increase in the country's money supply 
D. An increase in rates of interest within the country 


Sample Question 5

The real rate of interest is 

A. The rate of interest charged by banks on loans. 
B. The nominal rate of interest adjusted for inflation. 
C. The compound rate of interest. 
D. The rate of interest charged on loans plus administrative charges. 


Sample Question 6

Which of the following is not a source of long-term capital for a company?

A. Retained profits 
B. Dividends 
C. Term loans 
D. Issuing corporate bonds 


Sample Question 7

According to the purchasing power parity theory, if a country's inflation rate is 5% higher than the inflation rates of the country's competitors in the world economy

A. The country's exchange rate will fall by 5% to restore the terms of trade 
B. The domestic purchasing power of the currency must fall 
C. The country's firms must reduce their export prices to remain competitive 
D. The overseas demand for the country's exports will be price elastic 


Sample Question 8

Which of the following provide possible explanations for the existence of a structure of interest rates?(i). Borrowers having different risk profiles(ii). Lenders wishing to lend for different time profiles(iii). The market for loanable funds being perfectly competitive(iv). The existence of margins between borrowing and lending rates

A. (i) and (iv) only 
B. (ii) and (iii) only 
C. (i), (ii) and (iv) only 
D. (i), (ii) and (iii) only 


Sample Question 9

All of the following are appropriate policies to deal with the problem of industries which cause pollution except which one?

A. Taxes on the consumption of the product 
B. Subsidies to the producers 
C. The auctioning of pollution permits 
D. Legal controls to limit pollution levels 


Sample Question 10

The linking of net savers with net borrows is known as:

A. financial intermediation 
B. the savings function 
C. money transfer 
D. credit creation 


Sample Question 11

What is meant by a 'Eurobond'?

A. A bond denominated in Euros 
B. A bond issued to markets anywhere in Europe 
C. A bond denominated in a currency that differs from the domestic currency of the country where the bond was issued 
D. A bond issued by the European Central Bank 


Sample Question 12

Which ONE of the following would be expected to reduce the net present value of a proposed investment project? A rise in

A. the expected cash flows from the project 
B. the scrap value of the capital at the end of the project's life 
C. interest rates 
D. the net present value of alternative projects 


Sample Question 13

All of the financial instruments are traded on the long term capital market except one.Which ONE is the exception?

A. Shares 
B. Certificate deposit 
C. Government undated stock 
D. Long dated bonds 


Sample Question 14

All of the following are examples of not-for-profit organizations except one. Which ONE is the exception?

A. Mutual savings societies 
B. Charities 
C. Partnerships 
D. Trade Unions 


Sample Question 15

Why was the Global Banking Crisis of 2007 followed by a credit crunch of low lending?

A. Governments sought to reduce aggregate demand to avoid a boom 
B. Households and firms were unwilling to borrow 
C. Banks had lost reserves and could not support high lending 
D. Households had stop saving due to loss of confidence in commercial banks 


Sample Question 16

Which one of the following would lead to a fall (depreciation) in the exchange rate for a country's currency?

A. A fall in interest rates in that country 
B. An inflation rate below that of the country's trading partners 
C. A fall in that country's imports 
D. A fall in the export of capital from that country 


Sample Question 17

A business could meet a short term financial need by all of the following except one. Which ONE is the exception?

A. Using its cash reserves 
B. A bank overdraft 
C. Issuing shares 
D. Factoring 


Sample Question 18

Identify the source of funds most appropriate for a growing company to use which wishes to borrow funds long-term to pay for initial marketing research and promotion?

A. A debenture 
B. A commercial bill 
C. Ordinary shares 
D. Overdraft 


Sample Question 19

Diseconomies of scale

A. are the result of the operation of the law of diminishing returns 
B. occur because all firms face a U shaped short run average cost curve 
C. cause the long run average cost curve to rise 
D. are the result of businesses adopting a divisional structure 


Sample Question 20

Which of the following is NOT a suitable way for a manufacturing company to finance buying assets?

A. Certificates of deposit 
B. Commercial bills 
C. Commercial bonds 
D. Leases 


Sample Question 21

£100 of new cash is issued, which is then deposited in a bank which is part of a banking system operating a cash ratio of 10%. The maximum possible increase in the moneysupply which can follow from this transaction, additional to the initial deposit, is

A. £90 
B. £190 
C. £900 
D. £1000 


Sample Question 22

Which of the functions of a financial intermediary is described by the following statement 'Bundles small deposits of liquidity into larger loans'?

A. Aggregation 
B. Risk management 
C. Maturity transformation 
D. Introducing borrows and lenders 


Sample Question 23

All of the following are functions of central banks except which one?

A. Banker to the commercial banks 
B. Holder of the foreign exchange reserves 
C. Banker to the government 
D. Determination and conduct of fiscal policy 


Sample Question 24

A government can finance a budget deficit by:i. increasing taxation rates.ii. Reducing government expenditure.iii. Selling long term government bonds.iv. Issuing Treasury Bills.v. Raising interest rates.vi. Reducing transfer payments.

A. (i), (ii) and (iii) only 
B. (ii), (v) and (vi) only 
C. (ii) and (vi) only 
D. (iii) and (iv) only 


Sample Question 25

Which one of the following methods of government borrowing is most likely to be inflationary? The sale of:

A. Treasury bills to the banking sector 
B. Long-term securities to insurance companies and pension funds 
C. National savings securities to the general public 
D. Long-term securities to the banking sector 


Sample Question 26

All of the following were features of the financial crisis of 2008 except one. Which ONE is the exception?

A. A rise in the volume of mortgage defaults 
B. A chronic shortage of liquidity in the banking system 
C. A severe contraction in inter-bank lending 
D. A sharp fall in rate of interest on inter-bank lending 


Sample Question 27

Which of the functions of a financial intermediary is described by the following statement 'Invests across a wide range of assets to reduce the loss of capital value if a particular borrower defaults'?

A. Aggregation 
B. Risk management 
C. Maturity transformation 
D. Introducing borrows and lenders 


Sample Question 28

Calculate the yield to an investor available from the following commercial bill: Face value$100,000 Market price$98,500 Maturity90 days time

A. 1.5% 
B. 4.5% 
C. 6.1% 
D. $1,500 


Sample Question 29

Which of the following describes a 'spot rate' in foreign currency dealing?

A. It is a short term rate that may change in the immediate future 
B. It is the price for a currency that is to be delivered immediately 
C. It is the exchange rate minus any commissions or transactions charges 
D. It is the exchange rate minus the inflation rate 


Sample Question 30

Which of the following is not a function of a central bank?

A. Banker to the banking system 
B. Supervision of the banking system 
C. Banker to the government 
D. Regulation of the taxation system 


Sample Question 31

All of the following are advantages of a system of floating (flexible) exchange rates except one. Which ONE is the exception?

A. They provide automatic correction of imbalances in the balance of payments 
B. Countries no longer need to hold foreign exchange reserves to manage the currency 
C. Countries with inflationary problems can avoid losing international price competitiveness 
D. They encourage international trade by eliminating foreign exchange transactions costs 


Sample Question 32

A promoter has arranged a large outdoor concert. All the costs are fixed and there are no variable costs associated with the number of spectators attending.Which of the following statements about the profit maximizing price is FALSE?

A. It is the price at which Marginal Revenue is zero 
B. At this price, the price elasticity of demand will be unity (i.e. equal to 1) 
C. This price will ensure the promoter covers the cost of the concert 
D. This is the price which maximizes the revenue the promoter earns from the concert 


Sample Question 33

Select the best definition of the corporate governance of a company from the list below.

A. The structure and functions of the Board of a firm 
B. The systems by which companies are directed and controlled
C. The composition and duties of the management of a company 
D. The financial and non-financial performance of a company 


Sample Question 34

If real rates of interest are positive and rising, then

A. The average level of saving will be decreasing 
B. Lenders are gaining at the expense of borrowers 
C. The rate of inflation must be increasing 
D. The desire to hold cash balances will be increasing 


Sample Question 35

All of the following were contributory causes of the banking crisis of 2008 (the 'credit crunch') except one. Which ONE is the exception?

A. Large scale default in the in the US sub-prime mortgage market 
B. Over- capitalization of commercial and investment banks 
C. The bundling of mortgages into collateralized debt obligations which were sold onto banks 
D. Erroneous credit rating of collateralized debt obligations by credit rating agencies 


Sample Question 36

Regulatory offices have been established after the privatization of some nationalized industries because

A. some industries retain significant monopoly power 
B. the number of new producers entering the industry must be controlled 
C. these privatized industries produce public goods 
D. government regulations make monopolies in the private sector illegal. 


Sample Question 37

Identify in the following list the statement that does not describe a function of a financial intermediary:

A. Aggregation of funds 
B. Maturity transformation 
C. Risk transformation 
D. Transfer payments 


Sample Question 38

In a system of freely floating exchange rates the central bank and government will

A. Not need to engage in exchange equalization 
B. Allow market forces to determine the exchange rate within a strictly limited band 
C. Have less ability to control the money supply than in a fixed exchange rate system 
D. Have to intervene in foreign exchange markets in order to maintain the system 


Sample Question 39

All of the following are sources of finance for business except which one?

A. Retained profits 
B. Certificates of deposit 
C. New share issues 
D. Mortgages 


Sample Question 40

Financial intermediation is the process by which

A. Net savers and net borrowers are brought together. 
B. Banks create credit on the basis of their liquid assets. 
C. The central bank acts as a link between commercial banks and the government. 
D. Banks provide commercial services for their customers. 


Sample Question 41

Central banks inspect and sometimes set minimum limits on the reserves held by commercial banks. Which ONE of the following statements is NOT a reason that centralbanks seek to influence the reserves of commercial banks?

A. To influence commercial banks' ability to create credit 
B. To avoid the commercial banks running out of liquidity 
C. To regulate the profits of commercial banks 
D. To prevent the collapse of the banking system 


Sample Question 42

Real GDP per capita in an economy is directly affected by(i). The quantity of resources located in the economy(ii). How efficiently the economy uses resources when producing goods and services(iii). The size of the working population(iv). The flow of investment income from abroad

A. (i) and (iv) only 
B. (i) and (ii) only 
C. (ii), (iii) and (iv) only 
D. (i), (ii) and (iii) 


Sample Question 43

The stock market fulfils all of the following functions except which one?

A. A market for government bonds. 
B. A market for foreign exchange. 
C. A market for company shares. 
D. A market for short term loans. 


Sample Question 44

Which of the functions of a financial intermediary is described by the following statement 'converts a flow of short-term deposits into a supply of long term loans'?

A. Aggregation 
B. Risk management 
C. Maturity transformation 
D. Introducing borrows and lenders 


Sample Question 45

Which of the following is NOT achieved by the price mechanism in a market economy?

A. Signaling of consumers' requirements 
B. Allocation of adequate resources for future investment 
C. Rationing of scarce resources between potentially unlimited demands 
D. Setting of rewards to factors of production 


Sample Question 46

All of the following are functions of a central bank except one. Which ONE is the exception?

A. Lender of the last resort 
B. Banker to the commercial banks 
C. The conduct of fiscal policy 
D. Regulation of the banking system 


Sample Question 47

Which of the following might be regarded as benefits of the single currency, the Euro?(i). Greater freedom for member countries to set their own interest rates(ii). It is easier to compare prices of consumer goods in all countries using the Euro(iii). A reduction in transactions costs for trade between countries using the Euro(iv). Increased economic growth resulting from a more efficient common market

A. (i) and (ii) only 
B. (i), (ii) and (iv) only 
C. (iii) and (iv) only 
D. (ii), (iii) and (iv) only 


Sample Question 48

When central banks adopt a policy of 'quantitative easing' this means that they:

A. Lift quantitative restrictions on bank lending 
B. Lower the capital adequacy requirements for banks 
C. Buy government bonds from the banks 
D. Ease the liquidity ratios banks need to hold 


Sample Question 49

Which ONE of the following financial instruments is NOT issued for long term borrowing by the issuer?

A. Treasury bills 
B. Equities 
C. Treasury bonds 
D. Mortgages 


Sample Question 50

Identify which of the following features does not distinguish redeemable debt apart from equity:

A. It has a face value which shows its value at redemption 
B. It will pay a regular set sum of interest 
C. It will have a maturity date when it will mature 
D. It will never be traded on an investment market 


Sample Question 51

Which of the following is not a reason for a firm to issue bonds rather than ordinary shares to raise additional finance?

A. Cheaper borrowing because the interest payments on bonds qualify for tax relief whereas dividend payments do not 
B. Cash flow advantages because dividends are discretionary but interest payments are not 
C. To avoid diluting the votes of existing shareholders as a consequence of issuing shares to strangers 
D. Lower risk because bond holders cannot liquidate a firm for non-payment of interest whereas shareholders can 


Sample Question 52

Which ONE of the following would tend to make the demand for a product price inelastic?

A. Expenditure on the product accounts for a large part of total household spending 
B. There are many close substitutes for the product 
C. The product is regarded as a luxury 
D. The price changed a short while ago 


Sample Question 53

All of the following statements about a firms total revenue curve are true except which ONE?

A. Because the price of a product falls as more is supplied to the market the curve is not a straight line 
B. Price elasticity of demand for the product = 1 at the highest point of the curve 
C. If price of the product rose the curve would pivot upwards 
D. The curve would be a horizontal straight line if demand for the product were perfectly price elastic 


Sample Question 54

Which of the following are external stakeholders for an organization?i. Shareholdersii. Customersiii. Governmentiv. Trade Unionsv. Pressure groupsvi. Employees

A. (i), (ii) and (iii) only 
B. (ii), (iii) and (iv) only 
C. (iii), (iv) and (v) only 
D. (i), (v) and (vi) only 


Sample Question 55

Which ONE of the following would tend to make the demand for a product price inelastic?

A. Expenditure on the product accounts for a large part of total household spending 
B. There are many close substitutes for the product 
C. The product is regarded as a luxury 
D. The price changed a short while ago 


Sample Question 56

Which ONE of the following circumstances is essential if producer incomes are to rise following the imposition of a price floor (minimum price) in a market?

A. Market supply is price inelastic 
B. Market demand is price inelastic 
C. Market supply is price elastic 
D. Market demand is price elastic 


Sample Question 57

Firms may suffer from X-inefficiency because of organizational slack. All of the following would lead to organizational slack except which one?

A. Uncertainty about future demand 
B. Managers become more cautious 
C. A complex organizational structure in the firm 
D. The number of rival firms increases 


Sample Question 58

Which of the following statements most accurately describes the role of an agent as defined in principal-agent theory?

A. An employee of the organization 
B. An owner of the organization 
C. One who is paid by the owners of the organization 
D. One who is responsible for ensuring the organization pursues the interests of its owners 


Sample Question 59

A shift in the supply curve for a good will have the biggest effect on the market price when the demand curve for the good

A. is highly price elastic 
B. is highly price inelastic 
C. has unit price elasticity 
D. is perfectly price elastic 


Sample Question 60

Total economic welfare derived from an activity will be maximized if the activity is undertaken up to the point at which

A. Marginal private benefit exceeds marginal private cost 
B. Marginal social benefit equals marginal social cost 
C. Marginal social benefit equals marginal private benefit 
D. Marginal private benefit equals marginal private cost 


Sample Question 61

Why do monopoly market structures charge higher prices than would be charged by more competitive market structures?

A. They are more likely to suffer from diseconomies of scale 
B. They must recover their higher research and development expenditures 
C. They can increase profits by reducing output to force prices higher 
D. They have barriers to entry that stop customers going to new markets 


Sample Question 62

All of the following are examples of externalities except which one?

A. Pollution resulting from a production process 
B. Firms training workers who then move to other employers 
C. Some consumers being unable to afford goods because prices have been driven up by the demand from other consumers 
D. Road congestion caused by rush hour traffic on the roads 


Sample Question 63

Globalization will have all the following effects on businesses except one. Which ONE is the exception?

A. Access to cheaper sources of supply in emerging economies 
B. Increased competition on world markets for manufactured goods 
C. Decreased international transportation and communications costs 
D. The ability to shift production to low cost locations 


Sample Question 64

The 'satisfying' model of business behavior states that business will aim to:

A. seek profits as the primary business objective 
B. concentrate on the long run growth of sales 
C. attempt to meet the differing demands of various stakeholders 
D. satisfy shareholders demands to maximize shareholder wealth 


Sample Question 65

Which of the following is likely to cause the demand curve of margarine to shift to the left?

A. A fall in the price of margarine 
B. A fall in the cost of vegetable oils 
C. A successful advertising campaign by butter producers 
D. A fall in the price of bread 


Sample Question 66

Which of the following provides a definition of a free good?

A. No charge is made for it by its supplier 
B. Its provision is financed by taxation 
C. It is produced from renewable resources 
D. It is available at zero cost of production in unlimited quantities 


Sample Question 67

A business can always raise its profits or reduce its losses by increasing output

A. providing total revenue rises as a result 
B. if it is operating on the downward sloping part of its average cost curve 
C. providing total revenue rises faster than total variable costs 
D. if it is operating on the upward sloping part of its total revenue curve 


Sample Question 68

Which ONE of the following is NOT a class of stakeholder? 

A. Connected 
B. Internal 
C. External 
D. Collaborative 


Sample Question 69

If the demand curve for good A is negatively sloped, a fall in the price of a substitute good B results in

A. An increase in the quantity demanded of good A 
B. A rightward shift in the demand curve for good A 
C. A leftward shift in the demand curve for good B 
D. A leftward shift in the demand curve for good A 


Sample Question 70

If the government imposed a legal minimum wage that was above the market equilibrium wage, the resulting unemployment would be the greatest when:

A. the demand for labor and the supply of labor are both price inelastic 
B. the demand for labor and the supply of labor are both price elastic 
C. the demand for labor is price inelastic and the supply of labor is price elastic 
D. the demand for labor is price elastic and the supply of labor is price inelastic 


Sample Question 71

There are waiting lists and shortages of a product. Which ONE of the following statements explains the cause of this?

A. A price floor (minimum price) has been set above free market price 
B. A price ceiling (maximum price) has been set above free market price 
C. A price floor (minimum price) has been set below free market price 
D. A price ceiling (maximum price) has been set below free market price 


Sample Question 72

If a firm increases employment of all its factors of production by 50% and as a result output increases by 60%, it has experienced

A. Increasing productivity of labor 
B. Increasing returns to scale 
C. External economies of scale 
D. The benefits of the division of labor 


Sample Question 73

Firms in competitive markets can earn only normal profit in the long run because:

A. they produce homogeneous products 
B. there are no barriers to entry into these markets 
C. production costs are the same for all producers 
D. of the absence of economies of scale 



Exam Code: BA1
Exam Name: Fundamentals of Business Economics
Last Update: May 13, 2024
Questions: 468