Question 1

What are the advantages and the disadvantages of equity finance and debt finance to a company raising finance and investors?

Accepted Answer

The advantage of equity finance for a company – raising money by selling shares – is that this money does not have to be repaid However, new shareholders usually get to have a say in how the company is run Despite these rights, equity is often seen as a risky choice for investors as they will lose all their money if the company doesn’t prosper If it does well, on the other hand, they may see their stake multiply in value many times over Debt finance – money raised through loans – must be repaid eventually by a company, usually with interest, but lenders won’t be able to exert as much influence as shareholders over how the company does business The debt of a reliable company is usually seen as a safe investment, but fixed repayment schedules means that there are few opportunities for large returns

Question 2

What is Bank Rate?

Accepted Answer

Bank Rate is the interest rate at which the RBI allows finance to commercial banks By Bank Rate, we mean bank can regulate the level of economic activity

Question 3

What are the types of accounts in banks?

Accepted Answer

a) Checking Account: You can access the account as the saving account but, unlike saving account, you cannot earn interest on this account The benefit of this account is that there is no limit for withdrawal b) Saving Account: You can save your money in such account and also earn interest on it The number of withdrawal is limited and need to maintain the minimum amount of balance in the account to remain active c) Money Market Account: This account gives benefits of both saving and checking accounts You can withdraw the amount and yet you can earn higher interest on it This account can be opened with a minimum balance d) CD (Certificate of Deposits) Account: In such account you have to deposit your money for the fixed period of time (5-7 years), and you will earn the interest on it The rate of interest is decided by the bank, and you cannot withdraw the funds until the fixed period expires

Question 4

What is overdraft protection?

Accepted Answer

Overdraft protection is a service that is provided by a bank to their customer For instance, if you are holding two accounts, saving and credit account, in the same bank Now if one of your accounts does not have enough cash to process the cheques, or to cover the purchases The bank will transfer money from one account to another account, which does not have cash so to prevent check return or to clear your shopping or electricity bills

Question 5

What is ‘Amortization’?

Accepted Answer

The repayment of the loan by instalment to cover principal amount with interest is known as ‘Amortization’

Question 6

What do you mean by ‘foreign draft’?

Accepted Answer

Foreign draft is an alternative to foreign currency; it is generally used to send money to a foreign country It can be purchased from the commercial banks, and they will charge according to their banks rules and norms People opt for ‘foreign draft’ for sending money as this method of sending money is cheaper and safer It also enables receiver to access the funds quicker than a cheque or cash transfer

Question 7

What do you mean by ‘cheque endorsing’?

Accepted Answer

‘Endorsing cheque’ ensures that the cheque get deposited into your account only It minimizes the risk of theft Normally, in endorsing cheque, the cashier will ask you to sign at the back of the cheque The signature should match the payee The image over here shows the endorsed cheque

Question 8

What is ‘Bill Purchase’?

Accepted Answer

In ‘Bill Purchase’ the loan will be created for the full value of the draft and the interest will be recovered when the actual payment comes For example, a ‘Sight draft’ is presented for which the loan is created for 100% of the draft value The money is received after 7 days, and then the interest will be recovered for 7 days along with the principal amount

Question 9

What ACH stands for?

Accepted Answer

ACH stands for Automated Clearing House, which is an electronic transfer of funds between banks or financial institutions

Question 10

What is Line of credit?

Accepted Answer

Line of credit is an agreement or arrangement between the bank and a borrower, to provide a certain amount of loans on borrower’s demand The borrower can withdraw the amount at any moment of time and pay the interest only on the amount withdrawn For example, if you have $5000 line of credit, you can withdraw the full amount or any amount less than $5000 (say $2000) and only pay the interest for the amount withdrawn (in this case $2000)

Question 11

The primary Economic function of the Financial system is to

Accepted Answer

Match one person's savings with another person's investment

Question 12

The value of money varies

Accepted Answer

inversely with the price level

Question 13

Patents, Copyrights and Trademarks are examples of

Accepted Answer

Intangible asset that consists of original creative work manifested in a tangible form that can be legally protected. Intellectual property consists of copyrights, patents, trade-marks and trade secrets. Examples include literary or artistic works, business methods and industrial processes.

Question 14

Commercial banks are funded through which of the following?

Accepted Answer

A commercial bank is a type of financial institution that accepts deposits, offers checking account services, makes business, personal and mortgage loans, and offers basic financial products like certificates of deposit (CDs) and savings accounts to individuals and small businesses. A commercial bank is where most people do their banking, as opposed to an investment bank. Commercial banks are funded through customer deposits. These banks make money by providing loans and earning interest income from those loans. The types of loans a commercial bank can issue vary and may include mortgages, auto loans, business loans and personal loans. A commercial bank may specialize in just one or a few types of loans. Customers who deposit money into these accounts effectively lend money to the bank and are paid interest. However, the interest rate paid by the bank on money they borrow is less than the rate charged on money they lend.

Question 15

A check returned by the bank marked nsf means

Accepted Answer

NSF means - Not Sufficient Funds.

Question 16

The accounting software Tally was developed by

Accepted Answer

Tally is one of the best business accounting software for accounting, inventory, payroll. It is economical and one of the most popular ERP software solutions available in the industry. Tally, an accounting software was developed by the multinational company TCS - Tata Consultancy Services.

Question 17

How can investors receive compounding returns?

Accepted Answer

By investing their earnings back into their original investment

Question 18

Reconciling the bank statement monthly is an example of

Accepted Answer

Reconciling the bank statement monthly is an example of independent internal verification

Question 19

What is true about certificates of deposit?

Accepted Answer

A certificate of deposit (CD) is a savings certificate with a fixed maturity date, specified fixed interest rate and can be issued in any denomination aside from minimum investment requirements. CD's are generally issued by commercial banks

Question 20

The reserves of a commercial bank consist of

Accepted Answer

deposits at the Federal Reserve Bank and vault cash

Accounting and Finance Questions