Financial Management

Financial Management MCQs with Answers and Explanations | Corporate Finance & Investment Objective Questions

Master the core concepts of Financial Management with our comprehensive set of MCQs with answers and detailed explanations. Covering topics such as time value of money, capital budgeting, cost of capital, working capital management, capital structure, dividend policy, risk and return, portfolio management, and financial planning, these questions are ideal for students, teachers, and candidates preparing for professional and competitive exams (CA, ACCA, ICMA, CFA, MBA, BBA, CSS, PMS, NTS, FPSC, PPSC, UPSC, etc.). Each MCQ is followed by a clear explanation to build strong concepts, sharpen decision-making skills, and enhance exam readiness. Perfect for practice, revision, and self-assessment in the field of Financial Management and Corporate Finance.

342. Risk which is caused by events such as strikes, unsuccessful marketing programs and other lawsuits is classified as

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stock risk
portfolio risk
diversifiable risk
market risk
✅ The correct answer is C.
Risk which is caused by events such as strikes, unsuccessful marketing programs and other lawsuits is classified as diversifiable risk. Diversifiable risk is the possibility that there will be a change in the price of a security because of the specific characteristics of that security. Diversification of an investor’s portfolio can be used to offset and therefore eliminate this type of risk.

343. Risk affects any firm with factors such as war, recessions, inflation and high interest rates is classified as

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diversifiable risk
market risk
stock risk
portfolio risk
✅ The correct answer is B.
Risk affects any firm with factors such as war, recessions, inflation and high interest rates is classified as market risk. Market risk is the possibility of an investor experiencing losses due to factors that affect the overall performance of the financial markets in which he or she is involved.

344. Company low earning power and high interest cost cause financial changes which have

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high return on equity
high return on assets
low return on assets
low return on equity
✅ The correct answer is B.
Company low earning power and high interest cost cause financial changes which have high return on assets. The higher the ROA number, the better, because the company is earning more money on less investment.

346. Growth rate which is predicted by marginal investors for dividends is classified as

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expected growth rate
annual growth rate
past growth rate
unexpected growth rate
✅ The correct answer is A.
Growth rate which is predicted by marginal investors for dividends is classified as expected growth rate. Growth rates refer to the percentage change of a specific variable within a specific time period and given a certain context.

347. International investing is________________.

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is only practical for institutional investors
increases the overall risk of a stock portfolio
always leads to higher returns than a domestic portfolio
can reduce risk due to increased diversification
✅ The correct answer is C.
International investing is always leads to higher returns than a domestic portfolio. International investing is an investing strategy that involves selecting global investment instruments as part of an investment portfolio.

348. Markets which bring closer institutions needing funds and with surplus funds are classified as

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financial markets
corporate institutions
hedge firms
retirement planners
✅ The correct answer is A.
Markets which bring closer institutions needing funds and with surplus funds are classified as financial markets. A financial market is a broad term describing any marketplace where trading of securities including equities, bonds, currencies, and derivatives occur.

349. Altering the leverage ratio does not influence the market value of the firm. This is the basic premise of _______.

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net income approach
traditional approach
modern approach
net operating income approach
✅ The correct answer is D.
Net Operating Income Approach was also suggested by Durand. This approach is of the opposite view of Net Income approach. This approach suggests that the capital structure decision of a firm is irrelevant and that any change in the leverage or debt will not result in a change in the total value of the firm as well as the market price of its shares. This approach also says that the overall cost of capital is independent of the degree of leverage.

350. Which of the following short term securities is inappropriate for an individual, desiring funds for financial emergencies?

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treasury bills
certificates of deposit
financial futures
savings accounts
✅ The correct answer is C.
Financial futures short term securities is inappropriate for an individual, desiring funds for financial emergencies. Futures contract to buy or sell a specific financial instrument (such as treasury bills, certificates of deposit, or foreign currencies) at a specific future date and at a specified price. The market value of these contracts generally moves in a direction opposite to that of the interest rates.