Free Online CFA Level 1 Mock Exam 6

7. Which of the following would be a drag on liquidity?

A. Earlier payment of vendor dues

B. Obsolete inventory

C. Reduced credit limits

Correct Answer: B

Answer Explanation:

Drag on liquidity reduces cash inflows. Examples include bad debts, obsolete inventory, uncollected accounts receivable, etc.

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8. At which stage of development is it most likely that cheaper debt financing will be available on an unsecured basis?

A. Start-up

B. Growth

C. Maturity

Correct Answer: C

Answer Explanation:

Established companies can usually obtain debt financing on attractive terms without collateral. In order to take advantage of cheaper debt (as compared to equity), these companies usually make extensive use of leverage.

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Derivatives

9.

Analyst 1: Market makers earn profits in both the exchange and OTC derivatives markets by charging a commission on each trade.

Analyst 2: Market makers earn profits in both the exchange and OTC derivatives markets by buying at one price, selling at a higher price, and hedging any risk.

Which analyst’s statement is most likely to be correct?

A. Analyst 1.

B. Analyst 2.

C. Neither of them.

Correct Answer: B

Answer Explanation:

Established companies can usually obtain debt financing on attractive terms without collateral. In order to take advantage of cheaper debt (as compared to equity), these companies usually make extensive use of leverage.

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