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CPA Exam, BEC- Corporate Governance (1
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CPA Exam, BEC- Corporate Governance (1
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CPA Exam, BEC- Corporate GovernanceThe purchase and sale of commodities for current delivery is known as which market?
Spot market
Futures market
Money market
Capital market - ANS-Spot Market
Explanation: The futures market involves setting a price today for delivery at a future time
period. The money market is a market for securities with a maturity of one year or less. The
capital market is for longer term investment products.
Which of the following is not a stock exchange?
New York Stock Exchange (NYSE)
American Stock Exchange (AMEX)
Boston Stock Exchange
NASDAQ - ANS-NASDAQ
Explanation: An exchange requires a physical/tangible location. NYSE and AMEX are national
exchanges. Boston is a regional exchange. NASDAQ is a computer based trading network that
lacks a single physical location.
A company buys a $10,000 bond from the XY Corporation on an open market. The bond pays a
set annual interest rate of 6 percent over its five-year life. What is meant by interest rate risk as
is applies to this bond?
The risk that XY will not be able to pay the interest as it comes due.
The risk that other interest rates will rise so that the value of this bond will fall.
The risk that this rate of interest will drive XY into bankruptcy.
The risk that the company will try to restructure the debt in order to reduce the interest rate. -
ANS-The risk that other interest rates will rise so that the value of this bond will fall.
Explanation: A bond with a set interest rate will pay the exact cash amounts specified in the
bond indenture. However, if the overall interest rate on the market begins to climb, the set
interest rate paid on this bond looks less and less appealing. Thus, its market value will fall. For
example, if general interest rates jump to an annual rate of 10 percent, this bond with a 6
percent annual rate does not look like a good investment. Consequently, its price will have to fall
considerably to attract a buyer should the investor want to sell.
, Lynn Dissinger has been hired as the investment strategy manager at her company and is
identifying the various types of risk the company is facing in its investment activity. Which of the
following statements about investment risk is FALSE?
Liquidity risk refers to the company's exposure to loss resulting from the lack of liquidity or
marketability of an investment.
Credit risk is also known as default risk and exposes the company to loss when purchasing debt
securities of other firms.
The company's exposure to loss on its investments resulting from changes in the rate of inflation
is referred to as price risk.
Exposure to loss due to investment price risk can be mitigated through use of hedging and
diversification techniques applied by the company. - ANS-The company's exposure to loss on its
investments resulting from changes in the rate of inflation is referred to as price risk.
Explanation: Price risk from investment activity refers to the risk that a security or portfolio of
securities will decline in value
Which of the following is the independent auditor least likely to talk about with those individuals
who are in charge of the governance of an audit client?
Indications of fraud and illegal acts committed by a corporate officer that were discovered by the
auditor.
Related party transactions for which the auditors have fully disclosed in the notes to the financial
statements.
The maximum dollar amount of misstatements that could exist without causing the financial
statements to be materially misstated.
Disagreements with management as to accounting principles which were resolved during the
current year's audit. - ANS-The maximum dollar amount of misstatements that could exist
without causing the financial statements to be materially misstated.
Explanation: The size of a misstatement that would be judged to be material is a subject matter
on which auditors generally do not initiate a discussion with those in charge with the governance
of an audit, although they may respond to such questions (for example from members of the
audit committee). The level of a material misstatements is one of the most important
professional judgments that an independent auditor must make. It is one that the auditor must
make without any influence by the audit client.
A NYSE member acting as a dealer in a small number of securities on the exchange is the
definition of a
Floor trader
Commission broker
Specialist
Market maker - ANS-specialist
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