FINANCE MANAGEMENT IIBM MBA EXAM ANSWER SHEET

FINANCE MANAGEMENT IIBM MBA EXAM ANSWER SHEET

Financial Management

I.                    Investment is the… 

a) Net additions made to the nation’s capital stocks

b) Person’s commitment to buy a flat or house

c) Employment of funds on assets to earn returns

d) Employment of funds on goods and services that are used in production process

Ans: c) Employment of funds on assets to earn returns

II. Financial Management is mainly concerned with... 

a) All aspects of acquiring and utilizing financial resources for firms activities

b) Arrangement of funds

c) Efficient Management of every business

d) Profit maximization

Ans: a) All aspects of acquiring and utilizing financial resources for firms activities

III. The Primary goal of the financial management is….. 

a. To maximize the return

b. To minimize the risk

c. To maximize the wealth of owners

d. To maximize profit

Ans: c. To maximize the wealth of owners

IV. In his traditional role the finance Manager is responsible for 

a. Proper utilization of funds

b. Arrangement of financial resources

c. Acquiring capital assets of the organization

d. Efficient management of capital

Ans: a. Proper utilization of funds

V. Market Value of the shares are decided by

a. The respective companies

b. The investment market

c. The government

d. Shareholders

Ans: b. The investment market

VI. The only feasible purpose of financial management is

a. Wealth maximization

b. Sales maximization

c. Profit maximization

d. Assets maximization

Ans: a. Wealth maximization

VII. Financial management process deals with

a. Investments

b. Financing decisions

c. Both a and b

d. None of the above

Ans: b. Financing decisions

VIII. Agency cost consists of

a. Binding

b. Monitoring

c. Opportunity and structure cost

d. All of the above

Ans: d. All of the above

IX. Finance Function comprises

a. Safe custody of funds only

b. Expenditure of funds only

c. Procurement of finance only

d. Procurement & effective use of funds

Ans: d. Procurement & effective use of funds

X. Financial management mainly focuses on

a. Efficient management of every business

b. Brand dimension

c. Arrangement of funds

d. All elements of acquiring and using means of financial resources for financial activities

Ans: d. All elements of acquiring and using means of financial resources for financial activities

Part Two:

1.      What Is The Financial Management Reform? 

Financial management reform is an essential part of the development process. Sound PFM supports aggregate control, prioritization, accountability and efficiency in the management of public resources and delivery of services, which are critical to the achievement of public policy objectives, including achievement of the Millennium Development Goals (MDGs). In addition, sound public financial management systems are fundamental to the appropriate use and effectiveness of donor assistance since aid is increasingly provided through modalities that rely on well-functioning systems for budget development, execution and control.

Five principles have emerged that reflect good practice in financial management reform work. The principles, reflected throughout the following guidance, are:

• FMR work should facilitate and encourage country leadership in setting/managing the PFM reform strategy and action plan.
• FMR diagnostic work should be conducted in an integrated and coordinated manner, drawing upon the distinct competencies of the PFM country team and other donors, with the timing and scope determined largely by country needs.
• FMR work should be weighted toward supporting PFM reform implementation reforms and capacity building rather than detailed diagnostic analysis, should add value to Government budget and reform processes, and should be aligned with Government decision-making cycles.
• FMR reform work should be framed within a multi-year horizon, sequenced around agreed priorities, and built upon a coordinated donor approach.
• FMR work should be linked to a robust monitoring and evaluation framework, that clearly articulates the gains in PFM system performance that are sought or achieved.

These principles are reflected in the Strengthened Approach document, which has been developed by the World Bank in consultation with the PEFA partners, and with the OECD DAC Joint Venture on Public Financial Management.

2.      Why Was The FMR Introduced? 

The framework has been introduced following public concern over Government's in efficiencies and wastage as reflected in numerous Auditor-General Reports as well as reports by international agencies on public expenditure practices in Fiji.

The Fiji Government’s current financial management structure, has been in place since the 1980s with minor changes throughout the years. A review of the current structure revealed the following problems:

o    inadequate links between government policy decisions and implementation.

o    a focus on the resources given to Government agencies rather than how the agencies perform with the resources allocated to them.

o    Central control of finances by the Ministry of Finance which contributes to slow delivery of service.

o    poor financial management and spending control.

3.      What Changes Will The FMR Introduce? 

The FMR will strengthen and modernize the management of Government finances to:

o    better align government policy priorities with budget resources;

o    adopt a performance focus;

o    provide more effective control over public spending;

o    strengthen accountability and transparency in financial management.

4. What Is Financial Management Information System (FMIS)?

FMIS is financial management software that transforms financial data into information that is useful for decision- making. Government is in the process of acquiring a FMIS for the Whole of Government. This will replace the current General Ledger System.

Through the implementation of the following four major components:

o    Financial Management Act 2004 – The Financial Management Bill is expected to become law in 2005. The legislation has been drafted to give legal effect to the Financial Management Reform policy framework.

o    Financial Management Information System – to be introduced progressively, the new system will support the changes by automating most current manual processes, strengthen the monitoring of budgets and control over spending.

o    Performance Budgeting - involves the allocation of resources to agencies based on the goods and services to they deliver. Therefore budgets will reflect the level of performance expected with the resources provided.  This will be linked to the annual corporate planning process. More information is available in the “Guide to Performance Budgeting.

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