Competency-Based

Competitive Events
*Written Exam*
for State/Province Use

Test Number 1255

Booklet Number _____

Finance Cluster Exam

ACT – Accounting Applications Series Event
BFS – Business Finance Series Event
FCE – Financial Consulting Event
FTDM – Financial Services Team Decision Making Event

INSTRUCTIONS: This is a timed, comprehensive exam for the occupational area

identified above. Do not open this booklet until instructed to do so by the
testing monitor. You will have _____ minutes to complete all questions.

CAUTION: Posting these materials on a website is a copyright violation.

This comprehensive exam was developed by MBA Research exclusively for DECA’s
2021-2022 Competitive Events Program. Items have been randomly selected from the MBA
Research Test-Item Bank and represent a variety of instructional areas. Performance indicators
for this exam are at the prerequisite, career-sustaining, and specialist levels. A descriptive test
key, including question sources and answer rationale, has been provided to the DECA chartered
association advisor.

Copyright © 2022 by Marketing & Business Administration Research and

Curriculum Center®, Columbus, Ohio (dba MBA Research). Each individual test item contained
herein is the exclusive property of MBA Research. Items are licensed to DECA only for use as
configured within this exam, in its entirety. Use of individual items for any purpose other than as
specifically authorized is prohibited. Possession of this exam, without written authorization,
under any other circumstances is a copyright violation. Posting to inter- or intranet sites is
specifically forbidden unless written permission is obtained prior to posting. Report violations to
DECA at 703.860.5000 and MBA Research at 800.448.0398. Permission for reprinting is
granted to DECA chartered associations authorized by DECA Inc.

DECA Inc. will impose sanctions on chapters and chartered associations for violations of this
policy up to and including disqualification of competitors and chapters from further participation.
 Test 1255 FINANCE CLUSTER EXAM 1

1. Which of the following is a violation of your rights that might occur when you encounter a member of law
enforcement:
A. Your car is searched by a police officer, even though you did not give permission.
B. A police officer pulls you over and asks for your license and registration.
C. You are stopped by a police officer for being out a few minutes past curfew.
D. A police officer arrives at your party to make sure there is no underage drinking.

2. The ABC Company published an incorrect statement about the quality of the Marston Company's
product. As a result, Marston's sales have dramatically decreased. This is an example of a legal tort
related to
A. defamation. C. infringement.
B. privacy. D. trespassing.

3. A business might conduct a compliance audit to

A. manipulate financial data to indicate profitability.
B. ensure that it is following government regulations.
C. develop efficient production processes.
D. evaluate its vendors' performance.

4. Which of the following is a common problem that financial institutions experience when dealing with
compliance:
A. Long-term thinking
B. Too much emphasis on risk management
C. Lack of coordination
D. Growing importance of technology

5. What is an advantage of using technology in compliance?

A. Ease of transitions C. Increased efficiency
B. Decreased cost D. Risk of increased fraud

6. Which of the following has the fiduciary responsibility to make decisions on behalf of a company's
shareholders:
A. The municipal court system C. The company's line staff
B. The industry's professional organization D. The corporation's board of directors

7. Andrew received an official-looking email that appeared to be from a government agency. The message
requested that Andrew reply immediately to the email and provide his bank account information and
credit card account numbers. Fortunately, Andrew found out that the message was fraudulent before he
provided the information. What illegal activity does this situation exemplify?
A. Affinity fraud C. Phishing
B. Ponzi scheme D. Accounting fraud

8. Which of the following is most likely to incur a luxury tax:

A. Used minivan with leather interior C. Wool coat with faux fur collar
B. Five-carat diamond ring D. Laptop computer

9. It is most appropriate for businesspeople to use complex, technical jargon when they are
A. introducing a friend to a business associate.
B. greeting new customers.
C. speaking with coworkers.
D. informally conversing with an acquaintance.

10. Requests, directions, and information are often communicated in writing because messages sent in
writing are less likely to be
A. businesslike. C. clear.
B. misunderstood. D. friendly.

Copyright © 2022 by MBA Research and Curriculum Center®, Columbus, Ohio

Test 1255 FINANCE CLUSTER EXAM 2

11. Which of the following types of material are often included as attachments to the appendix of short
reports:
A. Title page C. Supporting documents
B. Table of contents D. Conclusions and recommendations

12. In planning a staff meeting for her department, Mara should

A. change the meeting date and time.
B. provide a meeting agenda to review.
C. forward a copy of the department budget to all participants.
D. limit the number of times that each participant can speak.

13. Which of the following is the best way to handle dishonest customers:
A. Don't jump to quick conclusions.
B. Explain and demonstrate good service as many times as you need to.
C. Never press for sales or decisions.
D. Mirror their behavior.

14. Which of the following is an example of using customer information wisely:

A. Keeping it safe and not using it
B. Sending frequent emails
C. Sharing customer information with partnering businesses
D. Customizing communications

15. What is the most common reason for a client to leave or fire their financial advisor?
A. Lack of communication C. High commission fees
B. Poor investment return D. Location of the office

16. A business selects specific characteristics about its customers and uses software to obtain data from its
database that will help the business identify, evaluate, and group its customers' buying behaviors. What
data mining technique is the business using?
A. Statistical C. Clustering
B. Organic D. Primary

17. Effective CRM technology includes analytics features that automatically draw useful conclusions out of
the data stored. These features assist in
A. training. C. data mining.
B. collaboration. D. data entry.

18. Trade-offs should be based on

A. capital goods. C. opportunity cost.
B. scarcity. D. noneconomic wants.

19. Which of the following business activities includes planning, maintaining, monitoring, controlling, and
reporting the use of financial resources:
A. Information management C. Human resources management
B. Financial analysis D. Operations of finance

20. A primary reason that businesses expand their operations in foreign countries is to
A. condense their market shares. C. increase revenues.
B. eliminate tax obligations. D. promote environmental issues.

21. Which of the following occurs last in the collective bargaining process:
A. Researching the issues C. Settling the contract
B. Conducting negotiations D. Voting on the agreement
Test 1255 FINANCE CLUSTER EXAM 3

22. Which of the following is an example of a regional multilateral trade alliance impacting global trade:
A. The International Monetary Fund
B. The World Trade Organization
C. The United States-Mexico-Canada Agreement
D. The United Nations

23. Wherever you go, you strive to follow the rules, tell the truth, work hard, and behave properly. You take
ownership of yourself and your actions. You display a high degree of __________ responsibility.
A. social C. legal
B. personal D. ethical

24. To ensure you make the right decisions, you should follow your ethical principles
A. no matter what. C. when it's easy.
B. when other people tell you to. D. when your boss is watching.

25. Your manager has reminded you to correct register errors as they occur to ensure close-out accuracy.
This type of comment is
A. constructive criticism. C. positive feedback.
B. internal feedback. D. destructive criticism.

26. Which of the following is an accurate description of persuasion:

A. Forcing your ideas and opinions on others C. Losing your temper
B. Influencing people to change their attitudes D. Intimidating people into agreeing with you

27. Who should be responsible for stress management?

A. The employee and the employer C. The employer
B. The employee D. The government

28. Leadership is important when things are going well for a business because
A. leaders determine the next step for the organization.
B. employees become discouraged in times of crisis.
C. team members usually embrace change.
D. people don't need role models.

29. Which of the following is a sign of solid leadership that will help you enlist others in a shared vision:
A. Being strict C. Setting an example
B. Blaming others D. Keeping your distance

30. More than anything else, being an ethical person means

A. agreeing with popular beliefs.
B. following the example of authority figures.
C. listening to your friends' opinions.
D. doing what's right, even when it doesn't benefit you.

31. Emily has decided to use all of her savings to buy a new car instead of a used one. What are the
opportunity costs of that decision?
A. The benefits she could have received by using the additional cost of a new car another way
B. The reliability and luxury of a new car compared to a used one
C. The money she saves by not having to constantly repair a used car
D. The benefits she could have received by using public transportation instead

32. Which of the following statements accurately describes a difference between saving and investing:
A. Saving is best used to reach goals in the near future, while investing is best used for longer-term
goals.
B. It's easier to access money that is invested than money that is in a traditional savings account.
C. Saving is generally riskier than investing, meaning that you may lose all or some of your money.
D. A traditional savings account has the potential for higher returns than investments.
Test 1255 FINANCE CLUSTER EXAM 4

33. What is the primary goal of an investment company?

A. To pool and invest funds based on the needs of investors
B. To locate outside sources of money for firms
C. To issue various types of mortgages to businesses
D. To collect financial contributions and invest them for employees

34. What does the credit rating of a financial institution indicate to savers and investors?
A. When the financial institution expects to see a return on investment
B. The return rate for specific mutual funds
C. The amount of funds that the bank lends to other institutions
D. How risky it is to provide the financial institution with funds

35. Cocoa beans and corn are examples of investments that people make in which of the following financial
markets:
A. Soft commodities C. Selective property
B. Insurance D. Money

36. If Hannah wants to invest in the capital markets, what types of securities should she purchase?
A. Corporate bonds and treasury bills C. Treasury bills and certificates of deposit
B. Common stock and certificates of deposit D. Corporate bonds and preferred stock

37. Recently, the Second-Fourth Bank merged with the Wide World Insurance Company. This is an example
of
A. liquidation. C. divergence.
B. convergence. D. endowment.

38. One advantage of consolidation to financial firms is

A. less liquid capital. C. fewer technology problems.
B. one-stop shopping. D. lower costs.

39. Which of the following is an example of arbitrage:

A. An individual earns interest on their money by agreeing to leave it in a financial institution for a
certain time frame.
B. An individual buys 10 shares of stock for $150 per share on one market and immediately sells
each share for $200 on another market.
C. A business places a percentage of its income into a retirement account for employees.
D. A business sells corporate bonds to obtain funds to finance major expansion efforts.

40. When the unemployment rate rises, stock values typically

A. decrease. C. stabilize quickly.
B. increase. D. remain unchanged.

41. By investing their funds in several different countries, investors

A. easily avoid integrated and emerging financial markets.
B. demonstrate their liberalization and home biases.
C. reduce their exposure to business cycle risks.
D. reduce foreigners' access to domestic financial markets.

42. Which of the following are among the most important resources to access prior to purchasing stock in a
company:
A. EDGAR and the Statement of Ownership
B. ESOP and the company's website
C. EDGAR and the company's website
D. ESOP and the Statement of Ownership
Test 1255 FINANCE CLUSTER EXAM 5

43. What is a disadvantage of using the internet to obtain investment information?

A. The large amount of information available on the internet can be overwhelming.
B. The internet is not accurate or reliable.
C. There is not enough information available on the internet.
D. None of the information on the internet is available for free.

44. If Kayla wants to obtain the most current pricing for various stocks, she should
A. review a business's annual report.
B. pick up a business-oriented newspaper.
C. visit the "About Us" section of a business's website.
D. access a financial website.

45. How can you tell if a stock is trending upward?

A. Examine the best bid/ask.
B. Compare the previous close with the opening price.
C. Look at the share volume.
D. Compare earnings per share with P/E ratio.

46. In their raw state, financial data aren't very helpful. To be useful to businesses, financial data need to be
A. listed in order of size from smallest to largest.
B. gathered and organized in some way.
C. inserted into a spreadsheet.
D. formatted in HTML.

47. How is financial information related to an organization's success?

A. Financial information is essential for an organization to continue operating.
B. Financial information gets in the way of an organization's progress.
C. Successful organizations usually do not need financial information.
D. The importance of financial information depends on the size of the organization.

48. Which of the following groups of people is most likely to be interested in the statement of changes in
equity:
A. Competitors C. Investors
B. Customers D. Employees

49. If a decision maker chooses a software package with a lower initial purchase price, what type of cost
have they considered?
A. Opportunity cost C. Sunk cost
B. Indirect cost D. Direct cost

50. Which of the following situations is an example of using marginal analysis to make a segment profitability
decision:
A. A restaurant chain manager must decide whether or not to keep a certain franchise open.
B. A clothing retailer must decide how many units of each product to sell.
C. A company must decide whether to use an outside marketing firm or hire someone internally.
D. A furniture company must decide whether to sell its pieces assembled or unassembled.

51. A company manager is making a decision concerning promotional strategy. What managerial accounting
technique can assist in the implementation phase of their decision-making process?
A. Budgeting expected revenue C. Comparing results to the budget
B. Recording and classifying transactions D. Representing plans financially

52. Juan noticed a positive variance of $2,000 in the email marketing section of his budget. Juan concluded
that this variance demonstrated efficient use of funds. What is another possible explanation for the
positive variance?
A. Email marketing is not an important activity.
B. Email marketing was not effective.
C. The budget did not allocate enough resources for email marketing.
D. The planned email marketing campaigns were not completed.
Test 1255 FINANCE CLUSTER EXAM 6

53. Why do some companies decide against using variance analysis?

A. Real causes cannot be correctly identified.
B. Variance analysis is not based on real, tangible data.
C. Variance analysis involves too much of a time delay.
D. Horizontal analysis requires much less time.

54. Kenneth is easily able to guide the actions of his employees by referring to his budget. This is an
example of which function of budgets?
A. Controlling C. Directing
B. Planning D. Monitoring

55. What is a possible reason for not allocating costs?

A. A cost is not controlled by any department. C. The budget has already been exceeded.
B. A cost is fixed rather than variable. D. Costs are not high enough to be allocated.

56. Which of the following indirect manufacturing costs is a company most likely to include in the cost
allocation of its individual products:
A. Heat and lighting costs C. Administrative salaries
B. Cost of labor D. Raw product materials

57. After a business designates categories of expense in its budget, it

A. attaches a time limit. C. applies a formula.
B. appoints an accountant. D. allocates a dollar amount.

58. You received a check on your birthday for $2,000. If you invest it at an annual rate of 3%, how much will
it be worth in a year?
A. $6,000 C. $2,060
B. $2,000 D. $2,600

59. A financial-information management system can help a financial manager make which of the following
types of decisions:
A. Adding/Dropping products C. Vendor selections
B. Employee scheduling D. Capital budgeting

60. Accurate financial-information management improves a business's payment cycles by

A. optimizing accounts payable and accounts receivable.
B. improving the business's trustworthiness.
C. allowing for better sales forecasting.
D. giving companies a way to evaluate their tax liability.

61. Which of the following is a common outcome of poor financial-information management in a finance
department:
A. Employees are able to increase their efficiency.
B. Employees receive information before it's needed in the department.
C. Employees cannot understand financial statements.
D. Employees cannot correctly assess trends.

62. During a strategic planning meeting, a company's financial manager explains why the budget needs to be
more carefully managed for the good of the business. This is an example of
A. the need for decreased transparency of financial documents.
B. the importance of adhering to governmental regulations.
C. the role of confidentiality in financial-information management.
D. the stewardship function of financial-information management.

63. Firewalls, intrusion detection systems, and encryption are all methods used by companies to
A. ensure the security of their office buildings. C. protect and secure financial information.
B. screen qualified job applicants. D. sort and organize customer data.
Test 1255 FINANCE CLUSTER EXAM 7

64. Businesses use budgeting software to

A. record employee performance. C. calculate their tax rates.
B. develop reliable forecasts. D. organize shipping data.

65. A finance employee with the City Mutual Insurance Company is reviewing a computer-generated report
that indicates the amount of money the company has disbursed to employees who have worked overtime
in the past year. What type of financial information is the employee analyzing?
A. Payroll C. Accounts payable
B. Production rates D. Sales

66. The primary focus of the Six Sigma methodology is

A. eliminating quality management staff.
B. reducing errors in business processes.
C. improving cash management processes.
D. increasing overall public relations spending.

67. By analyzing a customer's financial information, a finance professional should be able to

A. declare Chapter 11 bankruptcy for the customer.
B. develop a financial strategy to help the customer.
C. protect the security of the customer's financial information.
D. determine the customer's newest target market.

68. As Tom is reviewing a customer's credit report to determine if the company should offer the customer a
line of credit, he should use the company's __________ to guide his decision.
A. accounting method C. credit standards
B. purchasing policies D. payment history

69. Motives, perception, attitude, lifestyle, personality, and abilities are __________ factors influencing
consumer behavior.
A. psychological C. political
B. social D. economic

70. Appropriate information management can

A. create more difficult decisions. C. save time and money.
B. create more jobs. D. result in audits.

71. A legal issue associated with the use of information might involve the violation of __________ laws.
A. copyright C. trademark
B. patent D. contract

72. A primary goal of data normalization is to

A. reduce data redundancy. C. improve data collection.
B. discard any unusual data. D. increase data quality.

73. What data mining technique uses "if-then" criteria to classify objects in a database?
A. Quantitative reasoning C. Neural networking
B. Histogram D. Rule induction

74. To house its digital business records, EFG Corporation uses a remote database that employees can
access anytime through the internet. EFG Corporation is using __________ to store its business records.
A. compact disks C. streaming video
B. a flash drive D. cloud computing

75. Which of the following is an example of a probable conflict of interest in business operations:
A. An employee meets a new client for lunch at an upscale restaurant.
B. A purchasing agent provides a customer with a discount.
C. A purchasing agent awards a large order to a relative's employer.
D. An employee uses the company discount to purchase goods.
Test 1255 FINANCE CLUSTER EXAM 8

76. Which of the following would be most effective in improving a business's security:
A. Having fewer sales C. Using closed-circuit television
B. Raising prices D. Establishing longer hours of operation

77. Which of the following is the most important factor to consider when prioritizing work tasks:
A. Due dates of tasks C. Coworkers' opinions
B. Enjoyment of tasks D. Employee's aptitude

78. When your project isn't as successful as you hoped it would be, you should
A. scrap the project entirely and start over.
B. figure out which of your project team members are responsible.
C. hide your mistakes from project stakeholders.
D. gather lessons learned so you won't repeat the same mistakes.

79. A business purchases $4,250 worth of supplies and receives an invoice listing terms of 2/15, n/30. What
amount will an employee save the business by paying the invoice within 15 days?
A. $90 C. $85
B. $80 D. $95

80. When evaluating the status of clothing, you should make sure that
A. undergarments are showing. C. hair is clean and neatly styled.
B. the garments are clean and wrinkle-free. D. slacks and shirts are tight and revealing.

81. When organizing your workspace, a general rule to follow in cleaning out papers and other written
materials is to
A. file a document if you're sure you won't need it again.
B. keep a document if you have more than one copy.
C. put a document in the file if it is outdated.
D. keep a document if it would be hard to replace.

82. Recognizing your strengths and weaknesses helps you accept yourself, which is one of the foundations
of
A. self-fulfillment. C. safety.
B. social acceptance. D. self-esteem.

83. During an interview, a job applicant can indicate to the interviewer an interest in the position by
A. looking at their feet. C. slouching in their chair.
B. maintaining eye contact. D. staring out the window.

84. Which of the following statements is true of the insurance field:

A. It includes job titles like "auditor" and "accountant."
B. All employees are known as insurance agents.
C. It exists to protect customers from financial losses.
D. It involves accepting deposits and lending funds.

85. What is a challenge of working in securities and investments?

A. The job can be very stressful. C. The profession is not respected.
B. The pay is often low. D. Workdays are often short.

86. Corporate governance is primarily concerned with __________ desires.

A. stakeholder C. vendor
B. CEO D. competitor

87. The Farside Corporation wants to encourage its workforce to better achieve governance objectives.
Which tactic should the company use to motivate its employees and improve the distribution of wealth
throughout the corporation?
A. Team building C. Profit-sharing
B. Cash incentives D. Flexible scheduling
Test 1255 FINANCE CLUSTER EXAM 9

88. How can a company develop a culture in which employees work toward corporate governance
objectives?
A. Put the shareholders' interests as the top priority
B. Punish employees who do not support corporate governance objectives
C. Set objectives without letting the budget affect them
D. Incorporate governance objectives into the hiring process

89. Which of the following is an external control used to govern companies:

A. Whistleblower policy C. Segregation of duties
B. Safety laws D. Managerial oversight

90. Which of the following business activities is most likely to impact an organization's governance
structures:
A. Developing a marketing strategy C. Borrowing money from a bank
B. Hiring a new sales representative D. Raising prices on consumer goods

91. Good governance is most likely to make a company's investment decisions

A. more ethical. C. less regulated.
B. subject to individuals' influence. D. more vulnerable to outside risk.

92. Which of the following examples best illustrates the relationship between governance and management:
A. Sapphire Axis, Inc. keeps its top executives and governance strictly separate.
B. Jenna, a manager, provides the board of directors with a framework for determining goals.
C. A company's governance processes aim to place strict limits on managers.
D. Wesley bases his management decisions on the strategies outlined by governance processes.

93. Elena is a recent college graduate who works for an investment brokerage. She often seeks advice and
guidance from Dana, a more veteran employee of the company. In addition, Dana introduced Elena to
other members of their firm and their professional organization who might be of assistance to Elena in the
future. Dana is serving as Elena's
A. supervisor. C. manager.
B. mentor. D. assistant.

94. If a company does not take the time to manage risks, it is

A. seeking a larger return on investment. C. enhancing possibilities for gain.
B. treating customers fairly. D. not being ethical.

95. Using computer-data backup procedures on a regular basis reduces a company's level of risk because
the process
A. saves information when computer failures occur.
B. prevents hackers from accessing the computer system.
C. detects noncompliance issues.
D. allows employees to use many applications.

96. The Sarta Company's risk management information system (RMIS) contains a master list of all claims;
data detailing the status of individual claims; and information regarding exposure bases such as payroll,
number of employees, number of company vehicles, etc. These data are likely to be housed within the
__________ section of the RMIS database.
A. risk map C. liability
B. property exposure D. catastrophe modeling

97. Training programs that address gender-related issues at work may lower a firm's legal risks associated
with
A. financial misconduct. C. intellectual property.
B. religious preferences. D. sexual harassment.
Test 1255 FINANCE CLUSTER EXAM 10

98. Why is the choice of a risk measure for internal and external risk of great practical importance?
A. It identifies the types of risks that the financial institution will encounter.
B. It determines the maximum number of clients that can be served effectively by a financial
institution.
C. It determines the minimum reserve requirements in financial trading.
D. It designates the audience that will receive the resulting financial reports.

99. Loss prevention, loss avoidance, and loss reduction are risk __________ techniques.
A. retention C. transfer
B. financing D. control

100. Which of the following is an example of an external factor that has increased interest in enterprise risk
management (ERM):
A. Increased efficiency C. Increased regulatory scrutiny
B. Decreased transparency D. Decreased volume of information
 KEY
Test Number 1255

Finance Cluster Exam

ACT – Accounting Applications Series Event
BFS – Business Finance Series Event
FCE – Financial Consulting Event
FTDM – Financial Services Team Decision Making Event

CAUTION: Posting these materials on a website is a copyright violation.

This comprehensive exam was developed by MBA Research exclusively for DECA’s
2021-2022 Competitive Events Program. Items have been randomly selected from the MBA
Research Test-Item Bank and represent a variety of instructional areas. Performance indicators
for this exam are at the prerequisite, career-sustaining, and specialist levels. A descriptive test
key, including question sources and answer rationale, has been provided to the DECA chartered
association advisor.

Copyright © 2022 by Marketing & Business Administration Research and

Curriculum Center®, Columbus, Ohio (dba MBA Research). Each individual test item contained
herein is the exclusive property of MBA Research. Items are licensed to DECA only for use as
configured within this exam, in its entirety. Use of individual items for any purpose other than as
specifically authorized is prohibited. Possession of this exam, without written authorization,
under any other circumstances is a copyright violation. Posting to inter- or intranet sites is
specifically forbidden unless written permission is obtained prior to posting. Report violations to
DECA at 703.860.5000 and MBA Research at 800.448.0398. Permission for reprinting is
granted to DECA chartered associations authorized by DECA Inc.

DECA Inc. will impose sanctions on chapters and chartered associations for violations of this
policy up to and including disqualification of competitors and chapters from further participation.
Test 1255 FINANCE CLUSTER EXAM—KEY 11

1. A
Your car is searched by a police officer, even though you did not give permission. You have the right to
refuse a search by a police officer unless that officer has a search warrant or probable cause. Police
officers are allowed to pull you over and ask for your license and registration. They are also allowed to
stop you if you are out after curfew, even if it is just by a few minutes. They are also allowed to
investigate a party if they have reason to believe underage drinking might be occurring.
SOURCE: BL:163 Comply with the spirit and intent of laws and regulations
SOURCE: LAP-BL-163—Laying Down the Law (Complying With the Spirit and Intent of Laws and
Regulations)

2. A
Defamation. A tort is a private wrongdoing against a person or business. Defamation involves making
false statements about another party with the intent to discredit or hurt the other party's reputation. In the
example, ABC's incorrect statement about Marston's products hurt Marston's sales. In response, Marston
may file a lawsuit against ABC on the grounds of defamation. The situation is not related to privacy,
infringement, or trespassing.
SOURCE: BL:069 Identify the basic torts relating to business enterprises
SOURCE: [Link]. (2020, September 12). A brief overview of tort law. Retrieved September 23,
2021, from [Link]

3. B
Ensure that it is following government regulations. Government regulations affect the way that
businesses record and report financial data. To ensure that the business is following all of the
regulations, it should conduct a compliance audit. Because a comprehensive compliance audit can detect
discrepancies, it can help a business determine what it needs to do to correct a problem so it can comply
with regulations. It is unethical and often illegal to manipulate financial data in ways that aim to mislead
the audience. Developing efficient production processes and evaluating vendors' performance are not
reasons for conducting a compliance audit.
SOURCE: BL:148 Discuss the nature and scope of compliance in the finance industry
SOURCE: Lohrey, J. (n.d.). Compliance audit objectives. Retrieved September 23, 2021, from
[Link]

4. C
Lack of coordination. One issue that financial institutions have when dealing with compliance is lack of
coordination between different departments that manage risk and compliance separately. It is important
to integrate compliance throughout the organization and work together to have a unified, strategic
approach. Too much emphasis on risk management is not a problem that institutions experience when
dealing with compliance. In fact, risk management is an important part of compliance. Long-term thinking
and the growing importance of technology are not necessarily problems related to compliance.
SOURCE: BL:148 Discuss the nature and scope of compliance in the finance industry
SOURCE: MetricStream. (2021). Integrated risk and compliance management for banks and financial
services organizations: Benefits of a holistic approach. Retrieved September 27, 2021, from
[Link]

5. C
Increased efficiency. Technology can help make the compliance process more efficient because it allows
information to be utilized and processed much faster. It does not necessarily decrease costs.
Transitioning from an old system is not necessarily easy, but it is, in many cases, worth the difficulties.
Using technology in compliance can decrease fraud with the presence of fraud detection software.
SOURCE: BL:149 Describe the use of technology in compliance
SOURCE: Bloomberg Professional. (2016, June 28). Fintech spawns regtech to automate compliance
with regulations. Retrieved September 23, 2021, from
[Link]
regulations/
Test 1255 FINANCE CLUSTER EXAM—KEY 12

6. D
The corporation's board of directors. The board of directors consists of individuals who are appointed or
elected to make decisions on behalf of the company's owners—the shareholders. Professional
organizations, the company's line staff, and the municipal court systems do not make decisions for a
corporation on behalf of the shareholders.
SOURCE: BL:133 Discuss legal considerations in the finance industry
SOURCE: BoardSource. (2019, October 28). Fiduciary responsibilities. Retrieved September 23, 2021,
from [Link]

7. C
Phishing. Phishing is an online identity theft scam that fools its victims into believing they are submitting
sensitive, personal information such as bank or credit card numbers to a legitimate website. A Ponzi
scheme is an investment scam that lures new investors by promising high rates of return with little to no
risk. Accounting fraud occurs when a company or organization knowingly publishes incorrect information
on its financial statements. Affinity fraud is an investment scam in which the scammer claims to be a
member of the group they are targeting. Claiming to be a member of the group makes the target
audience more likely to trust the scammer and turn over its money to that person.
SOURCE: BL:133 Discuss legal considerations in the finance industry
SOURCE: Clark, B., Basteri, C.G., Gassen, C., & Walker, M. (2014). Marketing dynamics (3rd ed.) [pp.
89-90]. Tinley Park, IL: Goodheart-Willcox.

8. B
Five-carat diamond ring. A luxury tax is levied on expensive, nonessential items such as luxury cars,
valuable artwork, and expensive jewelry. A used minivan, a wool coat, and a laptop computer are not
considered expensive, nonessential items.
SOURCE: BL:134 Discuss the effect of tax laws and regulations on financial transactions
SOURCE: Goettel, D. (n.d.). What is a luxury tax? Retrieved September 23, 2021, from
[Link]

9. C
Speaking with coworkers. Jargon is a specialized language known only to a certain group of people.
Industries and companies often use jargon that is meaningful to their businesses and may not be easily
understood by people outside their industries or companies. Coworkers are more likely to use jargon
because they are familiar with the terms and their meanings or applications. New customers, friends,
business associates, and acquaintances may not be familiar with a specific industry's jargon.
SOURCE: CO:084 Employ communication styles appropriate to target audience
SOURCE: Miller-Wilson, K. (n.d.). Examples of jargon: Definition and types. Retrieved September 23,
2021, from [Link]

10. B
Misunderstood. Clearly written communications can prevent problems that may be caused by poor
listening or speaking skills. The written message can also be checked for clarity and accuracy before it is
delivered. Both writing and speech can be friendly or businesslike in tone.
SOURCE: CO:016 Explain the nature of effective written communications
SOURCE: Clark, B., Basteri, C.G., Gassen, C., & Walker, M. (2014). Marketing dynamics (3rd ed.) [pp.
450-453]. Tinley Park, IL: The Goodheart-Willcox Co.

11. C
Supporting documents. The purpose of the short report is to present information in a concise and simple
manner. Therefore, documents that support the information presented in the short report are often
included as attachments to the appendix rather than as parts of the main body. Readers of the report
have the option to review the supporting documents or to rely solely on the information in the short report.
Table of contents, title page, and conclusions and recommendations are main parts of the short report.
SOURCE: CO:094 Prepare simple written reports
SOURCE: QSStudy. (2021). Meaning of short report. Retrieved September 23, 2021, from
[Link]
Test 1255 FINANCE CLUSTER EXAM—KEY 13

12. B
Provide a meeting agenda to review. An agenda is a list of topics that will be discussed in a meeting. By
having an agenda before the meeting takes place, employees can gather information and prepare notes
for the discussion. Unless the department's financial status is the reason for the meeting, participants are
unlikely to need a copy of the department budget. It is seldom appropriate to limit each participant's
speaking opportunities. There is no evidence to suggest Mara needs to change the meeting date and
time.
SOURCE: CO:063 Participate in a staff meeting
SOURCE: HBR Editors. (2015, March 26). A checklist for planning your next big meeting. Retrieved
September 23, 2021, from [Link]
meeting

13. A
Don’t jump to quick conclusions. Don’t jump to conclusions when dealing with dishonest customers.
Remember that compromising and negotiating are part of normal procedure in serving customers.
Explaining and demonstrating good service as many times as you need to is the best way to deal with
suspicious customers. Never pressing for sales or decisions is the best way to deal with leave-me-alone
customers. Mirroring behavior is the best way to deal with slow/methodical customers.
SOURCE: CR:009 Handle difficult customers
SOURCE: LAP-CR-009—Making Mad Glad (Handling Difficult Customers)

14. D
Customizing communications. Keeping customer information safe and private isn't enough. Businesses
should use it wisely. One way to do so is to use the information for customizing communications with
individual customers. This does not necessarily mean sending frequent emails. It means communicating
with customers when and how they prefer. Sharing customer information with partnering businesses may
or may not be a wise move.
SOURCE: CR:017 Explain the role of ethics in customer relationship management
SOURCE: LAP-CR-017—Trust Is a Must (Ethics in Customer Relationship Management)

15. A
Lack of communication. Although a poor investment return, high commission fees, or the geographic
location of the financial advisor's office may influence a client's decision to leave the advisor, the most
common reason given for firing a financial advisor is a lack of communication. Above all else, financial
clients expect—and need—their advisors to communicate on a regular basis. This means returning the
clients' phone calls as soon as possible, replying quickly to their emails, and contacting them regularly to
discuss their accounts and answer any questions that they might have.
SOURCE: CR:012 Explain the responsibilities of finance professionals in providing client services
SOURCE: O'Connell, B. (2021, January 8). Why clients fire financial advisors. Retrieved September 23,
2021, from [Link]
[Link]

16. C
Clustering. Data mining is the process of searching computer databases to look for patterns and
relationships among data. Businesses can use many types of data mining techniques to search
databases. Clustering involves selecting various characteristics of a market (e.g., geographic location,
value orientation) that the business wants to explore. The data mining software selects the data that meet
the criteria and separates or clusters the data into appropriate categories. After clustering occurs,
businesses can analyze the data, which may include statistics. Organic and primary are not types of data
mining techniques.
SOURCE: CR:024 Use Customer Relationship Management (CRM) technology
SOURCE: TutorialsPoint. (2021). Data mining—Cluster analysis. Retrieved September 23, 2021, from
[Link]
Test 1255 FINANCE CLUSTER EXAM—KEY 14

17. C
Data mining. Data mining is the process of simplifying data so that they can be used to draw useful
conclusions and analysis. CRM technology includes built-in data mining functionality to help make sense
of large amounts of data. The analytics features described in this example are not performing
collaboration, training, or data entry.
SOURCE: CR:024 Use Customer Relationship Management (CRM) technology
SOURCE: [Link], Inc. (2021). 7 CRM best practices to get the most out of your CRM.
Retrieved September 23, 2021, from [Link]

18. C
Opportunity cost. The opportunity cost is the lost benefit when a trade-off is made, so it must be weighed
against the benefits received. Scarcity is the gap between unlimited wants and limited resources. It
creates the need for trade-offs, rather than being the basis for making them. Capital goods are
manufactured or constructed items that are used to produce goods and services. Noneconomic wants
are desires for things that can be obtained without money. Capital goods and noneconomic wants do not
directly impact trade-offs.
SOURCE: EC:001 Describe the concepts of economics and economic activities
SOURCE: LAP-EC-901—Are You Satisfied? (Economics and Economic Activities)

19. B
Financial analysis. Financial analysis is the process of planning, maintaining, monitoring, controlling, and
reporting the use of financial resources. Information management is the process of accessing,
processing, maintaining, evaluating, and disseminating business knowledge, facts, or data. Human
resources management is the process of planning, staffing, leading, and organizing employees.
Operations are the day-to-day activities required for continued business functioning, while operations of
finance is not a recognized term.
SOURCE: EC:071 Describe types of business activities
SOURCE: LAP-EC-071—Strictly Business (Business Activities)

20. C
Increase revenues. By expanding operations in foreign countries, businesses have the opportunity to sell
goods and services in another market. If the market buys the business's products, the business
increases both its market share and its revenues. Foreign expansion doesn't eliminate the business's tax
responsibility. A business exists to make a profit, so its primary goal is to earn money to keep operating.
Promoting environmental issues may be an important goal to some international businesses; however,
the businesses must focus on generating revenues so they are around to promote environmental issues
or other issues of organizational importance.
SOURCE: EC:104 Discuss the global environment in which businesses operate
SOURCE: LAP-EC-104—Stretch Your Boundaries (The Global Business Environment)

21. C
Settling the contract. Once the contract has been approved by union members and signed by
management and union leaders, the contract is settled. Both sides are legally bound to live by the terms
and conditions of the contract. The collective bargaining process begins with researching the issues,
followed by conducting negotiating sessions and then having the members vote on the tentative
agreement.
SOURCE: EC:015 Explain the concept of organized labor and business
SOURCE: Doyle, A. (2021, April 6). How the collective bargaining process works. Retrieved September
23, 2021, from [Link]
works-5071952
Test 1255 FINANCE CLUSTER EXAM—KEY 15

22. C
The United States-Mexico-Canada Agreement. The United States-Mexico-Canada Agreement (USMCA)
is a regional multilateral trade alliance. Its primary purpose is to facilitate the exchange of goods,
services, and resources among Canada, Mexico, and the United States. The World Trade Organization
(WTO), the International Monetary Fund (IMF), and the United Nations (UN) are all international, not
regional, organizations.
SOURCE: EC:112 Explain the impact of major trade alliances on business activities
SOURCE: Irwin, D. (1999-2019). International trade agreements. Retrieved September 27, 2021, from
[Link]

23. B
Personal. People who take responsibility for themselves, their behavior, and the consequences of their
behavior have a high degree of personal responsibility. They have a clearly defined set of ethics, or moral
principles, that guide what they do and how they do it. People with personal responsibility show
compassion, fairness, accountability, and courage. Social, ethical, and legal are types of responsibility,
but none of them is the correct answer in this instance.
SOURCE: EI:021 Demonstrate responsible behavior
SOURCE: LAP-EI-021—Make the Honor Role (Acting Responsibly)

24. A
No matter what. To make the right decisions, you should live according to your ethical code. This means
following your ethical principles no matter what, not just when other people tell you to, when it’s easy, or
when your boss is watching.
SOURCE: EI:124 Explain reasons for ethical dilemmas
SOURCE: LAP-EI-124—What's the Situation? (Reasons for Ethical Dilemmas)

25. A
Constructive criticism. Constructive criticism is evaluative information designed to help someone improve.
In this case, criticism is used by the manager to let you know how you can improve your job performance.
Internal feedback is feedback that comes from within, or self-evaluation. Positive feedback is feedback
involving praise. Destructive criticism is evaluative information that serves only to hurt or discredit
someone.
SOURCE: EI:003 Explain the use of feedback for personal growth
SOURCE: LAP-EI-903—Grin and Bear It (Using Feedback for Personal Growth)

26. B
Influencing people to change their attitudes. Persuasion is the ability to get people to see things your
way, to do things your way, or to agree with you. When you persuade, you try to influence people to
change their attitudes or behavior. You try to get people to act, or stop acting, a certain way. Often, you
try to get people to agree on a plan of action. Persuasion is not losing your temper, forcing your ideas
and opinions on others, or intimidating people into agreeing with you.
SOURCE: EI:012 Persuade others
SOURCE: LAP-EI-912—Win Them Over (Persuading Others)

27. A
The employee and the employer. There are many actions that employees can take to reduce their own
stress. However, it’s also important for employers to help employees manage their stress; stress causes
many negative consequences that can affect the business. It is not the government’s responsibility to
manage stress.
SOURCE: EI:028 Explain the nature of stress management
SOURCE: LAP-EI-028—Keep Your Cool (Stress Management)
Test 1255 FINANCE CLUSTER EXAM—KEY 16

28. A
Leaders determine the next step for the organization. Leadership is important when things are going well
for a business because leaders determine the next step for the organization. Often, people within an
organization are resistant to change or don't see the need for it. Leaders make the right changes happen.
Employees do become discouraged during times of crisis, but this does not relate to leadership when
things are going well for a business. People look for and need leaders as role models in many different
areas of life.
SOURCE: EI:009 Explain the concept of leadership
SOURCE: LAP-EI-909—Lead the Way (Concept of Leadership)

29. C
Setting an example. If you don't put the vision into practice yourself, there's no way you can expect your
team members to do so. Be accountable for your team's performance and how well it is working toward
accomplishing the vision. This is a sure sign of solid leadership. Blaming others when things go wrong is
not a sign of solid leadership. Being strict and keeping your distance also are not necessarily related to
enlisting others in a shared vision.
SOURCE: EI:060 Enlist others in working toward a shared vision
SOURCE: LAP-EI-060—Vision Quest (Enlisting Others in Vision)

30. D
Doing what’s right, even when it doesn’t benefit you. Being ethical means doing what’s right, no matter
what, even when it doesn’t benefit you. Authority figures, your friends, and popular beliefs may not
always be ethical.
SOURCE: EI:123 Describe the nature of ethics
SOURCE: LAP-EI-123—Rules To Live By (Nature of Ethics)

31. A
The benefits she could have received by using the additional cost of a new car another way. Opportunity
costs are the benefits that are lost when you decide to choose one alternative over another. In this case,
Emily could have used the money she spent on getting a new car on something else. Her opportunity
costs are not the reliability and luxury of a new car—those are benefits. Emily chose a new car over a
used car and wasn't considering public transportation, so the benefits of using public transportation are
not her opportunity costs. The money saved by not having to constantly repair a used car is a benefit of
buying a new car, not an opportunity cost.
SOURCE: FI:065 Set financial goals
SOURCE: Fernando, J. (2021, August 29). Opportunity cost. Retrieved September 23, 2021, from
[Link]

32. A
Saving is best used to reach goals in the near future, while investing is best used for longer-term goals.
Money that is stored in a traditional savings account is best used for reaching short-term goals, such as
paying for a vacation or a medical procedure. That's because savings accounts don't have the same
potential for returns as investments do—making savings accounts less helpful for reaching long-term
goals like paying for a child's education. Savings accounts allow you to access your cash quickly and
easily, while money that is invested is harder to access. Savings accounts are also less risky than
investments, meaning that you are much less likely to lose your money.
SOURCE: FI:270 Explain the need to save and invest
SOURCE: Hands on Banking. (2021). Investing overview. Retrieved September 23, 2021, from
[Link]

33. A
To pool and invest funds based on the needs of investors. The primary purpose of an investment
company is to pool funds from people and invest them in the types of securities (mutual funds) that are
most likely to generate the desired financial returns. Investment banks locate outside sources of money
for firms. Banks and mortgage companies issue mortgages. Pension funds involve pooling employees'
contributions and investing the monies for financial gain.
SOURCE: FI:336 Describe the role of financial institutions
SOURCE: U.S. Securities and Exchange Commission. (2013, July 9). Investment companies. Retrieved
September 23, 2021, from [Link]
Test 1255 FINANCE CLUSTER EXAM—KEY 17

34. D
How risky it is to provide the financial institution with funds. Reputable credit rating agencies use a variety
of criteria to rate the creditworthiness of financial institutions. The credit rating that a credit agency gives
to a financial institution lets savers and investors know how safe or risky it is to provide funds to the
institution. Credit ratings do not indicate the return rate for specific mutual funds, the specific amount of
funds that banks lend to other institutions, or when a financial institution expects to see a return on
investment.
SOURCE: FI:336 Describe the role of financial institutions
SOURCE: Edmondson, B. (2021, April 30). What is a bank credit rating? Retrieved September 23,
2021, from [Link]

35. A
Soft commodities. A financial market is an organized effort or exchange that facilitates the buying and
selling of financial assets. There are many types of financial markets, including the commodities market.
Commodities are resources, including agricultural goods and mined goods (e.g., gold, silver) that are
often used to make other goods. Agricultural goods such as cocoa beans and corn are types of soft
commodities. Money markets facilitate the buying and selling of short-term, low-risk financial products
(e.g., treasury bills). Selective property and insurance do not describe types of financial markets.
SOURCE: FI:337 Explain types of financial markets (e.g., money market, capital market, insurance
market, commodities markets, etc.)
SOURCE: Hayes, A. (2021, August 17). Commodity market. Retrieved September 23, 2021, from
[Link]

36. D
Corporate bonds and preferred stock. Capital markets buy and sell long-term securities. Corporate
bonds, common and preferred stock, and treasury bonds are examples of securities that are sold in
capital markets. Treasury bills and certificates of deposit are money market securities, which are short-
term securities.
SOURCE: FI:337 Explain types of financial markets (e.g., money market, capital market, insurance
market, commodities markets, etc.)
SOURCE: Hayes, A. (2021, August 30). Capital markets. Retrieved September 27, 2021, from
[Link]

37. B
Convergence. Convergence is the merging of financial providers from different financial sectors. For
example, convergence occurs when a retail bank merges with an insurance company or when an
investment bank merges with a brokerage firm. The merging of different financial sectors provides a
broader selection of financial products and a "one-stop shopping" environment for consumers.
Liquidation is the process of selling assets for cash, which is used to settle debts. Divergence is the
separation of or difference in something. An endowment is the donation of something, usually money, to
an individual or institution (e.g., college). The situation described is not an example of liquidation,
divergence, or an endowment.
SOURCE: FI:573 Discuss the nature of convergence/consolidation in the finance industry
SOURCE: Deely, M. (n.d.). The benefits (and dangers) of bank mergers and acquisitions. Retrieved
September 23, 2021, from [Link]
of-bank-mergers-and-acquisitions

38. D
Lower costs. Consolidation is the merging of financial providers within the same institutional category.
For example, consolidation occurs when two banks merge to form one bank. By consolidating, the
financial firms can achieve economies of scale, which reduces redundancy and lowers costs. Another
advantage of consolidation to firms is that it provides more liquid capital for all companies involved. One-
stop shopping is an advantage to consumers. Consolidation does not always lead to fewer technology
problems.
SOURCE: FI:573 Discuss the nature of convergence/consolidation in the finance industry
SOURCE: Kenton, W. (2020, November 27). Consolidate. Retrieved September 27, 2021, from
[Link]
Test 1255 FINANCE CLUSTER EXAM—KEY 18

39. B
An individual buys 10 shares of stock for $150 per share on one market and immediately sells each
share for $200 on another market. Arbitrage is profiting from the sale of a financial instrument (e.g.,
stock) or good on a different market. Arbitrage often involves the buying and selling of goods and other
types of services. For example, a person who buys a set of football tickets from a sport organization for
$100 and sells them on eBay to another person for $500 is engaging in arbitrage. When an individual
earns interest on their money by agreeing to leave it in a financial institution for a certain time frame, they
are investing in a certificate of deposit. Businesses that set aside money for their employees' retirement
are contributing to a pension plan. A business that sells bonds is using debt financing to raise funds for
its expansion efforts.
SOURCE: FI:574 Describe the relationship between economic conditions and financial markets
SOURCE: Fernando, J. (2021, August 30). Arbitrage. Retrieved September 23, 2021, from
[Link]

40. A
Decrease. Economic factors such as the unemployment rate can affect stock prices. If trends indicate a
rise in unemployment rates, the economy may be heading into a recession. In this situation, individuals
are often fearful about losing their jobs and are likely to hold onto their money rather than invest it. They
may also sell their stock in anticipation of needing the money for living expenses. Businesses often react
the same way—they may hold onto their funds until the economy rebounds before making major
investments. All these factors can cause the value of stocks to decrease.
SOURCE: FI:574 Describe the relationship between economic conditions and financial markets
SOURCE: Levitt, A. (2021, June 24). Macroeconomic indicators that affect the U.S. stock market.
Retrieved September 23, 2021, from
[Link]
[Link]

41. C
Reduce their exposure to business cycle risks. As a result of financial globalization, investors have
access to many more markets and investments worldwide. By investing their funds in several different
countries, investors are able to diversify their risk and reduce their exposure to business cycle risks within
any particular country. Liberalization is the removal of government regulations on the flow of capital and
international trade. A home bias is a preference for investments in domestic markets versus markets in
other countries. An investor who invests funds in several different countries demonstrates that they do
not have a home bias. While international investors can purposefully avoid emerging markets located in
developing countries when investing, integrated financial markets—markets that facilitate the free flow of
capital across national borders—are not so easy for international investors to avoid. Liberalization and
financial globalization have increased foreigners' access to domestic financial markets.
SOURCE: FI:575 Explain the nature and scope of financial globalization
SOURCE: Fisher, G.S. (2012, January 17). Why global diversification still makes sense. Retrieved
September 27, 2021, from [Link]
diversification-still-makes-sense/#3a223aae4710

42. C
EDGAR and the company's website. Before purchasing stock in a particular company, you should
conduct thorough research on the company. Two important resources to access when doing this
research are the company's website and Electronic Data Gathering and Retrieval (EDGAR). Many
publicly traded companies have websites where you can find their annual reports and any other
information and filings they have made public throughout the year. EDGAR is a section of the SEC
website. All of the company's mandatory filings (required by the SEC) are housed in EDGAR. Although
the Statement of Ownership is typically included in company financial statements, it would not
necessarily be an example of one of the most important resources to access prior to investing. ESOP
stands for employee stock ownership plan, which is a system for employees to purchase stock of the
company they work for.
SOURCE: FI:274 Describe sources of securities information
SOURCE: Financial Industry Regulatory Authority. (2020, March 20). Stock up on information before
buying stock. Retrieved September 23, 2021, from
[Link]
Test 1255 FINANCE CLUSTER EXAM—KEY 19

43. A
The large amount of information available on the internet can be overwhelming. The internet has endless
rich resources, including email alerts, analyst recommendations, and company statements. It can be
difficult to focus your attention, so make sure to stick to the basics when evaluating sources. Not all
information on the internet is accurate or reliable, but you can find quality data if you evaluate sources
well. Just as with print, radio, and television sources, some information on the internet is free, and some
is fee-based.
SOURCE: FI:274 Describe sources of securities information
SOURCE: Madura, J., Casey, M., & Roberts, S. (2014). Personal financial literacy (2nd ed.) [pp. 268-
278]. Upper Saddle, NJ: Pearson.

44. D
Access a financial website. Pricing on the stock exchange fluctuates constantly, so accessing a financial
website such as Bloomberg can give Kayla the most current information. A newspaper is typically printed
on a daily basis, so some of the information in the stock table is likely to be outdated by the time Kayla
reads it. The "About Us" section of a business's website discusses the purpose of the business. The
annual report is an overview of the business's performance for the previous year. Neither the "About Us"
section of a business's website nor a business's annual report will contain the most current pricing for
different stocks.
SOURCE: FI:275 Interpret securities table
SOURCE: Madura, J., Casey, M., & Roberts, S. (2014). Personal financial literacy (2nd ed.) [pp. 268-
278]. Upper Saddle, NJ: Pearson.

45. B
Compare the previous close with the opening price. Previous close is the price at which a stock sold at
the close of the previous day. Opening price is the price for which it sold at the beginning of the current
day. Comparing these two numbers allows you to see if a stock is trending upward or downward. The
best bid is the highest price that investors are willing to pay, whereas the best ask is the lowest price at
which investors are willing to sell. This does not necessarily tell you whether or not the stock is trending
upward. Share volume is the total number of shares traded during the current day. On its own, it does not
tell you whether a stock is trending upward or downward. Earnings per share is the portion of the
company's profit allocated to each share of stock. The P/E ratio is the current share price relative to its
earnings per share. Comparing these two will not necessarily tell you whether or not the stock is trending
upward.
SOURCE: FI:275 Interpret securities table
SOURCE: Hayes, A. (2021, August 26). How to understand a stock quote. Retrieved September 23,
2021, from [Link]
[Link]

46. B
Gathered and organized in some way. In their raw state, financial data aren't very useful. The data need
to be gathered and organized in a way that makes sense and is useful for the business. Information that
is formatted in HTML, listed in order of size, or inserted into a spreadsheet is not necessarily more useful.
The important thing is gathering and organizing the data in a meaningful way.
SOURCE: FI:579 Describe the need for financial information
SOURCE: LAP-FI-579—By the Numbers (The Need for Financial Information)

47. A
Financial information is essential for an organization to continue operating. If a business does not make a
profit, stay within its budget, or correctly file financial statements, it cannot continue operating. Financial
information does not generally get in the way of an organization's progress. Successful organizations
usually do need financial information. The importance of financial information does not necessarily
depend on the size of the organization; all organizations need financial information.
SOURCE: FI:351 Discuss the role of ethics in accounting
SOURCE: LAP-FI-351—With Due Care (The Role of Ethics in Accounting)
Test 1255 FINANCE CLUSTER EXAM—KEY 20

48. C
Investors. A statement of changes in equity provides information about shareholders' ownership and how
it has changed during a period of time. Therefore, investors of an organization would be interested to
know how their accounts have changed over time. Customers, competitors, and employees would be
less interested in changes in equity because they do not necessarily hold equity in the company.
SOURCE: FI:630 Explain the nature of statements of changes in equity
SOURCE: [Link]. (n.d.). Statement of changes in shareholders equity. Retrieved September
23, 2021, from [Link]

49. D
Direct cost. The initial purchase price of a software package would be considered a direct cost because it
is directly associated with the cost object (the software package). An indirect cost refers to costs that are
not directly accountable to a cost object, such as personnel and security costs. A sunk cost refers to a
cost that has already been incurred and cannot be recovered, so it is not typically considered when
deciding between two new choices. An opportunity cost refers to a benefit an organization could have
received but gave up to take a different course of action.
SOURCE: FI:658 Describe types of costs used in managerial accounting (e.g., direct cost, indirect cost,
sunk cost, differential cost, etc.)
SOURCE: Blakely-Gray, R. (2021, April 27). How to keep your direct vs. indirect costs straight.
Retrieved September 23, 2021, from [Link]
vs-indirect-costs-difference/

50. A
A restaurant chain manager must decide whether or not to keep a certain franchise open. Marginal
analysis can be used to make many types of decisions. One type of decision that it can be used for is a
segment profitability decision, which is the process of deciding if it is more profitable to keep or drop an
unsuccessful segment of the business. The restaurant manager must decide if the franchise (a segment
of their business) is profitable enough to remain open. The clothing retailer who must decide how many
units of each product to sell is making a sales mix decision. A company deciding whether to use an
outside marketing firm or hire someone internally is making a make-or-buy decision. The furniture
company deciding whether or not to assemble its pieces before sale is making a sell-or-process-further
decision. All of these cases can benefit from marginal analysis.
SOURCE: FI:659 Describe marginal analysis techniques and applications
SOURCE: Crosson, S.V., & Needles, B.E. (2014). Managerial accounting (10th ed.) [pp. 335-344].
Mason, OH: South-Western Cengage Learning.

51. B
Recording and classifying transactions. Managerial accounting can aid in the implementation phase of a
decision-making process through the practice of recording and classifying transactions. For example, if a
payment is made to a designer, the payment will be recorded and classified for future reference.
Budgeting expected revenue is a managerial accounting technique that would assist during the planning
stages of the decision-making process. Comparing results to the budget would occur during the
evaluation stage of the decision-making process. Representing plans financially is manifested in the
budget and other reports that are completed during the planning phase, rather than during
implementation.
SOURCE: FI:660 Explain the nature of managerial accounting
SOURCE: Datar, S.M., & Rajan, M.V. (2014). Managerial accounting: Making decisions and motivating
performance (p. 11). Upper Saddle River, NJ: Pearson Education.

52. D
The planned email marketing campaigns were not completed. If money was not spent on email
marketing, it is possible that the campaigns planned in the budget were never carried out, which would
not demonstrate efficient use of funds. Positive variance does not necessarily relate to the
ineffectiveness of email marketing. If there is a positive variance, it would suggest that the budget
allocated too much toward email marketing rather than not enough. Finally, the positive variance does
not necessarily imply that email marketing is or is not important to an organization.
SOURCE: FI:661 Discuss the use of variance analysis in managerial accounting
SOURCE: Chen, J. (2020, November 30). Budget variance. Retrieved September 23, 2021, from
[Link]
Test 1255 FINANCE CLUSTER EXAM—KEY 21

53. C
Variance analysis involves too much of a time delay. Accounting staff typically calculate variances based
on monthly accounting reports. However, some businesses find that is too much of a time delay to
correct a problem quickly and effectively. In those cases, companies may decide against using variance
analysis. Variance analysis is based on tangible, objective data. Real causes can be uncovered with
careful variance analysis. Since horizontal analysis compares multiple periods of business activity to
identify trends, it actually requires more time to conduct than variance analysis.
SOURCE: FI:661 Discuss the use of variance analysis in managerial accounting
SOURCE: Accounting Tools. (2021, June 16). Variance analysis definition. Retrieved September 23,
2021, from [Link]

54. C
Directing. Budgeting involves setting goals, executing those goals, and comparing results to those goals.
Kenneth is executing his goals by directing his employees' actions with the help of his budget. Planning is
setting goals. Controlling is comparing performance to expectations. Monitoring is tracking progress.
They are all functions of budgets, but they are not specifically related to Kenneth's example.
SOURCE: FI:662 Discuss the nature of cost accounting budgets
SOURCE: Warren, C.S., Reeve, J.M., & Duchac, J. (2014). Managerial accounting (12th ed.) [p. 230].
Mason, OH: South-Western Cengage Learning.

55. A
A cost is not controlled by any department. If no departments in an organization can control a cost, it is
acceptable to refrain from allocating it to any specific department. Whether a cost is fixed or variable
does not determine whether or not it will be allocated. Refraining from allocating costs will not help if an
organization is over budget. The amount of the cost does not necessarily determine whether or not it will
be allocated.
SOURCE: FI:663 Discuss the nature of cost allocation
SOURCE: Accounting Tools. (2021, April 12). Cost allocation definition. Retrieved September 27, 2021,
from [Link]

56. A
Heat and lighting costs. Heat and lighting costs are indirect costs that are usually allocated to the
production of individual products to determine a more accurate product cost. The cost of labor and raw
product materials are considered direct costs associated with the cost object (the manufactured product).
Administrative expenses are not generally assigned to individual products, because they occur
regardless of whether anything is produced or not.
SOURCE: FI:663 Discuss the nature of cost allocation
SOURCE: Averkamp, H. (2021). How can a manufacturer determine the precise cost of its products?
Retrieved September 27, 2021, from [Link]
manufacturer-determine-the-precise-cost-of-its-products

57. D
Allocates a dollar amount. After a business designates categories of expense in its budget, it allocates a
dollar amount. When developing a budget, a business organizes its budget information by creating
categories for items such as rent, insurance, and utilities. Once the categories are designated,
management allocates a dollar amount to each one. After designating expense categories, businesses
do not necessarily apply a formula, appoint an accountant, or attach a time limit to each category.
SOURCE: FI:106 Describe the nature of budgets
SOURCE: LAP-FI-106—Money Tracks (Nature of Budgets)

58. C
$2,060. The formula for calculating future value is Future Value = Present Value X (1 + Discount Rate).
To determine how much your investment will be worth in a year, convert the annual rate to a decimal (3%
= 0.03), and add one (1 + 0.03 = 1.03). Finally, multiply that sum by the original amount of your
investment ($2,000 X 1.03 = $2,060).
SOURCE: FI:238 Calculate the time value of money
SOURCE: Carlson, R. (2020, September 29). How to calculate the future value of an investment.
Retrieved September 27, 2021, from [Link]
future-value-of-an-investment-393391
Test 1255 FINANCE CLUSTER EXAM—KEY 22

59. D
Capital budgeting. A financial-information management system is a set of processes, people, and
equipment used to gather, store, organize, and provide financial information to decision makers. A
financial manager might use a financial-information management system to make capital budgeting
decisions. Capital budgeting involves developing a plan to acquire and finance long-term business
assets. Financial managers would not use a financial-information management system to schedule
employees. Although a financial-information management system might be useful when selecting
vendors or adding/dropping products, those decisions would not be made by financial managers.
SOURCE: FM:002 Explain the nature and scope of the financial-information management function
SOURCE: LaMarco, N. (2019, February 13). What are the benefits of a financial management
information system? Retrieved September 27, 2021, from
[Link]
[Link]

60. A
Optimizing accounts payable and accounts receivable. Businesses have payment cycles, which include
accounts payable (the money the company owes to others) and accounts receivable (the money that is
owed to a company). When financial-information management is in order, these accounts are accurate
and optimized. While accurate financial-information management improves a business's trustworthiness,
allows for better sales forecasting, and gives companies a way to evaluate their tax liability, these are not
directly related to improving a business's payment cycles.
SOURCE: FM:002 Explain the nature and scope of the financial-information management function
SOURCE: Lee, O. (2015, May 8). Importance of accurate financial statements for a business. Retrieved
September 27, 2021, from [Link]
statements-business/

61. D
Employees cannot correctly assess trends. When financial information is poorly managed, employees
are hindered from correctly assessing their performance and trends. It also takes a long time to access
requested information, thereby delaying use of the information and decreasing employee efficiency.
Employees' inability to understand financial statements is not an outcome.
SOURCE: FM:003 Explain the role of ethics in financial-information management
SOURCE: Sherman, F. (2020, August 25). What are the dangers of inaccurate financial reporting?
Retrieved September 27, 2021, from [Link]
[Link]

62. D
The stewardship function of financial-information management. The stewardship function of financial-
information management refers to the ways that financial managers look out for the best interests of the
business through their actions. It includes the responsible use of resources. When an accountant
explains to other executives why it is important to carefully manage the budget, they are being a steward
because they are attempting to manage resources responsibly for the good of the business. This
example is not related to the importance of adhering to governmental regulations, the role of
confidentiality in financial-information management, or the need for decreased transparency of financial
documents.
SOURCE: FM:003 Explain the role of ethics in financial-information management
SOURCE: Latham, A. (2017, September 26). The stewardship function in accounting. Retrieved
September 27, 2021, from [Link]
[Link]

63. C
Protect and secure financial information. Firewalls, intrusion detection systems, and encryption are all
examples of technological advancements that allow companies to better protect sensitive financial
information. They are not methods used to screen qualified job applicants, ensure the security of office
buildings, or sort and organize customer data.
SOURCE: FM:011 Describe the use of technology in the financial-information management function
SOURCE: Zaharia, A. (2016, April 19). 15 steps to maximize your financial data protection. Retrieved
September 27, 2021, from [Link]
Test 1255 FINANCE CLUSTER EXAM—KEY 23

64. B
Develop reliable forecasts. A primary use of budgeting software involves developing forecasts such as
estimating future sales. Businesses do not use budgeting software to record employee performance,
calculate tax rates, or organize shipping data.
SOURCE: FM:013 Demonstrate budgeting applications
SOURCE: Mmirosavljevic. (2021, January 5). Best budget software for small business. Retrieved
September 27, 2021, from [Link]
small-business/

65. A
Payroll. Because payroll is often a business's biggest expense, companies continuously monitor and
analyze their payroll. Some businesses must pay time and a half to employees who work overtime. If
many employees work a lot of overtime, it can affect the amount of money the business has available for
other activities, such as sales, production, and paying its expenses (accounts payable).
SOURCE: FM:014 Demonstrate financial analysis applications
SOURCE: McBeth, K. (2020, June 30). What is payroll? A 2021 guide to processing payroll. Retrieved
September 27, 2021, from [Link]

66. B
Reducing errors in business processes. Six Sigma-focused organizations concentrate on reducing the
number of errors that occur in their business processes to improve the quality of their products and
services. Six Sigma-focused organizations do not focus on eliminating quality management staff,
improving cash management processes, or increasing overall public relations spending.
SOURCE: FM:016 Discuss non-traditional uses for financial information (e.g., lean, sustainability
reporting, activity-based costing [ABC], six sigma)
SOURCE: Hayes, A. (2021, March 24). Six Sigma. Retrieved September 27, 2021, from
[Link]

67. B
Develop a financial strategy to help the customer. Whether the finance professional works internally or
externally, or works with individuals or businesses, they should be able to analyze the customer's
financial information to recommend an appropriate financial strategy for the customer. Business
management would declare a company in bankruptcy based on information provided by the finance
professional. Just having a customer's financial information requires finance professionals to protect its
privacy—analysis is not required. The customer's marketing department would determine its newest
target market, while the finance professional would measure the target market's profitability.
SOURCE: FM:009 Describe techniques used to analyze customer financial information
SOURCE: Kolakowski, M. (2019, September 6). What does a financial planner do? Retrieved
September 27, 2021, from [Link]

68. C
Credit standards. Businesses establish standards or criteria for determining to whom they should extend
credit. Businesses consider many factors such as the customer's credit history, credit score, income, type
of purchase, etc. If the customer meets the company's credit standards, Tom is more likely to approve
the customer's request for a line of credit. The company's purchasing policies, accounting method, and
payment history are not factors that Tom needs to consider when determining if the company should offer
the customer a line of credit.
SOURCE: FM:009 Describe techniques used to analyze customer financial information
SOURCE: The Investopedia Team. (2021, January 24). Credit criteria. Retrieved September 27, 2021,
from [Link]
Test 1255 FINANCE CLUSTER EXAM—KEY 24

69. A
Psychological. Consumer behavior encompasses individuals' actions that determine what they buy and
sell. Psychological, social, and personal factors all influence consumer behavior. Psychological factors
include an individual's motives, perception, attitude, lifestyle, personality, abilities, and knowledge.
Consumer behavior is also impacted by social factors such as opinion leaders, a person's family,
reference groups, social class, and culture. Personal factors impacting consumer behavior are specific to
a particular person and include demographic characteristics such as gender, age, ethnicity, etc. While
political and economic factors may influence consumer behavior in some instances, motives, perception,
attitude, lifestyle, personality, and abilities are not political or economic factors.
SOURCE: MK:014 Explain factors that influence customer/client/business buying behavior
SOURCE: LAP-MK-014—Cause and Effect (Buying Behavior)

70. C
Save time and money. Appropriate information management has many benefits for a business, including
saving time and money by making operations run more smoothly. Appropriate information management
should make decisions easier and should reduce a business's risk of undergoing an unnecessary audit.
Appropriate information management may or may not create more jobs.
SOURCE: NF:110 Discuss the nature of information management
SOURCE: LAP-NF-110—In the Know (Nature of Information Management)

71. A
Copyright. Copyright is the legal protection of books and other artistic works granted by government and
gives their creators sole rights to them for a certain period of years. If a business uses information that is
copyrighted without obtaining permission from the copyright holder, the business is violating copyright
laws. Copyright infringement is a legal issue because businesses can be sued and required to pay a
substantial penalty. Patent, trademark, and contract laws do not involve the use of information.
SOURCE: NF:076 Explain legal issues associated with information management
SOURCE: Tysver, D., & Urzedwoski, J. (1996-2021). Copyright law in the United States. Retrieved
September 23, 2021, from [Link]

72. A
Reduce data redundancy. Data normalization is the process of efficiently organizing data in a database.
One of the primary goals of data normalization is reducing data redundancies. In other words, data
normalization makes sure that the same data are not recorded or stored in more than one place. It is not
the goal of data normalization to discard unusual data, improve data collection, or increase data quality.
SOURCE: NF:124 Demonstrate advanced database applications
SOURCE: Chapple, M. (2020, April 12). Database normalization basics. Retrieved September 27, 2021,
from [Link]

73. D
Rule induction. Rule-induction data mining techniques are often used to determine if-then relationships
among a set of data. A histogram is a graphic that is similar to a bar chart but groups data into specific
ranges. The neural networking approach uses computer applications that mimic the ways in which the
human brain processes data, which often involve sequencing data patterns. Quantitative reasoning is a
fictitious term.
SOURCE: NF:149 Describe data mining tools and techniques
SOURCE: Tutorials Point. (2021). Data mining - Rule based classification. Retrieved September 23,
2021, from [Link]

74. D
Cloud computing. Cloud storage involves housing business records in a database that is maintained by a
third party at an off-site database storage facility. Employees access the records through the internet.
Rather than storing business records on a CPU, flash drive, or compact disk, businesspeople upload
their files to the web and then save them to the remote database, or cloud. Streaming video involves
viewing video on a computer or smartphone device in real time.
SOURCE: NF:001 Describe the nature of business records
SOURCE: LAP-NF-001—Record It (Business Records)
Test 1255 FINANCE CLUSTER EXAM—KEY 25

75. C
A purchasing agent awards a large order to a relative's employer. A conflict of interest occurs when
decision-making is affected by personal gain or interest. If the purchasing agent's relative is a spouse
who may earn a bonus on the order, then the purchasing agent has a personal interest in the transaction.
Many businesses address conflicts of interest in their ethics policies. If the company's ethical policies are
followed, providing customer discounts, having lunch with clients, and using the company discount to
purchase goods are not examples of unethical behavior, nor are they examples of a conflict of interest.
SOURCE: OP:190 Discuss the role of ethics in operations
SOURCE: Segal, T. (2020, November 30). Conflict of interest. Retrieved September 23, 2021, from
[Link]

76. C
Using closed-circuit television. Closed-circuit television can be used to monitor customer activity on the
sales floor as well as vendor and/or employee activity in other areas of the business. This system helps
prevent or detect theft. Raising prices and having fewer sales would reduce customer traffic, which might
improve security but would also reduce the business's income. Establishing longer hours could increase
risk.
SOURCE: OP:013 Explain routine security precautions
SOURCE: Paessler. (2021). IT explained: CCTV. Retrieved September 23, 2021, from
[Link]

77. A
Due dates of tasks. Prioritizing involves ranking things in the order of their relative importance.
Employees evaluate many factors when prioritizing their work, including the task's due date and the time
that it will take to complete the task. For example, if an employee needs to submit an advertisement to a
publication by the end of the day, and it takes six hours to create the advertisement, then the employee
will need to work on the advertisement before they work on anything else that takes a lot of time to
complete. Task enjoyment, coworkers' opinions, and the employee's aptitude are not important factors
that employees should consider when they prioritize their work tasks.
SOURCE: OP:228 Organize and prioritize work
SOURCE: Bishop, C. (2020, February 6). How to prioritize work when everything's important. Retrieved
September 23, 2021, from [Link]
development/creativity-culture/how-to-prioritize-work

78. D
Gather lessons learned so you won't repeat the same mistakes. When your project isn't as successful as
you had hoped, you can evaluate it and gather lessons learned. In the future, you can learn from the
mistakes so you don't do the same thing over and over. You should not hide your mistakes from project
stakeholders, scrap the project entirely and start over, or figure out which of your team members are
responsible.
SOURCE: OP:521 Evaluate project success
SOURCE: LAP-OP-521—Making the Grade (Evaluating Project Success)

79. C
$85. Employees who have responsibility for paying invoices are in a good position to help the business
save money and control expenses. If a business receives a discount for paying an invoice within a certain
period of time, an employee who pays the invoice before the deadline will help the business control
expenses. In this situation, the business receives a 2% discount for paying within 15 days. To calculate
the amount of savings, multiply the amount of the invoice by the percentage of discount ($4,250 x 2% [or
.02] = $85).
SOURCE: OP:025 Explain employee's role in expense control
SOURCE: Simple Studies. (2021). What do 2/10, n/30 invoice terms mean? Retrieved September 23,
2021, from [Link]
Test 1255 FINANCE CLUSTER EXAM—KEY 26

80. B
The garments are clean and wrinkle-free. Once an outfit has been selected, it is important to check the
clothing to verify that it is clean (e.g., stain-free) and that it is wrinkle-free. Hair care is a function of
personal hygiene. Checking and making sure that undergarments are not showing is done during a final
check before leaving for an event or occasion. There are situations, such as work, in which it is not
appropriate to wear tight and revealing clothing.
SOURCE: PD:002 Maintain appropriate personal appearance
SOURCE: LAP-PD-002—Brand Me (Personal Appearance)

81. D
Keep a document if it would be hard to replace. Hang onto any useful documents that would be hard to
replace for such reasons as their length, technical nature, or rarity. Throw out a document if you have
more than one copy, if the material is outdated, or if you feel sure you will never need it again.
SOURCE: PD:009 Demonstrate systematic behavior
SOURCE: Balle, L. (n.d.). How do I get organized in my business paperwork? Retrieved September 23,
2021, from [Link]

82. D
Self-esteem. Self-esteem is the regard or respect that you have for yourself. People who have self-
esteem understand themselves and like who they are. Social acceptance involves being accepted by
others. Safety is associated with personal security and protection from harm. Self-fulfillment involves
personal growth, achievement, and reaching one's fullest potential.
SOURCE: PD:013 Assess personal interests and skills needed for success in business
SOURCE: Psych Central. (n.d.). Building self-esteem. Retrieved on September 23, 2021, from
[Link]

83. B
Maintaining eye contact. Job applicants should maintain eye contact with the interviewer to convey their
interest in the position. Looking at the interviewer indicates that the applicant is paying attention and is
interested in what the interviewer is saying. Maintaining eye contact is a positive form of body language
that is effective in communicating how someone really feels. Negative body language includes looking at
one's feet, slouching in a chair, and staring out a window. These gestures often indicate disinterest and
boredom.
SOURCE: PD:028 Interview for a job
SOURCE: Doyle, A. (2019, December 5). Learn how to use nonverbal communication at an interview.
Retrieved September 23, 2021, from [Link]
nonverbal-communication-at-an-interview-2061345

84. C
It exists to protect customers from financial losses. The insurance industry delivers products that transfer
risk from an individual or business to an insurance company. The insurance industry exists to protect
individuals and businesses from financial losses. Insurance agent is one position in the insurance field,
but there are many other jobs, as well. The job titles "auditor" and "accountant" are included in the
accounting field. Accepting deposits and lending funds are job duties for people who work in banking
services.
SOURCE: PD:152 Discuss employment opportunities in the finance industry
SOURCE: LAP-PD-152—Career Opportunities in Finance

85. A
The job can be very stressful. Careers in securities and investments can be very stressful and require
long hours. However, since they also tend to be high paying and highly respected, many people think
they're worth it.
SOURCE: PD:152 Discuss employment opportunities in the finance industry
SOURCE: LAP-PD-152—Career Opportunities in Finance
Test 1255 FINANCE CLUSTER EXAM—KEY 27

86. A
Stakeholder. Corporate governance is the system of rules and practices that control the company.
Corporate governance revolves around balancing the desires of the stakeholders in a company.
Corporate governance is not just concerned with CEO or vendor desires; instead, it focuses on the
desires of all stakeholders, including customers, financiers, the community, the government, and
managers. Corporate governance is not necessarily concerned with competitor desires.
SOURCE: PD:213 Discuss the importance of corporate governance in business
SOURCE: Chen, J. (2021, July 4). Corporate governance. Retrieved September 27, 2021, from
[Link]

87. C
Profit-sharing. Employees are key in the achievement of governance objectives. Businesses use many
different tactics to encourage or motivate their workers to reach those objectives and goals. Profit-sharing
is a good tactic to adopt if the company seeks to improve employee motivation by improving the
distribution of wealth throughout the corporation. Cash incentives, team building, and flexible scheduling
may improve overall employee motivation, but they do not improve the distribution of wealth throughout
the corporation.
SOURCE: PD:301 Ascertain employee's role in achieving governance objectives
SOURCE: Kenton, W. (2021, April 24). Profit-sharing plan. Retrieved September 27, 2021, from
[Link]

88. D
Incorporate governance objectives into the hiring process. One way that companies can involve
employees in governance objectives is during the hiring process. If HR professionals keep governance in
mind as they screen candidates, the candidates will be more likely to be aligned with the company's
objectives. They will therefore be more likely to support the objectives in the work they do. Punishing
employees who do not support corporate governance objectives will not necessarily develop a culture in
which employees are engaged in the corporate governance objectives. The budget should be kept in
mind when setting corporate governance objectives. Finally, while the shareholders' interests are an
important priority, they should not necessarily be considered more important than other stakeholders.
SOURCE: PD:301 Ascertain employee's role in achieving governance objectives
SOURCE: Safetrac. (n.d.). How to achieve good corporate governance. Retrieved September 27, 2021,
from [Link]

89. B
Safety laws. External controls are those that govern an organization from the outside. They are usually
set by governments. Safety laws are external because they are set by the government, not an
organization itself. Whistleblower policies, segregation of duties, and managerial oversight are internal
means of control.
SOURCE: PD:214 Describe the components of a well-governed company (e.g., board of directors,
reporting, transparency, internal and external audit functions)
SOURCE: Davoren, J. (n.d.). Three types of corporate governance mechanisms. Retrieved September
27, 2021, from [Link]
[Link]

90. C
Borrowing money from a bank. Banks often require an organization with a loan to follow external control
mechanisms that impact its governance structures. Hiring employees, developing a marketing strategy,
and raising prices are all common business activities that are not likely to impact an organization's
governance structures.
SOURCE: PD:302 Identify the factors that impact governance structures
SOURCE: Davoren, J. (n.d.). Three types of corporate governance mechanisms. Retrieved September
27, 2021, from [Link]
[Link]
Test 1255 FINANCE CLUSTER EXAM—KEY 28

91. A
More ethical. Governance objectives are often based on integrity and ethical principles. Therefore, if a
company has strong governance practices, it is likely to be ethical in its investment decisions. Good
governance should not make investment decisions subject to the influence of individuals. Rather, it
should remove interference from individuals by giving the board independence to make decisions free of
influence. Good governance does not necessarily make investment decisions less regulated; in fact, it
gives the board of directors the power to enact financial controls and monitor reporting. Finally,
governance makes a company's investment decisions less vulnerable to risk because the governance
objectives and policies should preemptively lessen the potential for risks.
SOURCE: PD:303 Describe the impact of governance processes on decision-making and management
functions
SOURCE: Cole-Ingait, P. (n.d.). The impact of corporate governance practices on the investment
decisions of companies. Retrieved September 27, 2021, from
[Link]
[Link]

92. D
Wesley bases his management decisions on the strategies outlined by governance processes.
Governance provides a framework for decision-making and management. Managers such as Wesley
must work within the guidelines and processes established by the governing body. The manager
generally does not provide the board of directors with a framework for determining goals; rather, the
board of directors or other governing body provides the framework to managers. Governance processes
do not necessarily aim to place strict limits on managers. Also, management and governance are rarely
separate; there is usually substantial overlap as managers assist with and serve on governing bodies.
SOURCE: PD:303 Describe the impact of governance processes on decision-making and management
functions
SOURCE: Governance Guiding Principles. (n.d.). Governance versus management. Retrieved
September 27, 2021, from [Link]
management

93. B
Mentor. A mentor is typically an experienced worker, such as Dana, who can act as a guide to new
employees like Elena. Mentors often share advice, guidance, and even clients with their mentees to
encourage the new workers to become successful. Mentors may also help new employees build
professional relationships with other members of their firm, professional associations, and new
customers. A supervisor is an employee who oversees other employees. A manager is an individual
whose job involves planning, organizing, staffing, directing, and controlling for a business. An assistant is
an employee who helps with work-related tasks. There is no indication that Dana is Elena's supervisor,
manager, or assistant.
SOURCE: PD:153 Discuss opportunities for building professional relationships in finance
SOURCE: Quast, L. (2014, January 6). Finding a mentor is easier than you think. Retrieved September
27, 2021, from [Link]
than-you-think/#1e17f06252f5

94. D
Not being ethical. If an organization does not practice risk management, it is not being ethical, because it
is not preparing for the possibility of loss or treating its stakeholders fairly. It is not necessarily seeking a
larger return on investment, treating customers fairly, or enhancing possibilities for gain.
SOURCE: RM:041 Explain the role of ethics in risk management
SOURCE: LAP-RM-041—Manage Risk the Right Way (Ethics in Risk Management)
Test 1255 FINANCE CLUSTER EXAM—KEY 29

95. A
Saves information when computer failures occur. Backup procedures involve saving the business's
computer information at set intervals. If the computer system is damaged or fails to operate correctly, the
backup is available to retrieve stored information so the business can continue to operate. The backup
reduces the risk of losing all types of information—financial, shipping, ordering, human resources, etc.
The purpose for implementing backup procedures is not to prevent hacking, detect noncompliance, or
allow employees to access multiple applications, although there are various software applications that
specifically address those issues.
SOURCE: RM:042 Describe the use of technology in risk management
SOURCE: Norton. (n.d.). Data backup: Why it's important plus strategies to protect your information.
Retrieved September 27, 2021, from [Link]
[Link]

96. C
Liability. A risk management information system (RMIS) is a database that is used to store and analyze
risk data. Data pertaining to liabilities that a RMIS is likely to house include information about current and
historic claims, exposure bases, and liability insurance coverages and coverage terms. Data related to
property exposure are a listing of the company's properties, information about company vehicles, loss
records, and property insurance policies data. A risk map is a tool used to determine the likelihood of
risks faced by a company. Catastrophe modeling involves using computers to estimate losses that a
company might suffer as a result of a disaster, such as a hurricane or earthquake.
SOURCE: RM:042 Describe the use of technology in risk management
SOURCE: Rhodes, A. (n.d.). What is a risk management information system (RMIS)? Retrieved
September 27, 2021, from [Link]
management-information-system

97. D
Sexual harassment. Sexual harassment involves unwelcomed sexual remarks, advances, conduct, or
requests. By providing employees with training about actions and language that constitute sexual
harassment, employees are less likely to behave inappropriately. If a firm does not follow up or take
action on an employee's sexual harassment complaint, the employee may sue the firm. Lawsuits can
damage the firm's reputation and cost the firm a lot of money. Gender-related issues are not related to
religious preferences, intellectual property, or financial misconduct.
SOURCE: RM:043 Discuss legal considerations affecting risk management
SOURCE: Carter, S. (n.d.). Preventing sexual harassment in the workplace. Retrieved September 27,
2021, from [Link]

98. C
It determines the minimum reserve requirements in financial trading. Different measures can result in a
lower or higher minimum reserve requirement, which results in a lower or higher profit for the financial
institution. Although it does not designate the audience that will receive the resulting financial reports,
some financial measures should be used for internal purposes, while other measures are more
appropriate for external audiences. The number of clients to serve and the types of risks to be
encountered are not aspects of selecting a risk measure.
SOURCE: RM:058 Discuss the nature of risk control (i.e., internal and external)
SOURCE: Ingram, D. (n.d.). External and internal factors of financial risk. Retrieved September 27,
2021, from [Link]

99. D
Control. Risk control methods are used to reduce or minimize loss. Three common risk control
techniques include loss prevention, loss avoidance, and loss reduction. Loss prevention focuses on
stopping certain losses from occurring. Companies utilize loss avoidance when they choose not to take
part in risky activity. Loss reduction lessens the impact of a loss after it occurs. Risk financing involves
setting aside funds to pay for unavoidable losses. Companies transfer risk by purchasing insurance and
entering into contracts that transfer the risk to others. Risk retention involves financing the loss through
self-insurance and other methods.
SOURCE: RM:058 Discuss the nature of risk control (i.e., internal and external)
SOURCE: Kenton, W. (2021, January 31). Risk control. Retrieved September 27, 2021, from
[Link]
 Test 1255 FINANCE CLUSTER EXAM—KEY 30

100. C
Increased regulatory scrutiny. With greater attention placed on compliance and risk management
policies, companies have turned to enterprise risk management to help them manage the vast number of
risks that could affect them. Decreased transparency, increased efficiency, and decreased volume of
information are not factors that have increased interest in enterprise risk management.
SOURCE: RM:062 Discuss the nature of enterprise risk management (ERM)
SOURCE: Hayes, A. (2021, June 2). Enterprise risk management (ERM). Retrieved September 27,
2021, from [Link]