Finance Knowledge Test: Australian Financial System and Budgeting

This finance assignment is a comprehensive knowledge test that assesses understanding of various financial concepts. The test includes 18 questions covering the main objectives of a financial system, the structure of the Australian financial system, and forecasting financial statements. It explores the differences between budgets and forecasts, different budgeting approaches, and the capital expenditure budget. Furthermore, it examines asset management challenges, general management responsibilities, and different financial ratios. The assignment also delves into factors to consider when making financial decisions, identifying market trends for long-term business planning, and the two categories of negotiation. It defines resource allocation, principles of record-keeping, and the five phases of building an effective management system. The scope and process of budget audits, the process for financial risk management (FRM), and major categories of financial risk are also discussed.

KNOWLEDGE TEST

Answer the following questions
Question 1: What are the main objectives of financial system? Write your answer in 50-70 words.
Financial system is defined as set of various institutions which allow for exchange of
essential funds. Following are the objective of financial system which define below:
Allocation of resource: Financial system act as regulator of monetary resource thus they
allocate funds according to the requirement of different sectors.
Mobilize saving: Banks, financial institutions an intermediary focus n mobilize saving of
investor in effective manner.
Provid credit assessment: It includes different types of financial institutions which
developed for the purpose of prove financial assistance to small as well as large organization for
run their business successfully.
Pool funds & risk: Financial system focus on diversify risk in by formulate different
structure of portfolio.
Question 2: Elaborate the Structure of the Australian Financial System? Write your answer in 50-70 words.
Australian Financial system is run for settle ownership claim and transfer funds from one
institution to other. Following are the element of Australian Financial system:
Authorized deposit taking institution
Bank: Institution which provides lending and borrowing facility to individual business entities.
Insurance: Institution which proved life as well as general insurance services.
Financial market: It includes, primary and secondary market which dealing in short a swell as long
term securities.
Payment system: It consider, EFTPOS, cash, cheque & high payment system.
Secure vehicle: It includes, organization which provides loan to business entities, these includes,
commercial loan, mortgage, assets backed bonds and trade receivables.
Question 3: How to Forecast Financial Statements? Write your answer in 50-70 words.

Forecasting financial system is difficult process as it require quantitative understand for
recognize performance of financial statement. By formulation of income statement as well as
balance sheet, financial system can be forecast.
These includes, sales forecasting, measuring of dividend rate by calculating value of
dividend ratio as well as retain earning ratio. For finding out internal as well as external funds
source balance sheet has been formulated which showcase future expected, assets and liabilities of
institutions as well as income statement are use for predict future expenditure and rate of generate
profit.
Question 4: Explain the difference between budget and forecast? Write your answer in 50-70 words.
Budget is document which express financial plan and result in numerical or quantitative
terms on the other side, forecasting estimate future business outcomes by analysis past data.
Budget is define sale target which organization want to attain in future and on the other side,
forecasting is predict profit value which will be achieve in future.

Question 5: Which are the several approaches to budgeting? Write your answer in 50-70 words
There are 2 types of budgeting approach which organization can use for the purpose of prepare or
formulate budget, these are defined below:
Fixed budget: In this value of assets as well as profit and other item of financial statement
remain unchanged even in change arise in time period of production units or policies of
organization. In this cost and value of financial items of industry remain stable over period of time.
Flexible budget: This statement is formulated for the purpose of define change arise in
profit volume due to change in production unit or other factors of organization. It is define project
time line as well as responsibilities and help in planning procedure.
Question 6: Describe Capital expenditure budget? Write your answer in 50-70 words
Capital expenditure budget: It is document which is formulated to define timing of business
entities to purchase fixed asst. It is part of organization's annual budget which beneficial for future
planning regarding with investment proposals. It includes, existing or new assets, construction or
hiring of new business assets. In order word it is a statement which showcase expenditure require
for purchase of assets for organization within specific time period.
Question 7: What are asset management challenges? Write your answer in 50-70 words
Following are the challenges manager face at the time of managing their assets:
Selection of right assets: While managing assets manager need to decide which asst they need to
select their relevant option. On the basis of that they able to formulate future business strategies.
Reduce downtime: It is difficult to reduce downtime of assets , when their rate of depreciation is
comparatively high

Understand cost: Manager need to use relevant provision for this purpose they need to have proper
understand regarding provision of GAAP and accounting standard to value and define cost price of
assets.
Question 8. What are the General Management responsibilities? Write your answer in 50-70 words
In order to distribute role of and responsibilities of employee , following are the responsibilities of
management department:
Formulation of policies an strategies for business organization.
Ensure businesses and management procedure of business organization.
They ensure that all the department follow essential regulatory guild-line or not .
Ensure organization fulfill relevant legal requirement .
They communicate relevant business decision to each department.
Ensure and allocate resource to different department of organization.

Question 9. Explain which are different ratios used in financial analysis? Write your answer in 50-70 words
Financial ratio helps in determine relation between variable, following ratio used for
evaluate financial performance:
Liquidity ratio: This ratio is calculated for define liquidity position of company, it includes,
cash coverage ratio, current, quick ratio and liquidity index ratio.
Activity ratio: It is used to analysis quality and efficiency of organization. For analysis this,
manager calculate, inventory turnover, sales to working capital ratio, working capital turnover and
fixed assets turnover ratio.
Leverage ratio: To find ability of organization to pay their debt liability by using their
funds. To measure liquidity, debt to equity, service coverage ratio and fixed charge ratio is
calculated.
Profitability ratio: Help in define ability to generate profit. For this purpose, gross profit,
net profit, return on equity and-break even analysis is calculated.
Question 10. What are the things to be considered while taking financial decisions? Write your answer in 50-70
words
Success of organization depend on the financial decision taken by manager. Following are the
things which manager consider before take any kind of financial decision:
 Opportunity cost of each alternative.
 Financial consideration which includes availability of financial resource.
 Risk factor of each alternative of project.
 Legal issue arises due to taken decision
 Return on investment rate of project.
 Accounting considerations of related investment project.
Question 11. How to identify market trends for long-term business planning? Write your answer in 50-70 words

Trend analysis is the procedure which help identify are within which business through
which investor able to enhance their perform. Manager on the basis of using marketing scanning
technique and tracking, competitors strategies, through customer feedback, by finding and analysis,
industry research report , and revising publications as well as by using digital tool they able to
identity market trend for ling term planning.
Question 12. Briefly explain the two categories of negotiation. Write your answer in 50-70 words
Negotiation is categorized within 2 categorized, these are define below:
Competitive bargaining: It includes getting best deal in according with the other party interest. It
is not feasible way of negotiation and may become reason of arise issue.
Collaborative negotiation: In this category negotiation is run by generate win – win situation
under which parties is expected to settle their agreement of negotiation. It is use for minimize rate
of conflict and give benefit for long time period.
Question 13. Definition of Resource Allocation? Write your answer in 50-70 words
Resource allocation: Resource includes all the relevant things which help in production of
products and run organization. It includes, human, financial, mon financial and material resource.
Process of allocation of resource is define as strategy through which manager able to decide where
and when and how much they use resource in production procedure. In economics terms resource
are allocated on the basis of requirement of consumers at low cost of production.
Question 14. What are the Principles of record-keeping? Write your answer in 50-70 words

Record keeping is the process of systematically record each business transaction. Following
are the principle of record keeping:
Accurate information: These principles based on proved accurate and reliable information
regarding each business activity in numerical terms.
Non offensive: Data are recording in such a way that they are not create any issue or
offence.
Reliable: Data or information must be collect regarding with relevant business source,
which provide base for further audit report.
Transparency: Business transaction should be transparent they aren’t made for creation of
secret profit.
Compliance: All the business transaction should be record by complaining basic principle
or GAAP.
Protection: Theses transaction must provide protection and security for personal
information of employee and organization.
Question 15. Which are the Five Phases to Building an effective management system? Write your answer in 50-70
words
Following are the 5 phases of build effective management system:
Discovery: In this plan goal or objective regarding management system or project has been
set. These are deiced on the basis of attaining vision of organization.
Planning: In this phase in order to attain goal of financial system, plan has been formulated
in which manager decide to select resource, procedure formulate strategies, allocate resource and
structure design for management of financial system.
Development: In this phase cost of running project and management of allocation the
resource has been decided.
Implementation: This is their phase of execution of relevant project by using and
implementing relevant resource and business strategies.
Re – discovery: In this phase manager rediscover and measure the overall project and on
the basis of that they find out value of deviation which help in formulate strategies to cover up
difference.

Question 16. Scope and process of budget audit? Write your answer in 50-70 words
Budget audit is used for measure effectiveness of technique use in order to formulate
budget. It considers work done by manager as well as accountant of the financial system. Budget
audit is done in order to find out cause of difference arise between standard target and budgets as
well as find out risk control strategies. Theis approach also useful to monitor managers work.
Question 17. Explain the process for FRM? Write your answer in 50-70 words
Financial risk management is the process in which manager develop or formulate plan to
mitigate or control risk arise due to financial resource or policies formulate to control financial risk.
Following are the procedure:
Identification of financial risk & its cause: In this stage manager recognize types of risk
which may arise during the time of running business operations. It includes, interest risk, operating,
liquidity market risk. Manager also find out main reason of arrival of these risks.
Measure level of risk and its effect: After identifying cause of risk, manager formulate
strategies to measure effect of different types of risk over organization.
Formulation and implementation of plan to address the risk: This is the last stage in
which manager measuring impact of risk and then formulate polices and strategies to mitigate risk
and implement them during the time of run business operation.
Question 18. What are the major categories of financial risk for a company? Write your answer in 50-70 words
Risk can be categorized in many ways, some of them are define below:

Liquidity risk: In this type of risk, organization don’t have sufficient financial capital to
pay their debt liability.
Funding risk: Lenders who sell their high-rate property face this type of risk. They have
risk regarding with volatility, price of security and they may have fear regarding facing future issue.
Interest risk: Fluctuation of variation in interest rate adversely impact on the financial
system, and performance of organization.
Foreign risk: Risk arise at the time of transaction or exchange of foreign commodity. This
risk generally arises when expenditure incurred or revenue generate when organization dealing in
foreign transaction.
Commodity price risk: Organization face issue when price of product has been changing
due to impact of environment factors.
Credit risk: Threat regarding failure of another party to pay their debt liability.
Business operating risk: This risk arises at the time when business organization not able to
operate of run their business in effective manner.
Question 19. What are the general objectives of FRM? Write your answer in 50-70 words
Following are the objective of financial risk management:
 Identify and measuring risk related with monetary resource.
 Eliminate those business activities which become the reason of arising financial risk.
 Between allocation and management of financial resources.
 Formulate financial strategies in order to mitigate risk.
 Measure financial performance and liquidity ability of organization
 Find out ability to bear different types of risk by organization.
Question 20. Explain Budget Variance Analysis? Write your answer in 50-70 words

Budget variance analysis is the process of identifying or finding difference amount between
standard target and actual target of expenditure or revenue generate activities. On the basis of that
manager able to find value of difference as well as reason of arriving difference between actual and
budget amount. When revenue is higher than budget expenditure then it represents positive future
outcome of company and vice versa.
Question 21. Which are the 5 tips to Fix Budget Variances? Write your answer in 50-70 words
Following are the tips which used by manager in order to reduce difference amount between budget
variance:
Find positive variance: Not every variation generates negative impact on organization.
Some variance shows positive outcome towards the organization. These are useful to mitigate
financial risk.
Find the difference: Manager need to find difference between actual or budgeted outcome.
Understand timing: In this step, Management department of organization need to find out
time at which difference arise between actual and budgeted activities.
Find cause of variance: In this step, manager find out main cause of difference arise
between actual and standard target.
Take action: On the basis of find out difference, management department of organization
took action and formulate policies to reduce variation of budget outcomes.
Question 22. What are the types of procedures to conduct the financial review? Write your answer in 50-70 words
Following are the types of procedure to conduct financial review:
 By conducting ratio analysis by using available financial data.
 Investigate facts related with financial performance.
 Taking inquiry regarding with formulation of business transaction.
 Investigate significant business transaction.

 Take inquiry regarding with business transaction material.
 Measure review regarding with business transaction.
 Reading and revie financial statement of organization and also measure audit report of
business entity.
Question 23. What are the primary steps in target costing process? Write your answer in 50-70 words
Target costing: It is process through which manager able to decide price, rate of margin and
find out cost required to produce a product. Following are the primary steps of target costing
procedure these are define below:
Conduct research: It is the first stage which manager find out market in which they sell
their product on the requirement and demand of customers.
Calculate maximum cost: In this company decide to set margin rate, during this stage
manager evaluate maximum cost they are able to bear during the time production of product at
specific price rate through which that can able to generate profit even maximizing their cost of
production.
Engineer product: It is the stage in which products are produce or implemented on the
basis of customers demand.
Ongoing activities: This is the last stage, in which manager formulate strategies to finding
ways to reduce the cost as well as innovate an introduce new products.