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CARIBBEAN EXAMINATIONS COUNCIL

SECONDARY EDUCATION CERTIFICATE
EXAMINATION
PRINCIPLES OF BUSINESS
Paper 01 - General Proficiency
75minutes
( 31 MAY 2005 (p.m.) )

READ THE FOLLOWING DIRECTIONS CAREFULLY

I. In addition to this test booklet, you should have an answer sheet.

2. Each item in this test has four suggested answers lettered (A), (B), (C), (D). Read each item you
are about to answer and decide which choice is best.

3. On your answer sheet, find the number which corresponds to your item and blacken the space
having the same letter as the answer you have chosen. Look at the sample item below.
Sample Item
The money a business receives from the sale
-
of goods or services is called its Sample Answer
(A)
(B)
assets
capital
@® •@
(C)
(D)
income
resources
The best answer to this item is "income", so answer space (C) has been blackened.
-
4. If you want to change your answer, be sure to erase your old hnswer completely and fill in your
new choice.

5. When you are told to begin, turn the page and work as quickly and as carefully as you can. If you
cannot answer an item,omititandgoon to the next one. You can return totheomitted item later. Your score
will be the total numberofcorrectanswers.

6. This test consists of 60 items. You will have 75 minutes to answer them.

7. Do not b~ concerned that the answer sheet provides for more answers than there are items in this
test.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

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1. Which of the following statements explain 5. Which of the following can have its shares
why a barter system restricts exchange? traded on the stock exchange?

I. There must be acoi ncidence of wants. (A) A partnership

II. The commodities used are not homo- (B) A private company
geneous. (C) A public company
III. It is difficult to divide certain com- (D) A co-operative society
modi ties.
IV. A rate of exchange must be deter-
mined. 6. One benefit of multinational corporations
to Caribbean countries is
(A) II and III on! y
(B) III and IV only (A) reduction of national ownership
(C) I, II and III only (B) depletion of material resources
(D) I, III and IV only (C) repatriation of profits
(D) employment

2. The functions of a business unit are

7. Which of the following is MOSTLIKELY to
I. . production of goods and services occur when a member of a partnership dies?
II. creation of jobs
III. maximization of sales (A) The business is closed down
IV. education of workers (B) A new partner is brought in
(C) The government takes over the busi-
(A) I, II and III only ness
(B) I, II and IV on! y (D) The business becomes a joint stock
(C) I, III and IV only company
(D) II, III and IV only

8. In a firm with a departmentalized structure,

3. Subsidised meals for employees would fall which department performs the four duties
under which of the following categories? listed below?

(A) Workmen's compensation I. Receiving the goods purchased

(B) Wages and salaries II. Giving a report on the quality of
(C) Duty allowance goods received
(D) Fringe benefits III. Applying the principles involved
in costing goods
IV. Keeping an inventory
4. Private enterprise is run MAINLY to
(A) Finance
(A). create profit (B) Stock control
(B) reduce inflation (C) Purchasing
(C) distribute goods and services fairly (D) Marketing
(D) provide jobs for more people
..
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.film.2.is based on the diagram below which shows a section of a typical vertical organisational chart
for a manufacturing company. ·

BOARD OF DIRECTORS

MANAGING DIRECTOR

GENERAL MANAGER

. I I
PRODUCTION MANAGER MARKETING .MANAGER CHIEF ACCOUNTANT
.

9. The relationship between the highest level

of management down to the various depart-
ments is known as the

(A) line
(B) rank
(C) .staff
(D) flow

10. The Manager of ABC company has em- Item 11 refers to the following statement:
barked upon sponsoring a school cricket
team in a Caribbean territory. Which re- "The leader deliberately stands back and lets
sponsibility is the company fulfilling? the subordinates plan their own work and
make their own decisions as far as possible."
(A) Its obligation to customers
Its social obligation 11. Which word BEST describes the type of
(B)
(C)
administration referred to in the above state-
Its economic obligation
(D) Its obligation to maximise surpluses ment?

(A) Partici pati ve

(B) Laissez-faire
(C) Democratic
(D) Authoritarian
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12. Good leadership is exemplified by which of 15. Which of the following features must a
the following activities? simple contract have?··

I. Motivating subordinate staff I. Offer

Il. Providing more goods at lower cost II. Acceptance
III. Giving direction to the organization III. Written
IV. Implementing established plans IV. Consideration

(A) I.II and Ill only (AJ I and II only

(B) I, II and IV only (BJ II and IV only
(C) I, III and IV only (CJ I, II and IV only
(D) n. Ill and IV only (DJ I, II, Ill and IV

13. Which of the following policies adopted by 16. If the sale of goods become void, the
management is MOST LIKELY to ensure
worker morale? I. prospective buyer becomes the
owner.
(A) Employees should take part in II. seller has the right to keep any
· decision-making on an ongoing money or goods which have been
basis since every employee given to him in this transaction.
has duties and responsibilities. III. prospective buyer does not become
(B) Supervisors should make decisions the owner.
when they have been directed to IV. seller must return any money or
do so by the general manager. goods given to him by the prospec-
(C) The general manager should make all tive buyer for the transaction.
the decisions because he is respon-
sible for the performance of all (A) II and III only
employees. (BJ III and IV only
(DJ Decisions made by the top manager (C) I and IV only
and his advisers must be carried (D) I, II and IV only
out by employees as directed to
ensure that there will be no
break-down in work procedure. 17. A contract may be discharged by

I. performance
14. A major role of a trade union is to encourage II. I apse of ti me
III. offer and acceptance
(A) staff to strike whenever they have IV. breach
problems at work
(B) management to pay higher salaries (A) I and II only
and give longer vacations to staff (B) III and IV only
(C) advancement of the welfare of its (C) I,H and IV only
members (D) II, HI and IV only
(0) · • stafftobecomemembersoftheunion

i
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Item 18 refers to the following diagram. 21. The term 'human resources' refers to

(A) materials and goods made by hu-

Fixed factor
man beings
Capital A (B) raw materials used in the manufac-
Land ture of goods
(C) capital invested by shareholders in a
company
(D) persons available for productive and
professional services

Variable factor 22. The supply oflabour is NOT affected by

Labour
(A) migration
The law of variable returns is represented (B) birth rate
in the•figure above. (C) population census
(D) school-leaving age
18. Point A.on the graph represents the

(A) main point 23. What is the MOST LIKELY effect on a

(Bl middle point developing economy when professional and
(Cl average point skilled labour migrate to developed coun-
(D) optimum point tries?

(A) Unskilled labourers can demand

19. A switch to capital intensive methods of higher wages.
production in a country mightin the short run (B) The demand for skilled labour and
result in professional services will de-
crease.
(A) increased unemployment (C) Unskilled labourers can work harder.
(B) increased output (D) Production levels of goods and serv-
(C) reduced output ices wiII decrease.
(D) reduced unemployment

24. Which of the following is the BEST example

20. Which of the following is NOT a natural of capital as a factor of production?
resource of the Caribbean?
(A) Machinery
(A) Gold (B) Shares
(B) Coal (C) Debentures
(C) Bauxite (D) Money
(D) Timber
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Which of the following are examples of 29. Which of the following LEAST affects the
25.
extractive industries? location of an extractive i"ndustry?

(A) Proximity to sources of raw mate-

I. Mining
II. Refining rials
Fishing (Bl Availability of an abundant labour
III.
IV. Agriculture supply
(C) Proximity to large shopping areas
(A) I, II and III only (D) The presence of good roads and
(B) I, II and IV only drainage
(Cl I, Ill and IV only
(D) II, III and IV ~rnly
30. The standard of living is measured by

26. \\'.hi ch of the following productive activities (A) the index number
is LEAST LIKELY to be conducted on a (B) the per capita income
large scale in the Caribbean region? (C) the national product
(D) the national income
(A) Packaging
(B) Mining
(C) Whaling 31. Which of the following can be described as
(D) Building a marketing activity?

(A) Ensuring that workers are given

27. To which industry does a firm involved in fringe benefits
food processing belong? (B) Distributing the commodities to out-
lets
Extractive (C) Publicising advertisements fornew
(A)
(B) Manufacturing staff
Constructive (D) Issuing bulletins on staff matters
(C)
(D) Service

32. Which of the following factors will MOST

A cottage industry can BEST be described LIKELY affect a consumer's decision in
28.
as purchasing ham?

(A) a small scale industry centered at I. Taste

home II. Income
(B) an industry with pronounced use of III. Brand loyalty
manual processes IV. Cost of alternatives
(C) an industry where family members
are.involved (A) land II only
(D) an industry that sells to local consum- (B) II and IV only
ers (C) I, II and III only
(D) I, II, III and IV
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33. Which of the following isLEASTLIKEL Y to 37. A seller in Country Xsenta buyer in Country
be described as good public relations for a Ya Bill of Exchange for $10 000 which he
company? accepted. The Bill was later discounted at a
Bank at a rate of 8%.
(AJ The offering of scholarships
(B) Sponsorship ofasteel band What was the amount paid by the Bank
(C) Reduction in price to retailers subsequently?
(D) Hosting of an annual sport event
(AJ $ 8000

I 34. In which of the following types of trade can

(BJ
(CJ
$ 9 200
$ 9800
I (D) $10080
the hire purchase method of buying be used?

(A) Wholesale trade

(BJ Foreign trade 38. A post-dated cheque is one which
(CJ Import trade
(DJ ·Retail trade (A) was written no longerthansix months
ago
(B) is dated by the businessman to agree
35. Which of the following is NOT a function of with the date of the document re-
the retailer? questing payment
(CJ is dated by the bank dates on the day
(A) Transporting goods to suitable stor- the cheque is presented for pay-
age facilities ment
(B) Providingalocalsupplyofgoods (D) is dated for payment at a future
(C) Preparing goods for resale date
(D) Selling in small quantities

39. Which of the following allows an individual to

36. Before exporter B sent goods to importer A receive cash on demand?
he insured the consignment and paid the
captain of the vessel the charge for carriage. (A) Crossed cheque
Goods were shipped (B) Certified cheque
(C) Banker's cheque
(A) f.o.b. (D) Open cheque
(B) c.i.f.
(C) f.a.s.
(D) c.o.d. .40. Which of the following documents is required
for importing goods for which there are un-
der-quota restrictions on imports?

(A) Bill oflading

(B) Bank draft
(C) Bill of exchange
(D) Import licence

'

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-8-
41. Mr. Jones has several bills of fixed amounts 45. The document given with th~. purchaseofan
to pay each month. His bank manager article stating that it will work for a specified
agreed to pay them month! y from Mr. Jones' period oftime under given conditions is cal led
account. This service, provided by the the
bank. refers to
(A) guarantee
(A) letters of credit (B) warranty
(B) standing orders (C) certificate
(CJ overdrafts (D) proof
(D) acting as trustees

46. Which of the following are the reasons for

42. The MA.TOR functions of a central bank a Government imposing taxes?
are
I. Promoting economic growth
I. acting as the government's bank II. Redistribution of income
II. keeping deposits of all commercial III. Increasing interest rates
banks IV. Improving the balance of payments
III. gi_ving loans to private individuals
and companies (A) I, II and IV only
IV. ·helping to regulate the money sup- (B) I, III and IV only
ply of a country (C) II and III only
(D) III and IV only
(A) I, II and III only
(B) I, II and IV only
(C) I, III and IV only ltem47 is based on the following informa-
(D) II, III and IV on I y tion.

Loleen lives in a country where the follow-

43. The monthly payments collected by an in- ing tax structure exists.
surance company on behalf of its policy
holders are known as TYPE OF TAX %

{A) premiums Stamp Du ti es 10

(B) instalments Capital Gains Tax 12
( C) deposits Corporation Tax 25
(D) endowments Customs Duties 30

44. Collateral is MOST needed when 47. Loleen bought a building and sells it to make
a profit. What type of tax is she required to
(A) taking out an insurance policy pay?
(B) ordering goods from a foreign manu-
facturer (A) Stamp Duties
(CJ · · borrowing from a financial institu- (B) . Corporation Tax
tion (C) Capital Gains Tax
(DJ buying stock and shares (D) Custom Duties

.,.
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48. Subsidies refer to 52. A 'market' in economic terms is defined as

(A) loans given to businessmen (A) a place where tangible goods are
(B) grants made to businesses by gov- bought and sold
ernment (B) a situation which exists when buyers
(C) taxes withheld by government and sellers influence the price of
(D) profits realised from investment goods
(C) a specific place where buyers and
sellers meet
49. Marketequilibrium exists when (D) the business centre of the community

(A) buyers pay reasonable prices for

goods 53. Which of the following are likely to affect
(B) selkrs are satisfied with the price the standard ofliving in a country?
paid for their goods
(C) at the ruling market price, buyers do I. Widespread pollution
not wantto add to the stock of goods II. A low literacy rate
they already have III. A high crime rate
(D) atcurrentprices, the amount buyers IV. Advertisements
·wish to buy equals the amount sell-
ers want to sell (A) I and III only
(B) II and Ill only
(C) I, II and III only
50. Wl1ich of the following features are associ- (D) I, III and IV only
ate.d with perfect competition?

I. Many buyers and sellers 54. Indices of economic growth indicate

II. Few buyers and sellers
III. Freedom of entry into the market I. increased production
IV. Barriers to entry into the market II. higher per capita income
!II. higherunemployment
(A) I and III only IV. improvement in living conditions
(B) I and IV only
(C) II and III only (A) I and II only
(D) II and IV only (B) II and III only
(C) II, III and IV only
(D) I, II and IV only
51. Which ofthefollowingcharacteristicsBEST
describes a competitive market?

(A) Few sellers and many buyers

(B) Production ofalmost identical goods
(C) Difficult entry to new markets
(D) ·Imperfect consumer knowledge of
•
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The features of a retail outlet are 58. · Which ONE of these methods may govern-
55.
ment use to reduce unemploymentry
I. selling in small quantities to the
consumer (A) Employment levy on firms
II. having many departments (B) Increases in income tax
III. involvement in sole trading (C) Deflation of the economy
IV. sometimes operating with relatively (D) Increased interest rates on bor-
little capital rowing

(A) I and II only

(B) II and Ill only 59. Adverse Balance of Payment problems can
(C) I, III and IV only be corrected by
(D) II, III and IV.only
I. tariffs
II. quotas
56. A government can correct an adverse For- III. devaluation
eign Exchange problem by IV. revaluation

(A) · increasingcustomsduties (A) I and II only

(B) implementing price floors (B) II and III only
(C) ·reducing severance payments (C) I, III and IV only
(D). improvingtherateofinflation (D) I, II and Ill only

Which of the following trading agreements is 60. Which of the following are nationalised in
57.
Barbados promoting when it sells furniture to most CARI COM territories?
Jamaica?
I. Food Production
(A) O.E.C.S. II. Water
(B) CARICOM III. Communication
(C) G.A.T.T. IV. Electricity
(D) N.A.F.T.A.
(A) I and II only
(B) II and III only
(C) I, Ill and IV only
(D) II, III and IV only

IF YOU FINISH BEFORE TIME IS CALLED, CHECK YOUR WORK ON THIS TEST.