1. What is the main function of money in everyday transactions?
A legal document issued by the government
A guarantee of constant prices over time
A type of business capital only used by companies
A medium of exchange used to buy and sell goods and services
Explanation:
Money serves primarily as a medium of exchange so people can trade goods and services without direct barter.
2. Which of the following is the official currency code for the Kenyan currency?
KNP (Kenya Pound)
KES (Kenyan Shilling)
UGX (Uganda Shilling)
KWD (Kenyan Dollar)
Explanation:
The Kenyan currency is the Kenyan Shilling, which is abbreviated KES.
3. What is M-Pesa in Kenya?
A type of physical coin used in rural markets
A government tax collection system
A bank savings account for students
A popular mobile money service for sending and receiving payments
Explanation:
M-Pesa is a widely used mobile payment service in Kenya that allows users to deposit, withdraw, transfer money and pay for goods and services using their phones.
4. What does SACCO stand for in the Kenyan context?
Savings Account for Central Organisations
Savings and Credit Cooperative Society
State Association of Commercial Credit Operators
Social Accounting and Credit Company
Explanation:
A SACCO is a Savings and Credit Cooperative Society where members pool savings and lend to one another at agreed rates.
5. Why is keeping financial records important for a small business?
To avoid having to pay any taxes permanently
To hide losses from customers
To show off how much money the owner has
To track income and expenses and help make informed business decisions
Explanation:
Accurate records let business owners see performance, control costs, plan for the future and meet tax requirements.
6. What is a budget?
A list of items to buy on credit only
A plan that shows expected income and how it will be spent
An account that earns no interest
A bank form used to open an account
Explanation:
A budget helps individuals or businesses plan their income and allocate funds to different needs and goals.
7. What does 'opportunity cost' mean when making financial choices?
The value of the next best alternative that you give up
A government tax on opportunities
The total amount of money you earn in a year
The fee charged by banks for opening an account
Explanation:
Opportunity cost is what you sacrifice when choosing one option over another, such as spending money now instead of saving for later.
8. What is interest in simple financial terms?
A fixed monthly salary
The cost of borrowing money or the reward for saving it
A type of bank account for students
A one-time tax on purchases
Explanation:
Interest is paid by borrowers to lenders for using money, and it is also the return savers earn on deposits.
9. What does inflation refer to?
A single shop raising the price of one product temporarily
An increase in the number of people working in an economy
A general rise in prices over time that reduces purchasing power
Higher interest rates on all bank loans only
Explanation:
Inflation is when the average level of prices increases so each shilling buys fewer goods or services than before.
10. How can the Central Bank of Kenya (CBK) help control high inflation?
By setting the prices of all goods in markets
By using monetary policy tools like changing interest rates
By collecting income tax from employees
By directly giving money to every citizen
Explanation:
The CBK manages the money supply and interest rates to influence inflation and stabilize the economy.
11. What is a bank overdraft?
A savings account for children below 5 years
A short-term borrowing facility that allows an account to go below zero
A government grant to small businesses
A type of long-term fixed deposit
Explanation:
An overdraft lets an account holder withdraw more than their balance up to an agreed limit, but it is a form of loan that usually attracts interest.
12. For a business, which is the safest place to keep large amounts of cash?
Hidden in the business storeroom
A bank deposit account
Under the owner’s mattress at home
As loose cash in the shop till overnight
Explanation:
Keeping money in a bank reduces theft risk, provides records and may earn interest, unlike storing cash at home or in the shop.
13. What is the purpose of Pay As You Earn (PAYE) in Kenya?
It is a compulsory savings scheme for every employee
It is a loan scheme offered by banks to earners
It is a tax deducted from employees' salaries and remitted to KRA by employers
It is a health insurance fee collected by hospitals
Explanation:
PAYE is the system where employers deduct income tax from salaries before paying employees and send it to the Kenya Revenue Authority.
14. What does Electronic Funds Transfer (EFT) mean?
A paper cheque sent by post
A mobile phone used only for making calls
Moving money electronically from one bank account to another
Cash paid over the counter at a bank
Explanation:
EFT is a safe, electronic way to transfer money between bank accounts without using physical cash or cheques.
15. What is a cheque?
A government-issued bond
A written instruction to a bank to pay a specified amount from the drawer’s account
A type of mobile money transfer
The same as a credit card swipe
Explanation:
A cheque is a paper order directing a bank to pay money from the account holder to another person or entity.
16. Why do people save money?
To avoid ever paying any bills
To increase the amount of money printed by the government
To make it harder to buy useful items
To build funds for future needs or emergencies
Explanation:
Saving helps people prepare for unexpected expenses, education, business starts or other future goals.
17. Which of the following is an example of a current asset for a business?
A long-term trademark owned by the company
Cash in hand and bank balances
Heavy machinery used for production
A factory building used to produce goods
Explanation:
Current assets are resources expected to be converted into cash within a year; cash and bank balances are the most liquid current assets.
18. What is 'capital' for a small business?
The total number of customers who visit the shop
Only the profits taken by the owner at the end of the year
The daily sales record only
Money invested by owners to start and run the business
Explanation:
Capital is the financial resource used to buy equipment, stock and to cover running costs when starting or expanding a business.
19. What does 'diversification' mean when talking about investments?
Borrowing more money to invest in the same asset
Putting all money into one high-return asset
Spreading investments across different assets to reduce risk
Avoiding any form of savings or investment
Explanation:
Diversification reduces the impact of a single investment failing by holding a mix of assets like stocks, bonds and savings.
20. Why is good record-keeping important when paying taxes in Kenya?
It is a secret method to avoid audits
It is only useful for showing customers how much they bought
It allows businesses to never pay any tax
It provides evidence of income and expenses to KRA and helps calculate the correct tax
Explanation:
Accurate records are needed to support tax returns, avoid penalties and to prove allowable deductions during audits.
21. What is a budget deficit?
When all debts have been fully paid
When planned or actual expenditures exceed available income
When a business has excess cash on hand
When income is greater than planned expenses
Explanation:
A budget deficit happens when spending is higher than income, forcing borrowing or cuts to balance future budgets.
22. What is the purpose of a bank statement?
To act as a guarantee that the bank will pay any debt
To replace wage slips for employees
To serve as the only valid ID at airports
To provide a record of account transactions so the account holder can reconcile their records
Explanation:
Bank statements list deposits, withdrawals and balances and help users check for errors or fraud and match their own records.
23. What is a common disadvantage of taking short-term loans from mobile loan apps?
Government subsidies that reduce the cost of borrowing
High interest rates and hidden fees that make repayment costly
Automatic savings that always increase your balance
Guaranteed approval without any credit checks
Explanation:
Many mobile loan apps charge high interest and fees and can lead to debt if borrowers do not read terms carefully.
24. What is consumer credit?
A free loan given by shops with no repayment requirement
A type of business loan for large companies only
Buying goods or services now and agreeing to pay later
A government-issued discount card for consumers
Explanation:
Consumer credit includes store credit, hire purchase and credit cards where consumers obtain items now and repay later, often with interest.
25. Which is a main role of the Central Bank of Kenya (CBK)?
Collect income tax from employees and businesses
Provide direct retail loans to all citizens
Run primary and secondary schools across the country
Regulate commercial banks and manage the national currency and monetary policy
Explanation:
The CBK supervises banks, issues currency, and uses policy tools to maintain price stability and financial sector health.