C4 - Student Guidance Notes

Student Guidance Notes

September 2004

Guide C04

Guidance notes for students planning to sit C04 Fundamentals of Business Economics of the new 2006 CIMA Certificate in Business Accounting syllabus This guide outlines the issues relating to transition from C04 Economics for Business of the 2000 syllabus to C04 Fundamentals of Business Economics of the new 2006 CIMA Certificate in Business Accounting syllabus. The first section of this guide compares the two syllabuses, highlighting the differences between them. The second part of this guide focuses on the assessment strategy for the new C04 Fundamentals of Business Economics exam. The third part of this guide lists additional (or changed) learning outcomes in the new syllabus. If you have any further queries relating to this guide, please contact the CIMA Contact Centre: Telephone+ 44 (0)20 8849 2251 Email: [email protected]

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Syllabus Comparison New Syllabus

Old Syllabus

C04 Fundamentals of Business Economics A. The Goals and Decisions of Organisations 20%

C04 Business Economics

B. The Market System and the Competitive Process 30%

C. The Financial System 20%

D. The Macro economic Context of Business 30%

Comparison and Comments

4 (i) The Economy and the growth of Economic Welfare 20%

As the title of the new section suggests this has a more specific orientation towards understanding the role and nature of business activity than seen before. It looks at the objectives of business and not-for -profit organisations and the conflicts in attempting to satisfy stakeholders. 4(ii) The Market This has seen a reduction from 40% to 30% System and the with the cost behaviour of short and long run Competitive Process business costs moving to the new section A. 40% The remaining material is similar to the old section. 4(iv) The Open The new section contains a good deal of new Economy 20% material covering sources of finance and the workings of financial institutions and markets. Some of this was previously seen in the Finance paper in the old Intermediate syllabus. Material related to balance of payments and globalisation of business have been moved to the new section D. 4(iii) The Macro The new section is similar to the old one but it economic Framework more concerned with the context” of 30% macroeconomics for business. Material on the finance and banking system has been moved to section C with additions already described above.

Aims The major differences with the existing syllabus aims include the identification of the role of financial institutions and markets in providing finance for a wide range of organisations. The differing goals of organisations is seen in the context of how those goals affect decisions by managers.

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Assessment There will be a computer-based assessment (CBA) of 2 hours duration, comprising 75 compulsory questions, each with one or more parts. The current paper requires a CBA of 60 minutes duration with 40 questions with one or more parts. A variety of objective test question types and styles will be used within the assessment. As well as the conventional multiple choice format other possible styles include: • filling in the blank in a sentence • listing items in rank order • stating a definition (in not more than __ words) • identifying a key issue, for example advantage/ disadvantage (in not more than __ words) • calculating one specific figure, for example profit for a period. • completing a blank or partially completed prescribed format using terms and/or numbers, for example an overhead cost table • identifying points on a graph or diagram, for example a break even point • identifying a specific term describing action/valuation seen in a scenario, for example the conditions for a recession • matching items together or with a description, for example “are the following cash or non-cash items” • interpreting numerical or graphical data.

For further information about computer based assessment please visit the website at www.cimaglobal.com/cba

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Learning Outcomes Additional (or changed) learning outcomes The following learning outcomes were either not included in the corresponding “old” syllabus or have experienced a change: • • • • • • • • • • • • • • • • • • • • •

distinguish the goals of profit seeking organisations, not-for-profit organisations and governmental organisations; compute the point of profit maximisation for a single product firm in the short run; distinguish the likely behaviour of a firm’s unit costs in the short run and long run; illustrate the effects of long run cost behaviour on prices, the size of the organisation and the number of competitors in the industry; illustrate shareholder wealth, the variables affecting shareholder wealth, and its application in management decision making; identify stakeholders and their likely impact on the goals of not-for-profit organisations and the decisions of the management of not-for-profit organisations; distinguish between the potential objectives of management and those of shareholders, and the effects of this principal-agent problem on decisions concerning price, output and growth of the firm. describe the main mechanisms to improve corporate governance in profit seeking organisations. identify the equilibrium price in a product or factor markets likely to result from specified changes in conditions of demand or supply; calculate the price elasticity of demand and the price elasticity of supply; identify the effects of price elasticity of demand on a firm’s revenues following a change in prices; describe market concentration and the factors giving rise to differing levels of concentration between markets; describe market failures, their effects on prices, efficiency of market operation and economic welfare, and the likely responses of government to these; distinguish the nature of competition in different market structures; identify the impacts of the different forms of competition on prices and profitability. identify the factors leading to liquidity surpluses and deficits in the short, medium and long run in households, firms and governments; explain the role of various financial assets, markets and institutions in assisting organisations to manage their liquidity position and to provide an economic return to holders of liquidity; identify the role of insurance markets in the facilitation of the economic transfer and bearing of risk for households, firms and governments; identify the role of the foreign exchange market and the factors influencing it, in setting exchange rates and in helping organisations finance international trade and investment; explain the role of national and international governmental organisations in regulating and influencing the financial system, and the likely impact of their policy instruments on businesses. identify the factors leading to liquidity surpluses and deficits in the short, medium and long run in households, firms and governments; 4

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• • • • • • • • • • • • •

explain the role of various financial assets, markets and institutions in assisting organisations to manage their liquidity position and to provide an economic return to holders of liquidity; identify the role of insurance markets in the facilitation of the economic transfer and bearing of risk for households, firms and governments; identify the role of the foreign exchange market and the factors influencing it, in setting exchange rates and in helping organisations finance international trade and investment; explain the role of national and international governmental organisations in regulating and influencing the financial system, and the likely impact of their policy instruments on businesses. explain macroeconomic phenomena, including growth, inflation, unemployment, demand management and supply-side policies; explain the main measures and indicators of a country’s economic performance and the problems of using these to assess the wealth and commercial potential of a country; identify the stages of the trade cycle, its causes and consequences, and discuss the business impacts of potential policy responses of government to each stage; explain the main principles of public finance (i.e. deficit financing, forms of taxation) and macroeconomic policy; explain the concept of the balance of payments and its implications for business and for government policy; identify the main elements of national policy with respect to trade, including protectionism, trade agreements and trading blocks; identify the conditions and policies necessary for economic growth in traditional, industrial and post-industrial societies, and the potential consequences of such growth; explain the concept and consequences of globalisation for businesses and national economies; identify the major institutions promoting global trade and development, and their respective roles.

Transition Arrangements Exams based on the CIMA Certificate in Business Accounting 2006 Syllabus, will be available at CIMA approved CBA centres from 2 October 2006. Exams based on the CIMA Certificate in Business Accounting 2000 Syllabus, will be available at CIMA approved CBA centres until the 1 March 2007. Exams based on the 2000 and 2006 Syllabus will be available concurrently between the 2 October 2006 and the 1 March 2007.

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Conclusion This syllabus has undergone a number of changes with material being moved from one section to another and the introduction of new topics. There is a stronger “business feel” than before and also sees the inclusion of the section on “the Financial System”. The assessment has been greatly increased to 75 rather than 40 questions previously with the time allowed rising from one hour to two hours.

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