FINC 409 Chp 1 Practice problems – Flashcards
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The primary goal of the financial manager of a profit-seeking organization should be to:
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b. Maximize the owner's wealth
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Finance has its origin in
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c. accounting and economics
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Finance is
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a. The study of how individuals, institutions, governments and business acquire, spend and mange money and other financial assets
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Crucial elements of the three areas of finance include:
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d. All of the above (financial institutions, financial markets, investments and financial management)
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An area of finance that involves the sale or marketing of securities, the analysis of securities, and the management of investment risk through portfolio diversification is referred to as:
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b. investments
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The issuing of new securities, mortgages, and other claims to wealth takes place in the:
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c. Primary market
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An effective financial system must have
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D. all of the above -several sets of POLICY MAKERS who pass laws and make decisions relating to fiscal and monetary policies -an EFFICIENT MONETARY SYSTEM for creating and transferring money -FINANCIAL MARKETS that facilitate the transfer of financial assets amongst individuals, institutions, and businesses
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an area of finance that refers to the physical locations or electronic forums that facilitate the flow of funds among investors, businesses, and governments is called:
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financial markets
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An area of finance that involves financial planning, asset management and fund-raising decisions to enhance the value of business is called:
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a. Financial management
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An area of finance that involves the study of organizations or intermediaries that help the financial system operate efficiently and transfer all the funds from savers and investors to individuals, businesses and governments that seek to spend or invest the funds in physical assets (inventories, buildings, and equipment) is called:
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c. Financial institutions
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an area of finance that involves the study of government institutions and their involvement in rescuing private firms is called:
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e. none of the above
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The_______ is a term used to describe the financial system, institutions, markets, businesses, individuals and global interactions that help the economy operate efficiently
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a. Financial environement
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The primary securities markets are
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b. the markets where financial assets such as stock and bonds are initially issued
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Finance has its origins in:
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d. economics and accounting
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economists use a ________ framework to explain how the prices and quantities of a good and services are determined in a free-market economic system.
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Supply-and-demand
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________ provide the record-keeping mechanism for showing ownership of the financial instruments used in the flow of financial funds between savers and borrowers and record revenues, expenses, and profitability of organizations that produce and exchange goods and services
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Accountants
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_____________ are crucial elements of the three areas of finance
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Financial institutions, financial markets, and financial managements
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___________ are intermediaries, such as banks, insurance companies, and investment companies that engage in financial activities to aid the flow of funds from savers to borrowers or investors
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Financial institutions
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_______ in business involves making decisions relating to the efficient use of financial resources in the production and sale of goods and services
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Financial management
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Maximizing _______ is accomplished through effective financial planning and analysis, asset management and the acquisition of financial capital
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The owners' wealth
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Successful businesses typically progress through a series of life-cycle stages--from the idea stage to exciting the business; these five stages include the:
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development stage, startup stage, survival stage, rapid growth stage, and maturity stage
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___________ is the study how how growth-driven, performance-focused, early-stage (from development through early rapid growth) firms raise financial capital and manage their operations and assets
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Entrepreneurial Finance
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_______ is the study of how individuals prepare for financial emergencies, protect against premature death and the loss of property, and accumulate wealth over time.
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Personal finance
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Reasons we study finance include all of the following except
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To make informed medical decisions
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the six principles of finance include all of the following EXCEPT
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All of the above are included in the six principles -Money has a time value -higher returns are expected for taking on more risk -Diversification of investments can reduce risk -Financial markets are efficient in pricing securities
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Among the six principles of finance, all are included except
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All decision are ultimately financial decisions
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Which statement best describes the six principles of finance ?
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Money has a time value; Higher returns are expect for taking on more risk; Diversification of investments can REDUCE risk; Financial markets are efficient in pricing securities; Manager and stockholder objectives may differ; reputation matters
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An effective financial system needs
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All of the above -an efficient monetary system -to be able to create capital by channeling savings into investment -Markets in which to buy and sell claims to wealth
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Crucial elements of well-developed financial systems include all of the following EXCEPT
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government control of the economy
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Financial functions in the U.S financial system include
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All of the above -Transferring financial assets -creating money -accumulating savings
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$1,000 invested today at 6% interest would be worth_____ one year from now
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$1,060
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If the interest rate is greater than -% than a dollar today is worth
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more than a dollar tomorrow
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a basic requirement for an effective financial system is a monetary system that performs which of the following financial functions?
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Formation and transferring of money
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Rational investors would consider an investment in a risky business venture only if they feel the expected return is high enough to justify the
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Greater risk
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Two risky assets can be combines to lower overall risk. This principle is commonly referred to as
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Diversificaiton
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In the united states, most money is created by:
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Depository institutions
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Basic requirements of an effective financial system include:
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All of the above -Creating money -Transferring money -Accumulating savings
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The theory of ______ implies that information is quickly embedded in prices making it difficult for investors to "beat the market"
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efficient markets
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The basic requirements for an effective financial system is a developed economy include:
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All of the above -A monetary system -a savings-investment process -Markets for the transfer of financial assets
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The possible conflict between managers and owners is sometimes called the
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Principal-agent problem
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______ behavior refers to how an individual or organization treats others legally, fairly, and honestly.
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Ethical
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Career opportunities in finance involving both treasury and control functions are generally associated with
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Business financial management
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Intermediaries that help the financial system operate efficiently and transfer funds from avers and investors to individuals, businesses and governments that seek to spend or invest the funds are known as:
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Financial institutions
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An economy's ______________ is the interaction of policy makers, a monetary system, financial institutions, and financial markets to expedite the flow of financial capital from savings into investment:
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Financial system
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An efficient _____________ that is comprised of a central bank and a banking system that is able to create and transfer a stable medium of exchange called money
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Monetary system
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An effective financial system must have
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All of the above are required -Financial markets that facilitate the transfer of financial assets among individuals, institutions, businesses, and governments -Financial institutions or intermediaries that support capital formation either by channeling savings into investment in physical assets or by fostering direct financial investments by individuals in financial institutions and businesses -an efficient monetary system that is comprised of a central bank and a banking system that is able to create and transfer a stable medium of exchange called money -several sets of policy makers who pass laws and make decisions relating to fiscal and monetary policies
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_____________ facilitate the transfer of financial assets among individuals, institutions, businesses, and governments
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Financial markets
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The __________ is primarily responsible for the amount of money that is created, although most of the money is actually created by depository institutions
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Federal Reserve system
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Functions of the monetary system include all of the following EXCEPT
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Accumulating savings
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______________ markets are where debt securities of one year or less are issued and traded.
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Money
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_____________ Markets are where debt instruments or securities with maturities long than one year and corporate stocks or equity securities are issued and traded
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Capital
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______________ markets are where the initial offering or origination of debt and equity securities take place
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Primary
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______________ Markets are physical locations or electronic forums where debt (Bonds and mortgages) and equity securities are traded
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Secondary
