Which area of finance deals with sources of funding and the capital structure of corporations and
seeks to increase the value of a firm to its owners?
Financial institutions
Business finance
Investments
Real estate - answer✔✔Business finance is the area of finance that deals with uses and sources
of funding to increase the value of the firm.
What are the main services offered by financial institutions? - answer✔✔Accepting a wide
variety of deposits, offering investment products, providing loans, and brokering financial
transactions
Which type of financial institution is a mutual fund?
Contractual institution
Federal institution
Depository institution
Investment institution - answer✔✔Investment institution. Investment institutions provide
individuals and firms access to financial markets.
A mutual fund - answer✔✔A mutual fund is an investment company that continually offers
investments and buys financial securities and instruments (usually stocks or bonds) on behalf of
investors. Mutual fund companies often have their own products or portfolios composed of
multiple stocks and bonds. The performance of the funds determines the company's value. Even
though the funds are a pool of financial securities, investors normally do not have the same rights
that individual stockholders have.
Which financial institution specializes in managing and administering retirement funds?
Pension funds
Investment banks - answer✔✔Pension funds specialize in retirement funds.
Which type of economic indicator is the consumer price index?
Lagging indicator
Leading indicator
Coincident indicator - answer✔✔CPI usually changes after the economy as a whole changes.
(CPI) measures changes in the inflation rate. It examines the average prices of a basket of
consumer goods and services and the changes associated with the cost of living. When the CPI
decreases, it indicates deflation; when it increases, it indicates inflation.
A company's officers and board of directors are selling their stocks in the firm at higher prices
due to false accounting reports that made the stock seem more valuable than it truly was. Which
ethical issue is occurring in this situation?
Pursuing individual interest over client interests
Conflict between work and personal affairs
Agency problem due to conflicting interests - answer✔✔Agency problem due to conflicting
interests! Accounting manipulation by management in pursuit of higher stock-related
compensation is an example of an agency problem.
Which subspecialty of finance primarily involves deciding which assets will create more wealth
and earn positive returns?
Accounting
Financial institutions
Capital structure
Investments - answer✔✔Investments. Investments is the area of finance that seeks to create
wealth in the future by deciding where to allocate money.
What is the primary goal of the financial manager of a firm?
To minimize the asset holdings of the firm
To minimize the costs of the firm
To maximize owner wealth
To maximize the manager's utility - answer✔✔To maximize owner wealth. The financial
manager should make decisions based on the primary goal of maximizing owner wealth.
Utility - answer✔✔Utility is an economic term referring to the total satisfaction received from
consuming goods and services. In other words, utility is the happiness you gain from your
decisions as a consumer.
What should be the main question a firm asks when considering any investment decision? -
answer✔✔Do the benefits of this investment outweigh the costs? For any investment, you should
expect to receive a benefit worth at least as much as the initial cost.
What is the primary aim of personal finance goals? - answer✔✔To maximize satisfaction from
products purchased and services obtained
Which task does a financial manager perform when choosing to obtain a loan to purchase a piece
of equipment for a new project?
Making credit standard decisions
Making investment decisions
Making inventory control decisions
Making financing decisions - answer✔✔Making financing decisions. The manager is deciding
where to get the funds to support a new project, which means the manager is making a financing
decision.
Which financial career focuses on investing capital into firms whose shares are not currently sold
on any public stock exchange?
Private equity
Financial planning
Insurance
Corporate finance - answer✔✔Private equity deals with investments in firms that are privately
held and whose ownership is not yet bought or sold on any public stock exchange.
Which task does a financial manager perform when assessing the costs and benefits of potential
projects?
Managing working capital
Making financing decisions
Making investment decisions
Implementing financial policies - answer✔✔Making investment decisions. Understanding how
benefits weigh up against costs is the first priority before moving forward with financing and
managerial decisions.
Three main tasks that a financial manager of a firm does in order to achieve the goal of the firm,
which is to maximize shareholder wealth. - answer✔✔making investment decisions
making financing decisions
managing working capital
How does a financial manager manage working capital - answer✔✔The manager needs pay the
firm's suppliers and many other day-to-day operations by setting its credit standards for the
customers, discussing inventories with the supply chain manager (inventory control)
What tool can you use to understand your overall personal cash flows?
Setting financial goals
Budgeting
Investing
Saving - answer✔✔Budgeting helps you to understand your income and expenses and to analyze
your cash flows.
What is a reasonable alternative to keeping an emergency stash of cash?
Investing in a savings account
Investing the money in a nicer car
Investing in high-risk growth stocks
Investing in long-term bonds - answer✔✔Investing in a savings account. Investing in a readily
withdrawable account that still earns some interest is a value-preserving alternative.
You want to buy a house, so you obtain a mortgage for which you can afford the monthly
payments. What process have you engaged in as part of your financial decision-making?
Analyzing data
Financing
Assessing
Investing - answer✔✔Financing. Part of the personal finance process is figuring out how to
finance your goals in a way that is within your means.
What area of finance involves deciding which assets to invest in to create wealth in the future?
Investments
Organizational finance
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