D076 Test + Quizzes VERIFIED

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 - 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? - 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 - Investment institution. Investment institutions provide individuals and firms access to financial markets. A mutual fund - 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 Private equity Investment banks - Pension funds specialize in retirement funds. Which type of economic indicator is the consumer price index? Lagging indicator Leading indicator Coincident indicator - 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 - 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 - 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 - To maximize owner wealth. The financial manager should make decisions based on the primary goal of maximizing owner wealth. Utility - 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? - 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? - 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 - 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 - 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 - 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. - making investment decisions making financing decisions managing working capital How does a financial manager manage working capital - 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 - Budgeting helps you to understand your income and expenses and to analyze your cash flows.