FI 302 EXAM (UA) Study Guide
Questions with Complete Rationales
2026-2027 Updated.
What is finance? - Answer the art and science of managing money
Finance is about making decisions regarding _____ assets to buy/sell and _____ to buy/sell
these assets. - Answer what; when
What is finance͛s main objective? - Answer to make individuals and their money better off
financial intermediaries assist in the movement of money from lenders to borrowers and back
again - Answer What is the cycle of money
Why does the cycle of money make people better off? - Answer managers earn fees; firms of
securities raise capital; shareholders earn dividends and capital gains
What are the players and components of the cycle of money? - Answer lender/investor
financial intermediary
borrower
What 4 areas of finance will we study? - Answer corporate finance
investments
financial institutions/markets
international finance
What does a financial manager do? - Answer - determines the best repayment structure for
borrowed funds
- makes sure that debt obligations are met on time
- ensures sufficient funds are available for daily obligations
What is the goal of a financial manager? - Answer to maximize the wealth of the owners, the
stockholders
What are the 3 functions of financial management? - Answer - capital budgeting
- capital structure
, - working capital management
What is the basic hierarchy for a company regarding finance? - Answer ceo -> finance manager
-> treasurer, controller, investor (relations officer)
What are the 3 typical forms of business organizations? - Answer - sole proprietorship (1
owner)
-partnership (few owners
- corporation (many owners)
Why does agency conflict arise? - Answer interests of principal does not align with interests of
agent
How does agency theory minimize agency conflict? - Answer stock options help realign the
interests of the principal and agent
What are agency costs? - Answer resources spent on principal agent problems
What are some examples of agency relationships? - Answer principal = owners
agent= CEO
What is the balance sheet? - Answer represents the assets owned by the company and the
claims against those assets
What does the balance sheet contain? - Answer assets, liabilities, equity
What is the cardinal rule of the balance sheet? - Answer assets = liabilities + equity
What are the 5 balance sheet accounts? - Answer - cash
- working capital (current A - current L)
- long-term liabilities
- long-term assets (gross - AD = net)
- ownership (retained earnings: total since inception)
What is the income statement? - Answer shows expenses and revenues generated by a firm
over a past period, typically a quarter or a year
Questions with Complete Rationales
2026-2027 Updated.
What is finance? - Answer the art and science of managing money
Finance is about making decisions regarding _____ assets to buy/sell and _____ to buy/sell
these assets. - Answer what; when
What is finance͛s main objective? - Answer to make individuals and their money better off
financial intermediaries assist in the movement of money from lenders to borrowers and back
again - Answer What is the cycle of money
Why does the cycle of money make people better off? - Answer managers earn fees; firms of
securities raise capital; shareholders earn dividends and capital gains
What are the players and components of the cycle of money? - Answer lender/investor
financial intermediary
borrower
What 4 areas of finance will we study? - Answer corporate finance
investments
financial institutions/markets
international finance
What does a financial manager do? - Answer - determines the best repayment structure for
borrowed funds
- makes sure that debt obligations are met on time
- ensures sufficient funds are available for daily obligations
What is the goal of a financial manager? - Answer to maximize the wealth of the owners, the
stockholders
What are the 3 functions of financial management? - Answer - capital budgeting
- capital structure
, - working capital management
What is the basic hierarchy for a company regarding finance? - Answer ceo -> finance manager
-> treasurer, controller, investor (relations officer)
What are the 3 typical forms of business organizations? - Answer - sole proprietorship (1
owner)
-partnership (few owners
- corporation (many owners)
Why does agency conflict arise? - Answer interests of principal does not align with interests of
agent
How does agency theory minimize agency conflict? - Answer stock options help realign the
interests of the principal and agent
What are agency costs? - Answer resources spent on principal agent problems
What are some examples of agency relationships? - Answer principal = owners
agent= CEO
What is the balance sheet? - Answer represents the assets owned by the company and the
claims against those assets
What does the balance sheet contain? - Answer assets, liabilities, equity
What is the cardinal rule of the balance sheet? - Answer assets = liabilities + equity
What are the 5 balance sheet accounts? - Answer - cash
- working capital (current A - current L)
- long-term liabilities
- long-term assets (gross - AD = net)
- ownership (retained earnings: total since inception)
What is the income statement? - Answer shows expenses and revenues generated by a firm
over a past period, typically a quarter or a year
