An Introduction to Finance Concepts with Solutions

Finance Correct Answer The study of how and under what terms funds are allocated between those with excess fund and those who need funds. How can we view finance as "applied economics"? Correct Answer Economics deals with the allocation of scarce resources in an economy, whereas finance focuses on how resources are allocated and by what channels, as well as the terms of the allocation. What are the 3 primary areas of finance? Correct Answer Financial Institutions, Business (Corporate) Finance, and Investments Financial Institutions Correct Answer an entity that serves as an intermediary in the financial system. Examples of Financial Institutions Correct Answer Banks, Credit Unions, and financial firms Business Finance Correct Answer an entity that deals w/ financial decision making for a business What does financial decision making encompasses? Correct Answer investment and financing decisions, which may be short-term or long-term decisions Investments Correct Answer deals w/ financial markets and securities Examples of Business Finance Correct Answer Corporations, Sole Proprietorships, etc. Examples of Investments Correct Answer Deals w/ stocks, bonds, and other securities Financial System Correct Answer of any country provides an environment in which households provide funds to businesses and government. Financial Intermediary Correct Answer transforms the nature of the securities they issue and invest in Examples: mutual funds, pension funds, investment dealers, insurance companies Market Intermediary Correct Answer entity that facilitates the working of markets and helps provide direct intermediation; simply makes the markets work better. What are comprised of the financial system? (2 types) Correct Answer Financial and Market Intermediaries