Finance 301 Exam 1 Test Questions
and Already Passed Answers.
Finance - Answer involves the management of money
-amount, time, risk
Three areas of Finance - Answer Corporate Finance- businesses
Institutions and Markets- financial markets
Investments- investors
corporate finance - Answer The activities involved in managing money in a business
environment.
institutions and markets - Answer Examines the structure of capital markets, the role of
financial institutions, the process of financial intermediation and how money flows into the
economy
investments - Answer focuses on the valuation techniques and how to value alternative
investment opportunities that are provided primarily through financial markets and institutions
Capital Markets - Answer financial markets where issuers and investors buy and sell debt and
equity securities
Companies Raise capital through... - Answer selling debt instruments
selling stocks/ equity instruments
Debt - Answer obligation to repay borrowed money
Stock - Answer represents ownership in the company
Effect of Technology - Answer made cost of transactions lower
more transactions made
,World's capital markets include a wide variety of organized exchanged where financial claims
are traded. Claim's include... - Answer debt, equity, currencies, commodities, and other
financial assets.
Economic health - Answer Gov
-level of interest rates, relative currency values, and performance of the stock markets are a
gauge of economic health
Firms
- market value of stock is ultimate indicator of performance
International deregulation of past twenty years - Answer opened new sources of capital for
companies throughout the world.
markets tend to function most efficiently in deregulated environments.
recent breakdowns in accounting and corporate governance at Enron, Worldcom, adelphia, and
Bernie Madoff ponzi schemes, and the crippling effect of the collapse of the credit markets on
the commercial and investment banking institutions has shown that regulation and oversight
are necessary to reduce corruption, greed, and fraud.
Downside of free flow of capital - Answer volatility that may be associated with it.
volatility in 2008 at unprecedented levels
-stock markets moving 3 to 5 percent per day, extremes of 10 percent.
Three Sets of Decisions - Answer The investment decision
The Financing decision
The dividend decision
The Investment decision - Answer how corporate managers should allocate funds of the
company to buy or build projects and investments that will be worth more than they cost
The Financing Decision - Answer how corporate managers should raise money from
, The Dividend Decision - Answer the percentage of the company's profits and cash from
operations that the company should reinvest in the business and how much should be returned
to the company's shareholders in the form of dividends
Net Present Value (NPV) - Answer is the value associated with investing in a project or venture.
Capital Budgeting - Answer valuation, planning, and managing of corporate investments for a
firm
Cost of Capital - Answer the cost of raising debt and equity for the business
Capital Structure Decision - Answer minimizing the cost of capital by using the right mix of
debt and equity
-is an important role for the finance function of the company
Primary Markets - Answer The original sale of securities by governments and corporations
Direct finance - Answer A flow of funds from savers to firms through financial markets, such as
the New York Stock Exchange.
Secondary Markets - Answer Securities that are bought and sold after the original sale
Liquidity - Answer the speed and ease with which an owner of a security can sell an
investment to another investor or trade it in the securities market
Indirect finance - Answer A flow of funds from savers to borrowers through financial
intermediaries such as banks. Intermediaries raise funds from savers to lend to firms (and other
borrowers).
Financial intermediation - Answer The process by financial institutions of acquiring funds and
channeling them to users of funds
Secondary Securities - Answer savings and checkings accounts, annuities, insurance policies,
pension plans, mutual funds
and Already Passed Answers.
Finance - Answer involves the management of money
-amount, time, risk
Three areas of Finance - Answer Corporate Finance- businesses
Institutions and Markets- financial markets
Investments- investors
corporate finance - Answer The activities involved in managing money in a business
environment.
institutions and markets - Answer Examines the structure of capital markets, the role of
financial institutions, the process of financial intermediation and how money flows into the
economy
investments - Answer focuses on the valuation techniques and how to value alternative
investment opportunities that are provided primarily through financial markets and institutions
Capital Markets - Answer financial markets where issuers and investors buy and sell debt and
equity securities
Companies Raise capital through... - Answer selling debt instruments
selling stocks/ equity instruments
Debt - Answer obligation to repay borrowed money
Stock - Answer represents ownership in the company
Effect of Technology - Answer made cost of transactions lower
more transactions made
,World's capital markets include a wide variety of organized exchanged where financial claims
are traded. Claim's include... - Answer debt, equity, currencies, commodities, and other
financial assets.
Economic health - Answer Gov
-level of interest rates, relative currency values, and performance of the stock markets are a
gauge of economic health
Firms
- market value of stock is ultimate indicator of performance
International deregulation of past twenty years - Answer opened new sources of capital for
companies throughout the world.
markets tend to function most efficiently in deregulated environments.
recent breakdowns in accounting and corporate governance at Enron, Worldcom, adelphia, and
Bernie Madoff ponzi schemes, and the crippling effect of the collapse of the credit markets on
the commercial and investment banking institutions has shown that regulation and oversight
are necessary to reduce corruption, greed, and fraud.
Downside of free flow of capital - Answer volatility that may be associated with it.
volatility in 2008 at unprecedented levels
-stock markets moving 3 to 5 percent per day, extremes of 10 percent.
Three Sets of Decisions - Answer The investment decision
The Financing decision
The dividend decision
The Investment decision - Answer how corporate managers should allocate funds of the
company to buy or build projects and investments that will be worth more than they cost
The Financing Decision - Answer how corporate managers should raise money from
, The Dividend Decision - Answer the percentage of the company's profits and cash from
operations that the company should reinvest in the business and how much should be returned
to the company's shareholders in the form of dividends
Net Present Value (NPV) - Answer is the value associated with investing in a project or venture.
Capital Budgeting - Answer valuation, planning, and managing of corporate investments for a
firm
Cost of Capital - Answer the cost of raising debt and equity for the business
Capital Structure Decision - Answer minimizing the cost of capital by using the right mix of
debt and equity
-is an important role for the finance function of the company
Primary Markets - Answer The original sale of securities by governments and corporations
Direct finance - Answer A flow of funds from savers to firms through financial markets, such as
the New York Stock Exchange.
Secondary Markets - Answer Securities that are bought and sold after the original sale
Liquidity - Answer the speed and ease with which an owner of a security can sell an
investment to another investor or trade it in the securities market
Indirect finance - Answer A flow of funds from savers to borrowers through financial
intermediaries such as banks. Intermediaries raise funds from savers to lend to firms (and other
borrowers).
Financial intermediation - Answer The process by financial institutions of acquiring funds and
channeling them to users of funds
Secondary Securities - Answer savings and checkings accounts, annuities, insurance policies,
pension plans, mutual funds
