Introduction to Finance Exam 1 Study Guide – Key Concepts & Review Notes
Financial Services - ANS ✔✔the area of finance concerned with the design and delivery of
advice and financial products to individuals, businesses, and governments
managerial finance - ANS ✔✔concerned with the duties of the financial manager working in a
business
financial managers - ANS ✔✔administer the financial affairs of all types of businesses- private
and public, large and small, profit-seeking and not-for-profit
sole proprietorship - ANS ✔✔a business owned by one person and operated for his or her own
profit
partnership - ANS ✔✔a business owned by two or more people and operated for profit
corporation - ANS ✔✔an entity created by law; have legal powers of an individual in that it can
sue and be sued, make and be party to contracts, and acquire property in its own name
decision rule for financial managers - ANS ✔✔only take actions that are expected to maximize
shareholder wealth
stakeholders - ANS ✔✔groups such as employees, customers, suppliers, creditors, owners, and
others who have a direct economic link to the firm
marginal cost-benefit analysis - ANS ✔✔the economic principle that states that financial
decisions should be made and actions taken only when the added benefits exceed the added
costs
, corporate governance - ANS ✔✔refers to the rules, processes, and laws by which companies are
operated, controlled, and regulated
individual investors - ANS ✔✔investors who own relatively small quantities of shares so as to
meet personal investment goals
institutional investors - ANS ✔✔investment professionals, such as banks, insurance companies,
mutual funds, and pension funds, that are paid to manage and hold large quantities of securities
on behalf of others
principal-agency relationship - ANS ✔✔an arrangement in which an agent acts on behalf of a
principal
agency problems - ANS ✔✔arise when managers place personal goals ahead of the goals of
shareholders
agency costs - ANS ✔✔arise from agency problems that are borne by shareholders and
represent a loss of shareholder wealth
financial institutions - ANS ✔✔intermediaries that channel the savings of individuals,
businesses, and governments into loans or investments
commercial banks - ANS ✔✔institutions that provide savers with a secure place to invest their
funds and offer loans to individual business borrowers
investment banks - ANS ✔✔institutions that assist companies in raising capital, advise firms on
major transactions such as mergers or financial restructurings, and engage in trading and
market making activities
Financial Services - ANS ✔✔the area of finance concerned with the design and delivery of
advice and financial products to individuals, businesses, and governments
managerial finance - ANS ✔✔concerned with the duties of the financial manager working in a
business
financial managers - ANS ✔✔administer the financial affairs of all types of businesses- private
and public, large and small, profit-seeking and not-for-profit
sole proprietorship - ANS ✔✔a business owned by one person and operated for his or her own
profit
partnership - ANS ✔✔a business owned by two or more people and operated for profit
corporation - ANS ✔✔an entity created by law; have legal powers of an individual in that it can
sue and be sued, make and be party to contracts, and acquire property in its own name
decision rule for financial managers - ANS ✔✔only take actions that are expected to maximize
shareholder wealth
stakeholders - ANS ✔✔groups such as employees, customers, suppliers, creditors, owners, and
others who have a direct economic link to the firm
marginal cost-benefit analysis - ANS ✔✔the economic principle that states that financial
decisions should be made and actions taken only when the added benefits exceed the added
costs
, corporate governance - ANS ✔✔refers to the rules, processes, and laws by which companies are
operated, controlled, and regulated
individual investors - ANS ✔✔investors who own relatively small quantities of shares so as to
meet personal investment goals
institutional investors - ANS ✔✔investment professionals, such as banks, insurance companies,
mutual funds, and pension funds, that are paid to manage and hold large quantities of securities
on behalf of others
principal-agency relationship - ANS ✔✔an arrangement in which an agent acts on behalf of a
principal
agency problems - ANS ✔✔arise when managers place personal goals ahead of the goals of
shareholders
agency costs - ANS ✔✔arise from agency problems that are borne by shareholders and
represent a loss of shareholder wealth
financial institutions - ANS ✔✔intermediaries that channel the savings of individuals,
businesses, and governments into loans or investments
commercial banks - ANS ✔✔institutions that provide savers with a secure place to invest their
funds and offer loans to individual business borrowers
investment banks - ANS ✔✔institutions that assist companies in raising capital, advise firms on
major transactions such as mergers or financial restructurings, and engage in trading and
market making activities
