Basic Key Points Flashcards

1
Q

The three main areas of finance:

A

Financial Institutions, financial markets, and financial management.

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2
Q

The two main drivers of finance

A

time value of money and risk

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3
Q

Since the value of assets changes over time, finance seeks

A

to ensure the change is beneficial for the organization or individual.

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4
Q

Financial professionals generally operate in an environment of uncertainty where

A

they must make forecasts about future events.

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5
Q

Finance is…

A

the study of how to optimally allocate assets

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6
Q

Finance is fundamentally a..

A

forward-looking field, concerned with what an asset will be worth in the future.

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7
Q

Economics is

A

the social science that analyzes the production, distribution, and consumption of goods and services.

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8
Q

Accounting is

A

the process of communicating financial information about a business. Accounting is fundamentally a backward-looking field.

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9
Q

Leverage is

A

the use of borrowed funds with a contractually determined return to increase the ability of a business to invest and earn an expected higher return (usually at high risk).

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10
Q

Maximizing shareholder value can be done over the long-term or the short-term, so the job of the finance department is to determine

A

how best to do both. Sometimes, the goals may appear to contradict each other.

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11
Q

The finance department is devoted to the task of figuring out how to allocate assets for the overarching goal of maximizing shareholder value. They must ensure

A

that the right assets are in the right place at the right time.

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12
Q

The finance department must also manage the company’s liabilities so that

A

all projects are financed in an optimal way without taking on too much risk.

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13
Q

Financial managers perform

A

data analysis and advise senior managers on profit -maximizing ideas.

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14
Q

The role of the financial manager, particularly in business, is

A

changing in response to technological advances that have significantly reduced the amount of time it takes to produce financial reports.

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15
Q

Types of financial managers include

A

controllers, treasurers, credit managers, cash managers, risk managers and insurance managers.

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16
Q

Net present value is

A

the present value of a project or an investment decision determined by summing the discounted incoming and outgoing future cash flows resulting from the decision.

17
Q

Financial managers produce

A

financial reports, direct investment activities, and develop strategies and plans for the long-term financial goals of their organization.

18
Q

The primary goal of both investment and financing decisions is to

A

maximize shareholder value.

19
Q

Investment decisions revolve around how to best allocate capital to

A

maximize their value.

20
Q

Financing decisions revolve around how to

A

pay for investments and expenses.

21
Q

Which concept describes the underlying driver behind all finance?

A

Time

22
Q

Which answer gives a definition of finance?

A

The study of fund management and asset allocation over time

23
Q

Which answer best summarizes how the fields of accounting, finance, and economics relate to each other?

A

Accounting is backwards looking, finance projects forward, and economics studies cause and effect.

24
Q

Which answer does not represent how finance is used in organizations?

A

To maximize short-term profit. (finance focuses on cash flow, not profit)

25
Q

Which factor is not something a corporation must consider when making an investment decision?

A

Whether you can accurately calculate the guaranteed return on the investment