Basic Key Points

Question 1

The three main areas of finance:

Answer 1

Financial Institutions, financial markets, and financial management.

Question 2

The two main drivers of finance

Answer 2

time value of money and risk

Question 3

Since the value of assets changes over time, finance seeks

Answer 3

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

Question 4

Financial professionals generally operate in an environment of uncertainty where

Answer 4

they must make forecasts about future events.

Question 5

Finance is…

Answer 5

the study of how to optimally allocate assets

Question 6

Finance is fundamentally a..

Answer 6

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

Question 7

Economics is

Answer 7

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

Question 8

Accounting is

Answer 8

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

Question 9

Leverage is

Answer 9

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).

Question 10

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

Answer 10

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

Question 11

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

Answer 11

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

Question 12

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

Answer 12

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

Question 13

Financial managers perform

Answer 13

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

Question 14

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

Answer 14

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

Question 15

Types of financial managers include

Answer 15

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

Question 16

Net present value is

Answer 16

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.

Question 17

Financial managers produce

Answer 17

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

Question 18

The primary goal of both investment and financing decisions is to

Answer 18

maximize shareholder value.

Question 19

Investment decisions revolve around how to best allocate capital to

Answer 19

maximize their value.

Question 20

Financing decisions revolve around how to

Answer 20

pay for investments and expenses.

Question 21

Which concept describes the underlying driver behind all finance?

Answer 21

Time

Question 22

Which answer gives a definition of finance?

Answer 22

The study of fund management and asset allocation over time

Question 23

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

Answer 23

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

Question 24

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

Answer 24

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

Question 25

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

Answer 25

Whether you can accurately calculate the guaranteed return on the investment