Chapter 1

Question 1

What are 3 divisions of the Finance Discipline?

Answer 1

• Financial Institutions
• Investment
• Business Finance

Question 2

What are 2 sources of finance?

Answer 2

• Debt

- Equity

Question 3

What are 2 sources of return

Answer 3

• Income

- Price appreciation

Question 4

Risk

Answer 4

The possibility of loss; the uncertainty that the anticipated return will not be achieved

Question 5

Leverage

Answer 5

The use of borrowed funds in return for agreeing to pay a fixed return

Question 6

What does M1 include?

Answer 6

-Coins
-Currency
Demand Deposits

Question 7

What does M2 include

Answer 7

M1 plus savings accounts

Question 8

True/False: What serves for money in France may not serve for money in another country

Answer 8

True

Question 9

True/False: US treasury creates most of the nations money supply

Answer 9

False

Question 10

The yield curve relates what?

Answer 10

Term and yield

Question 11

True/False: During the most historical periods the yield curve has been positively sloped

Answer 11

True

Question 12

Balance Sheet

Answer 12

Financial statement that shows what a bank owns vs what a bank owes

Question 13

Assets

Answer 13

Items or property that a bank owns

Question 14

Liabilities

Answer 14

What a bank owes

Question 15

Equity

Answer 15

Owners investment in a firm; a firms net worth

Question 16

Return

Answer 16

What is earned on an investment; sum of income and capital gains generated by an investment

Question 17

Valuation

Answer 17

Process of determining what an asset is really worth