Chapter 9.1

Question 1

What is the definition of finance?

Answer 1

The study of how and under what terms savings (money) are allocated between lenders and borrowers

Question 2

What are lenders and borrowers?

Answer 2

In their broadest sense: people/institutions that either
- have excess money to invest
- need money for some reason

Question 3

What is the key term in the definition of finance?

Answer 3

“Allocated”

Question 4

What is the similarity between finance and economics?

Answer 4

Economics studies how scarce resources are allocated in an economy

Question 5

How is finance distinct from economics?

Answer 5

Finance isn’t just about how resources are allocated; also examines under what terms and what channels allocations are made

Question 6

When does a financial contract come into existence?

Answer 6

Whenever funds are transferred

Question 7

What are financial contracts that are made when funds are transferred called?

Answer 7

Financial securities

Question 8

Why does studying finance require a basic understanding of securities, corp law, and the institutions that facilitate and monitor exchange of funds?

Answer 8

Exchanging funds (money) for pieces of paper (securities) opens up lots of opportunities for fraud