Overview of Finance

Question 1

The study of management or the allocation of capital

Answer 1

Finance

Question 2

A financial asset or the value of an asset

Answer 2

Capital

Question 3

Most liquid current asset on the balance sheet

Answer 3

Cash

Question 4

To exchange something in hope of a return

Answer 4

Invest

Question 5

Proof of equity ownership of a firm. Gives the holder of the stock the right to vote on matters of the company and to claim to the assets of the company after debt and preferred stock holders have been paid

Answer 5

Stocks

Question 6

A fixed income financing instrument

Answer 6

Bond

Question 7

Three important areas in finance

Answer 7

Corporate Finance
Investments
Banking or Financial Institution

Question 8

Focuses on financial decision making by a firm’s management

Answer 8

Corporate Finance

Question 9

This area is devoted to understanding the various types of financial instruments, such as stocks, bonds, etc., and how to value thee instruments

Answer 9

Investments

Question 10

Intermediaries, such as banks, that link those that save to those that need to borrow

Answer 10

Financial Institution

Question 11

To pay for something

Answer 11

Finance

Question 12

Money lent by a creditor to provide financing for the borrower

Answer 12

Debt (bonds)

Question 13

Ownership in an asset such as a company

Answer 13

Equity (stocks)

Question 14

A debt instrument that is issued by the United States Government in order to raise capital

Answer 14

Treasury Securities

Question 15

The top line of the income statement

Answer 15

Revenues

Question 16

The total amount of money a business brings in before subtracting out any costs

Answer 16

Revenues

Question 17

When tax revenues fall short of covering their projects, what happens?

Answer 17

The U.S. Treasury will issue bonds

Question 18

A debt instrument that is issued by a corporation in order to raise capital

Answer 18

Corporate Bonds

Question 19

An equity instrument that is issued by a firm and represents a share of ownership in a particular company

Answer 19

Stocks

Question 20

The financial market where securities (stocks/bonds) are first sold

Answer 20

Primary Market

Question 21

A group of intermediaries that is used to oversee the issuance of stocks and/or bonds

Answer 21

Syndicate

Question 22

Who has the responsibility of determining the value of the security?

Answer 22

The Underwriter

Question 23

What are the two ways a firm can place bonds with a syndicate?

Answer 23

Competitive sale or a Negotiated Sale

Question 24

When a public goes out to raise money from the public for the first time by offering a share of its company

Answer 24

Initial Public Offering (IPO)

Question 25

The financial market where securities are traded after the initial issuance

Answer 25

Secondary Market

Question 26

Where are assets priced?

Answer 26

Markets

Question 27

A market with a physical location and where prices are determined by investors' willingness to pay

Answer 27

Auction Market

Question 28

The world's largest secondary financial market

Answer 28

New York Stock Exchange

Question 29

The New York Stock Exchange is an example of

Answer 29

An Auction Market

Question 30

A physical trading floor and a computer network where stocks are bought and sold

Answer 30

New York Stock Exchange

Question 31

A market made up from multiple dealers that hold an inventory of securities and quote prices

Answer 31

Dealer Market

Question 32

A dealer market does not require

Answer 32

A physical location

Question 33

The second largest secondary market in the world is

Answer 33

NASDAQ

Question 34

Typically, technology related companies will go public through this exchange

Answer 34

NASDAQ

Question 35

NASDAQ is an example of

Answer 35

A Dealer Market

Question 36

The ability to convert an asset to cash quickly without losing significant value

Answer 36

Liquidity

Question 37

A market maker on the New York Stock Exchange that holds an inventory of securities and acts as a liquidity provider to those that wish to buy and sell

Answer 37

Specialist

Question 38

A specialist provides

Answer 38

Liquidity

Question 39

The possibility that the realized or actual return will differ from our expected return

Answer 39

Risk

Question 40

Orders used by investors that time sensitive and are executed on a first come-first serve basis

Answer 40

Market Orders

Question 41

Orders used by investors that are executed only if market prices reach the limit price

Answer 41

Limit Orders

Question 42

Market orders are ________ sensitive

Answer 42

Time

Question 43

Limit orders are _________ sensitive

Answer 43

Price

Question 44

What are the three roles of prices?

Answer 44

Convey information to consumers Prices Affect Incentives Prices affect the distribution of income

Question 45

Another word for net income

Answer 45

Earnings

Question 46

When a company announces unexpectedly strong earnings, an efficient market will

Answer 46

build up the stock price

Question 47

How much an investor gets out of an investment divided by how much the investor put into the investment

Answer 47

Return

Question 48

What are the 2 types of returns?

Answer 48

Dollar Returns Percentage Returns

Question 49

The increase or decrease in price that is observed by an investor that buys and holds a particular security

Answer 49

Dollar Returns

Question 50

The percentage increase or decrease in price that is observed by an investor that buys and holds a particular security

Answer 50

Percentage Returns

Question 51

The degree to which prices in a market reflect all available information

Answer 51

Market Efficiency

Question 52

The goal of the firm is to

Answer 52

Maximize shareholder value

Question 53

Maximized shareholder value is usually accomplished by

Answer 53

Profitable decision-making by management Investing capital into projects that will increase the firm's stock price Avoiding those investments that cost more money than they bring in

Question 54

The business function responsible for the production of the good or service being sold

Answer 54

Operations

Question 55

Costs that are incurred when management does not act in the best interests of shareholders

Answer 55

Agency Costs

Question 56

The costs that result from the principle-agent problem

Answer 56

Agency Costs

Question 57

Most shareholders/owners have delegated the responsibility of running the day to day operations of the firm to

Answer 57

Management

Question 58

The business function responsible of generating sales

Answer 58

Marketing

Question 59

A company's marketing team may come up with an advertising campaign that might improve

Answer 59

Sales

Question 60

The top line of the income statement

Answer 60

Sales

Question 61

The total amount of money a business brings in before subtracting out any costs

Answer 61

Sales